EXPLANATORY NOTES EXPLANATORY EXPLANATORY NOTES ─ FINANCE ACT FINANCE ACT 2015 Finance Act 2015 Chapter 11 Published by TSO (The Stationery Office) and available from: Online www.tsoshop.co.uk Mail, Telephone, Fax & E-mail TSO PO Box 29, Norwich, NR3 1GN Telephone orders/General enquiries: 0870 600 5522 Fax orders: 0870 600 5533 E-mail: [email protected] Textphone: 0870 240 3701 The Houses of Parliament Shop 12 Bridge Street, Parliament Square London SW1A 2JX £29.75 Telephone orders/General enquiries: 020 7219 3890 Fax orders: 020 7219 3866 Email: [email protected] Internet: http://www.shop.parliament.uk TSO@Blackwell and other Accredited Agents These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 FINANCE ACT 2015 —————————— EXPLANATORY NOTES INTRODUCTION 1. These explanatory notes relate to the Finance Act 2015 that received Royal Assent on 26 March 2015. They have been prepared jointly by the HM Revenue & Customs and HM Treasury in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament. 2. The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So, where a section or part of a section does not seem to require any explanation or comment, none is given. 3. Terms used in the Act are explained in these notes where they first appear. Hansard references are provided at the end of the notes. 1 These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 SECTION 1: CHARGE AND RATES FOR 2015-16 SUMMARY 1. This section provides for income tax and sets the main rates for 2015-16. DETAILS OF THE SECTION 2. Subsection (1) provides for income tax for 2015-16. 3. Subsection (2) sets the main rates of income tax for 2015-16. BACKGROUND NOTE 4. Income tax is an annual tax. It is for Parliament to impose income tax for a year. 5. This section imposes the charge to income tax for 2015-16. It also sets the main rates of income tax for 2015-16: the 20% basic rate, the 40% higher rate and the 45% additional rate. 2 These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 SECTION 2: LIMITS AND ALLOWANCES FOR 2015-16 SUMMARY 1. This section sets the amount of blind person’s allowance, the minimum amount of married couple’s allowance and married couple’s allowance for 2015-16. It also sets the income limits, above which the higher personal allowance for those born before 6 April 1938 begin and the married couple’s allowance begin to be withdrawn. DETAILS OF THE SECTION 2. Subsection (1) sets the amount of the income limits, blind person’s allowance, the minimum amount of married couple’s allowance and married couple’s allowance for 2015- 16. 3. Subsection (2) disapplies the indexation provisions for the amounts in subsection (1). BACKGROUND NOTE 4. From 2015-16, the basis of indexation for income tax allowances and rate limits is the consumer prices index (CPI). For 2015-16, this section sets the amount of the income limits, blind person’s allowance, minimum amount of married couple’s allowance and married couple’s allowance at the equivalent of indexation based on the retail prices index (RPI) instead of CPI. 3 These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 SECTION 3: PERSONAL ALLOWANCES FOR 2015-16 SUMMARY 1. This section sets the income tax personal allowance for 2015-16 for those born after 5 April 1938 at £10,600 and the amount of the transferable allowance for married couples and civil partners at £1,060. DETAILS OF THE SECTION 2. Subsection (2) sets the amount of the personal allowance for those born after 5 April 1938 at £10,600. 3. Subsection (3) makes an amendment to the indexation provisions on the omission of the personal allowance for those born after 5 April 1938 but before 6 April 1948 with effect from 2015-16. 4. Subsection (4) sets the amount of the transferable tax allowance for married couples and civil partners at £1,060 5. Subsection (5) provides that the amendments made by subsections (3) and (4) have effect for the 2015-16 tax year and subsequent tax years. BACKGROUND NOTE 6. Finance Act 2014 provides that from 2015-16 there are two personal allowances available by reference to an individual’s date of birth: one for those born after 5 April 1938 and one for those born before 6 April 1938. It also set the amount of the personal allowance for those born after 5 April 1938 at £10,500 for 2015-16, which this section increases to £10,600. 7. Finance Act 2014 inserted sections 55A to 55E into the Income Tax Act 2007 which provide for the transferable tax allowance for married couples and civil partners, effective from 2015-16. These provisions set the transferable amount at £1,050 for 2015-16 and 10% of the personal allowance for those born after 5 April 1938 thereafter. This section substitutes £1,060 for £1,050 for the transferable amount for 2015-16. 4 These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 SECTION 4: BASIC RATE LIMIT FROM 2016 SUMMARY 1. This section sets the income tax basic rate limit for 2016-17 and 2017-18. DETAILS OF THE SECTION 2. Subsection (1) sets the amount of the basic rate limit for 2016-17 and 2017-18. 3. Subsection (2) disapplies the indexation provisions. BACKGROUND NOTE 4. Finance Act 2014 sets the basic rate limit at £31,785 for 2015-16. Finance Act 2015 sets the basic rate limit at £31,900 for 2016-17 and £32,300 for 2017-18. 5 These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 SECTION 5: PERSONAL ALLOWANCE FROM 2016 SUMMARY 1. This section sets the income tax personal allowance for 2016-17 and 2017-18 and removes the personal allowance for those born before 6 April 1938. DETAILS OF THE SECTION 2. Subsection (1) sets the amount of the personal allowance for 2016-17 and 2017-18. 3. Subsection (2) disapplies the indexation provisions. 4. Subsection (4) removes the date of birth qualification for the personal allowance provided by section 35 of the Income Tax Act 2007. 5. Subsection (5) omits the personal allowance for those born before 6 April 1938. 6. Subsections (6) to (10) remove references to the personal allowance for those born before 6 April 1938. 7. Subsection (11) provides that the amendments made by subsections (3) to (10) have effect for the 2016-17 tax year and subsequent tax years. BACKGROUND NOTE 8. Finance Act 2014 provides that from 2015-16 there are two personal allowances available by reference to an individual’s date of birth: one for those born after 5 April 1938 and one for those born before 6 April 1938. It also set the amount of the personal allowance for those born after 5 April 1938 at £10,500 for 2015-16, which Finance Act 2015 increases to £10,600. 9. The amount of the personal allowance for those born before 6 April 1938 is fixed at £10,660. This section increases the personal allowance to £10,800 for 2016-17, so it also removes the personal allowance for those born before 6 April 1938. The effect is that from 2016-17 everyone, regardless of their date of birth, is entitled to the same personal allowance. 6 These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 SECTION 6: CHARGE FOR FINANCIAL YEAR 2016 SUMMARY 1. This section charges corporation tax (CT) for the financial year beginning 1 April 2016 and sets the main rate at 20%. DETAILS OF THE SECTION 2. Subsections (1) and (2) charge and set the main rate of CT for the financial year beginning 1 April 2016. BACKGROUND NOTE 3. Parliament charges and sets the main rate of CT for each financial year. This section charges CT and sets the main rate at 20% for the financial year beginning 1 April 2016. 7 These notes refer to the Finance Act 2015 (c.11) which received Royal Assent on 26 March 2015 SECTION 7: CARS: THE APPROPRIATE PERCENTAGE FOR 2017-18 SUMMARY 1. This section modifies the appropriate percentage bands by revising the appropriate percentages for cars (including those registered before 1 January 1998 and those without a registered CO2 emissions figure). This increases the level of chargeable benefit for company car tax for employees and of Class 1A National Insurance contributions (NICs) for employers. The amendment has effect on or after 6 April 2017. DETAILS OF THE SECTION 2. Subsection (1) introduces changes to Chapter 6 of Part 3 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 (taxable benefits: cars, vans and related benefits) which increase the appropriate percentage for cars for the tax year 2017-18. 3. Subsection (2) introduces the changes to section 139 ITEPA 2003. 4. Subsection (3) increases the appropriate percentage for cars. Subsection (4) increases the appropriate percentage of the relevant threshold (95 grammes per kilometre) from 16% to 18%. (The relevant threshold is the approved CO2 emissions figure upon which all calculations and bandings of the appropriate percentage are based).