Budget 2016

Chancellor George Osborne delivered an interesting Budget speech earlier today which contained some real surprises.  With a clear ‘act now so we don’t pay later’ message, he promised to provide long term solutions to help lower taxes for businesses, create more jobs and make Britain ‘fit for the future’.

So what do today’s announcments mean for you and your business?

Budget update for individuals

Personal Allowance increase

The income tax personal allowance will increase from the current level of £10,600 to £11,000 in 2016/17 and to £11,500 in 2017/18.

Higher rate threshold increase

The higher rate threshold will increase from the current level of £42,385 to £43,000 in 2016/17 and to £45,000 in 2017/18.

Employment Allowance

The employment allowance will increase from April 2016 from £2,000 to £3,000 per year saving employers National Insurance.

Property and trading income allowances

From April 2017, a new £1,000 allowance for property income and a £1,000 allowance for trading income will be introduced. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income.

Taxation of termination payments

From April 2018, the income tax exemption for termination payments will be tightened to prevent manipulation. Termination payments over £30,000 which are subject to income tax will also be subject to employer National Insurance contributions.

Amendments to finance costs restriction for landlords

Relief for finance costs on residential properties will be restricted to the basic rate of income tax, gradually introduced from 6 April 2017.

Reform of the wear and tear allowance

From April 2016 the Wear and Tear Allowance will be replaced with a new relief that allows residential landlords to deduct the actual costs of replacing furnishings.

Insurance Premium Tax (IPT)

The standard rate of IPT will be increased from 9.5% to 10% with effect from 1st October 2016.

Capital Gains Tax

The higher rate of Capital Gains Tax (CGT) will reduce from 28% to 20% and the basic rate from 18% to 10%. The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property. These changes will take effect for disposals made on or after 6 April 2016.

Lifetime ISA and ISA limit

A new Lifetime ISA will be available from April 2017 for adults under the age of 40. They will be able to contribute up to £4,000 per year, and receive a 25% bonus from the government. Funds, including the government bonus, from the Lifetime ISA can be used to buy a first home at any time from 12 months after the account opening, and be withdrawn from age 60. The overall annual ISA subscription limit will be increased to £20,000 from 6 April 2017.

Reduction of Pensions Lifetime Allowance

As announced at Budget 2015, the Lifetime Allowance will reduce from £1.25 million to £1 million, effective from April 2016.

Budget update for those in business

Self-employed:

Abolishing Class 2 National Insurance contributions (NICs) 

Class 2 National Insurance (NI) paid by the self-employed will be abolished from April 2018. Class 2 NI is currently £2.80 per week for those with profits over £5,965.

Limited companies:

Corporation tax to 17% in 2020

The corporation tax rate will reduce to 19% from 1 April 2017 and then to 17% from 1 April 2020.

Dividends tax

The Dividend Tax Credit will be abolished from April 2016 and introduce a new Dividends Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Loans to participators

The tax rate for loans to participators will increase from 25% to 32.5%, keeping it aligned with the higher rate of tax charged on dividend income.

Corporation tax: reform of loss relief

From April 2017 losses arising on or after 1 April 2017 will be useable, when carried forward against profits from other income streams or other companies within a group.

Small Business Rate Relief

The government will raise the SBRR threshold in England to rateable values of up to £12,000 tapering to £15,000 from 1 April 2017.

Stamp Duty Land Tax (SDLT): reform of non-residential rates

SDLT on freehold and leasehold premium non-residential will change so that the rates that apply to the portion of the purchase price within each band.

The new rates and thresholds will ensure the portion of the transaction value up to £150,000 is charged at a rate of 0%, the portion between £150,001 and £250,000 is charged at a rate of 2%, and the portion over £250,000 is charged at a rate of 5%.

SDLT on non-residential leasehold rent transactions, where the rates already apply to the portion of the purchase price within each band, will be reformed to include a new 2% rate for leasehold transactions with a Net Present Value over £5 million. These changes will take effect on and after 17 March 2016.

Fuel duty

The main rate of fuel duty for petrol and diesel will remain frozen at 57.95 pence per litre in 2016-2017.

National Minimum Wage rates

The National Minimum Wage rates from October 2016. This includes:

  • a 3.7% increase in the rate for 21 to 24 year olds (from £6.70 to £6.95 per hour)
  • a 4.7% increase in the rate for 18 to 20 year olds (from £5.30 to £5.55 per hour)
  • a 3.4% increase in the rate for 16 to 17 year olds (from £3.87 to £4.00 per hour)
  • a 3.0% increase in the rate for apprentices (from £3.30 to £3.40 per hour)
  • a 12.1% increase in the accommodation offset (from £5.35 to £6.00 a day)

Under the National Living Wage, announced last year, workers over 25 will receive a minimum of £7.20 an hour from April 2016.

Other

Soft drinks industry levy

A new soft drinks industry levy will be introduced to be paid by producers and importers of soft drinks that contain added sugar. The levy will be charged on volumes according to total sugar content, with a main rate charge for drink above 5 grams of sugar per 100 millilitres and a higher rate for drinks with more than 8 grams of sugar per 100 millilitres.

Making Tax Digital

From 2018 businesses, self-employed people and landlords who are keeping records digitally and providing regular digital updates to HMRC will be able to adopt pay-as-you-go tax payments. This will enable them to choose payment patterns that suit them and better manage their cash flow. The government will also explore options to simplify the tax rules for these groups. The government will consult on these measures in 2016 alongside publishing detailed proposals for other elements of the Making Tax Digital programme announced previously.

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