Budget 2016

Our thoughts on the Chancellor’s Budget

Overall, the economic outlook given by the Office of Budget Responsibility was downgraded, with the data supporting the view that the wider world economy is uncertain. We continue to see the key challenges to businesses in the coming 12-24 months being the ability to accommodate the introduction of the national living wage, along with the cost of meeting pension contribution responsibilities under auto-enrolment and the increase in personal taxation via the dividend tax.

Read on for our view of the key announcements that could affect you and your business. If you would like to discuss any of the issues in more detail, please don’t hesitate to contact us.

Class 2 National Insurance

As previously announced the government plans to abolish Class 2 NICs are moving ahead and this has been announced as effective from April 2018. Class 4 contributions will ensure entitlement to state pension, so it is unclear as yet, whether low earning self-employed workers may need to pay the more expensive class 3 voluntary contibution to gain their qualifying years.

New tax allowances for micro property and trading income

A welcome move designed to remove reporting requirements for very small businesses earning (turnover) less than £1,000 from trading activities and/or less than £1,000 from property income. This will remove the requirements for these micro businesses to register for tax at all! Hoorah! There is also the option for businesses exceeding this to deduct a flat £1,000 as opposed to calculating their exact expenses.

Corporation Tax

The government announced that this will be reducing to 17% in 2020 as opposed to the 18% previously announced.

Tax evasion and avoidance

The government continues to work on closing loopholes and has announced measures to focus on disguised remuneration; it is particularly looking at personal service companies in the public sector and is making the public body or agent responsible for recruitment responsible for ensuring that tax is paid under IR35 rules.

Overdrawn Loan Accounts

Perhaps unsurprisingly the tax rate on these has been increased to 32.5% from April 2016 which is equivalent to the additional dividend tax ensuring that the governments position is not worsened as a result of overdrawn loan accounts.

Personal allowances & basic rate thresholds

Further increases in personal allowances were announced with increases to £11,500 in 2017/2018 from £11,000 in 2016/2017 announced previously. It’s helpful to remember that the transferrable allowance continues, allowing spouses or civil partners to transfer £1,060 their personal allowance to their spouse – providing that both are not liable to income tax above the basic rate. In addition, further increases were announced to the basic rate threshold with this increasing to £45,000 in 2017/2018 from the £43,000 in April this year. The government retains it’s commitment to work toward £12,500 and £50,000 respectively by the end of parliament.

Small Business Rate Relief

This has now been extended so that businesses with a property rateable value of up to £12,000 will get 100% relief and those with a rateable value between £12,000 and £15,000 will get tapered relief from April 2017. In addition there will be an increase in the threshold for the standard business rates multiplier to £51,000.

Capital Gains reductions

Budget 2016 announces that, from 6 April 2016, the higher rate of Capital Gains Tax (CGT) will be reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%. However, these rates will not apply to gains on residential property which will continue to be taxed at higher rates. This will ensure that CGT provides an incentive to invest in companies over property. Private Residence Relief will continue to ensure that an individual’s main home is not subject to CGT.
In addition, entrepreneurs’ relief will be extended to long term investors in unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.

Other points that may affect you or your business

  • Fuel duty will continue to be frozen
  • The government introduced a ‘lifetime ISA’ to enable those under 40 to save for either their first home or for retirement planning. There will be a bonuse of £1 for every £4 saved from the government providng it is used for this purpose.
  • The ISA limit will increase to £20,000 from April 2017
  • National Minimum wage for those 21-24 will increase to £6.95 from October 2016 (£5.55, £4.00, £3.40 respectively for other age brackets) there will be further amendments in April 2017.
  • Redundancy packages over £30k will be subject to Employer’s NICs
  • Review of salary sacrifice schemes to limit benefits that attract tax and NI advantages
  • VAT registration threshold increased to £83,000 from April 2016

If you would like to discuss any of the issues above in more detail, please get in touch.

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