On 16th March the Chancellor, George Osborne gave his Budget Report 2016
During his speech he made it clear that this was “a Budget that backs small business”. In addition to cutting the corporation tax rate to 17% in 2020, he announced a business rates overhaul and a CGT cut that allows entrepreneurs to keep more of their gains.
Here’s our brief summary on the areas most likely to have an impact on our clients.
- As expected, Osborne raised the lower threshold for income tax to £11,500 and the higher threshold to £45,000 – a larger increase than expected. These new thresholds will come into effect in April next year (2017).
- More surprising was the cut in Capital Gains Tax. The basic rate CGT was cut from 18% to 10%, with the higher rate cut from 28% to 20%.
- Osborne also announced that Class two National Insurance contributions will be abolished, which will give self-employed workers a tax cut of more than £130 when it comes into force in 2018.
- It wasn’t all cuts, however. Insurance premium tax was increased from 9.5% to 10%. This increase will be used to fund improvements in flood defenses.
- The headline relates to Corporation Tax being cut to 17%.
- But other good news for small businesses: the annual threshold for 100% small business rate relief increased from £6,000 to £12,000.
- Osborne also pledged to raise £12bn using “anti-tax avoidance and evasion measures” but did not elaborate on what those measures were.
- Use of ‘personal service companies’ by public sector employees to reduce tax liabilities will also end.
- He promised tax-free allowances of £1,000 a year for ‘micro-entrepreneurs’ – individuals selling products or renting property online through sites such as AirBnB.
- The government will increase the VAT registration threshold in line with inflation to £83,000 from 1 April 2016.
Modernising tax collection
- At the March 2015 Budget the government committed to transform the tax system through digital technology and end the need for annual tax returns. Spending Review and Autumn Statement 2015 announced a major investment in HMRC to deliver this. To make further progress towards this transformation, the Budget announces that:
- From 2018 businesses, self-employed people and landlords who are keeping their records digitally and providing regular digital updates to HMRC will if they wish be able to adopt pay-as-you-go tax payments – this will enable them on a voluntary basis to choose payment patterns that suit them and better manage their cashflow
- The government will explore options to simplify the tax rules for businesses, landlords, and the self-employed, to reduce administrative burdens and ensure that regular digital updates work smoothly
- Individuals and businesses should be able to get the help and support they need from HMRC, when they need it. Investment of £71million to improve the service is planned and will deliver:
- A 7-day a week service by 2017, with extended hours and Sunday opening on online services and the tax and tax credits phone lines, so that people and businesses have more opportunity to contact HMRC outside of working hours
- Improved telephone services and reduced call waiting times by recruiting over 800 new staff into HMRC call centres
- A dedicated phone line and online forum for new businesses and self-employed individuals to get help and support about filing and paying their taxes for the first time, and on the transition to using digital services
The government will introduce a statutory exemption from income tax and National Insurance for qualifying trivial benefits-in-kind costing £50 or less. If the employee is a director there will be an annual cap of £300 on the amount of benefits that can be regarded as trivial.
Travel and subsistence expenses rules
In September 2015 the government published a discussion document aimed at modernising the tax rules for travel and subsistence (T&S). The government has analysed responses and concluded that, although complex in parts, the current T&S rules are generally well understood and work effectively for the majority of employees and has decided not to make further changes to the T&S rules at this time.
The government will introduce legislation in Finance Bill 2016 to restrict tax relief for home to work travel and subsistence expenses for workers engaged through an employment intermediary.
As announced at Summer Budget 2015, the government will abolish the Dividend Tax Credit 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. (Finance Bill 2016)
Loans to participators
In line with the dividend tax, the government will increase the loans to participators tax rate from 25% to 32.5%, keeping it aligned with the higher rate of tax charged on dividend income. The new rate will apply to loans made or benefits conferred by close companies on or after 6 April 2016.
The Employment Allowance,
Which reduces the cost of employer National Insurance contributions will increase to £3,000 from April 2016 but has been withdrawn from single person companies.
For the full Budget Report 2016 report visit https://www.gov.uk/government/publications/budget-2016-documents/budget-2016