Finance Bill 2015 Explanatory Notes Clauses 1 to 50 15 July 2015 © Crown copyright 2015 You may re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit http://www.nationalarchives.gov.uk/doc/o pengovernment-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or e-mail: [email protected]. Any queries regarding this publication should be sent to us at: public.enquiries@hm- treasury.gov.uk. FINANCE BILL 2015 EXPLANATORY NOTES INTRODUCTION EXPLANATORY NOTES INTRODUCTION 1. These explanatory notes relate to the Finance Bill 2015 as introduced into Parliament on 14 July 2015. They have been prepared jointly by the HM Revenue & Customs and HM Treasury in order to assist the reader in understanding the Bill. They do not form part of the Bill and have not been endorsed by Parliament. 2. The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So, where a section or part of a section does not seem to require any explanation or comment, none is given. FINANCE BILL 2015 RESOLUTION 2 CLAUSE 1 Clause 1: Income tax lock Summary 1. This clause sets out that that the basic, higher and additional rates of income tax will not increase above 20%, 40% and 45% for the duration of this Parliament. Details of the clause 2. Subsection 1 sets out that the basic, higher and additional rates of income tax will not increase above 20%, 40% and 45% for the duration of this Parliament. This will apply to non-savings income in England, Wales and Northern Ireland and UK-wide savings income as expressed in Section 6(1) of the Income Tax Act 2007. Background note 4. This tax lock has been introduced to meet the commitment made by the government that it will not increase the income tax rates for the duration of this Parliament. 5. Income tax is imposed annually by Parliament. The table below sets out the main rates and rate limits for 2015-16. Income tax bands of taxable income (£ per year) Rate Tax year 2015-16 Tax year 2016-17 Tax year 2017-18 Basic rate £0 – 31,785 £0 – 32,000 £0 – 32,400 Higher rate £31,786 – 150,000 £32,001 – 150,000 £32,401 – 150,000 Additional rate Over £150,000 Over £150,000 Over £150,000 FINANCE BILL 2015 CLAUSE 2 Clause 2: VAT lock Summary 1. This clause provides that the standard and reduced rates of VAT will not rise for the duration of the VAT lock period. It also locks the relevant provisions to prevent them being used to remove any goods/services from the zero rate of VAT and reduced rate of VAT for the duration of the VAT lock period. Details of the clause 2. Subsection (1) provides that the standard rate of VAT currently in force under section 2 of the Value Added Tax Act 1994 (VATA) shall not exceed 20% during the VAT lock period. 3. Subsection (2) provides that the reduced rate of VAT currently in force under section 29A of VATA shall not exceed 5% during the VAT lock period. 4. Subsection (3) prevents goods/services specified in Schedule 7A (supplies subject to the reduced rate) from being removed from that schedule through use of the power in section 29A(3) during the VAT lock period. 5. Subsection (4) prevents goods/services specified in Schedule 8 (supplies subject to the zero rate) from being removed from that schedule through use of the power in section 30(4) during the VAT lock period. 6. Subsection (5) defines the VAT lock period. The VAT lock period will begin on the day that this Act receives Royal Assent and will end immediately before the date of the first parliamentary general election after that day. Background note 7. The clause provides that the rates of VAT will not rise and that the relevant provisions will be locked to prevent them being used to decrease the scope of the zero rate and reduced rate during the VAT lock period. This will be good for consumers. 8. This clause will not prevent a change to scope being made by primary legislation if that is required, for example following a court or tribunal decision or in response to infraction by the EU Commission. FINANCE BILL 2015 RESOLUTION 23 CLAUSES 3 AND 4 Clauses 3 and 4: Personal allowance and national minimum wage Summary 1. Clause 3 changes the basis of indexation for the income tax personal allowance from the Consumer Prices Index (CPI) to linking to an annual equivalent of an individual working 30 hours per week at the national minimum wage (NMW) adult rate when the personal allowance reaches £12,500. 2. Clause 4 sets out that until the personal allowance reaches £12,500, before the Chancellor announces any proposal to increase the personal allowance he must consider the financial effect of the increase on an individual working 30 hours per week on the adult rate of NMW and make a statement. Details of the clauses Clause 3: Personal allowance and the national minimum wage 3. Subsection (1), (2) and (3) replaces the consumer prices index (CPI) with the national minimum wage (NMW) in section 35(1). It applies in a tax year when the personal allowance is more than £12,500 and sets out that the personal allowance will be linked to the annual equivalent of the NMW at the adult rate for an individual working 30 hours per week. Where this applies, the increased amounts must be set in a Treasury Order before the start of the tax year. Clause 4: Personal Allowance and the national minimum wage: Chancellor's duties 4. Subsection (1) applies where the personal allowance is less than £12,500. 5. Subsection (2), (3) and (4) sets out that before the Chancellor announces any proposal to increase the personal allowance he must consider the financial effect of the increase in the personal allowance on an individual working 30 hours per week on the adult rate of NMW and make a statement. 6. Subsection (5) sets out that this clause ceases to have effect when the personal allowance is £12,500 or more. Background note 7. This change reflects the government's objective to support and rewards individuals in work. It also provides additional certainty about the level of personal allowances. FINANCE BILL 2015 RESOLUTION 23 CLAUSES 3 AND 4 8. Finance Act 2014 changed the basis of indexation for income tax allowances and limits from the retail prices index (RPI) to the consumer prices index (CPI). Income tax personal allowances, the basic rate limit, the starting rate limit for savings and the adjusted net income limit are currently increased each year by the annual percentage increase in the CPI (“indexation”). 9. Clause 3 changes the indexation of the personal allowance to increase in line with the annual equivalent of 30 hours a week at the national minimum wage adult rate. This will take place once the personal allowance has reached £12,500. 10. Where this applies, the increased amounts must be set in a Treasury Order before the start of the tax year. 11. Clause 4 sets out that before the start of each tax year where the personal allowance is less than £12,500, before the Chancellor announces any proposal to increase the personal allowance he must consider the impact of the level of personal allowance on an individual working 30 hours per week on the national minimum wage at the adult rate, and make a statement. 12. The Summer Budget 2015 announced that the amount of the personal allowance will be set at £11,000 for the 2016-17 tax year and £11,200 for 2017-18. FINANCE BILL 2015 RESOLUTION 23 CLAUSE 5 Clause 5: Personal allowance from 2016 Summary 1. This clause sets the income tax personal allowance for the 2016-17 and 2017-18 tax years. Details of the clause 2. Subsection (a) and (b) sets the amount of the personal allowance for 2016-17 at £11,000 and 2017-18 at £11,200. Background note 3. The government has an objective to raise the personal allowance to £12,500 by the end of this Parliament. 4. 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 5. The amount of the personal allowance for those born before 6 April 1938 is fixed at £10,660. Finance Act 2015 increased the personal allowance to £10,800 for 2016-17, so it removed 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. Clause3 changes the indexation of the personal allowance from CPI to increase in line with the annual equivalent of 30 hours a week at the national minimum wage where the adult rate for individuals over the age of 21 will apply. This change will take place once the personal allowance has reached £12,500. FINANCE BILL 2015 RESOLUTION 23 CLAUSE 6 Clause 6: Basic rate limit from 2016 Summary 1. This clause sets the income tax basic rate limit for the 2016-17 and 2017-18 tax years.