Chartered Management Accountants

2016 Budget Report

The UK 2016 Budget

What is being done to help businesses a quick summary from the Budget Report

The key announcement for businesses included:

Corporation Tax

The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, the lowest in the G20. It will now be cut again to 17% in 2020, benefitting over 1 million businesses.

Business Rates

From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates.

Currently, this 100% relief is available if you’re a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less.

There will be a tapered rate of relief on properties worth up to £15,000. This means that 600,000 businesses will pay no rates.

Capital Gains Tax

From April 2016, the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate from 18% to 10%.

There will be an additional 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).

Capital Gains Tax on residential property does not apply to your main home, only to additional properties (for example a flat that you let out).

Trading online

There are 2 new allowances of £1,000 for online trading and renting out property via sharing economy websites.

Employers Allowance

The employment allowance is £3,000 but there is a restriction on it being used by single person companies.

Personal Allowance

The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017.
The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.

Class 2 National Insurance

Currently, self-employed people have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay Class 4 NICs if their profits are over £8,060 per year.

From April 2018, they will only need to pay one type of National Insurance on their profits, Class 4 NICs.

Paying Class 2 NICs currently enables self-employed people to build entitlement to the State Pension and other contributory benefits.

After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.

Stamp Duty

The way stamp duty on freehold commercial property and leasehold premium transactions is calculated will change. Currently, these rates apply to the whole transaction value. From 17 March 2016 the rates will apply to the value of the property over each tax band.

The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.

Buyers of commercial property worth up to £1.05 million will pay less in stamp duty.

Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.

There will be a 3% surcharge on Buy to Lets.

Dividends

From April 2016 you’ll pay tax on any dividends you receive over £5,000 at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

This simpler system will mean that only those with significant dividend income will pay more tax.

The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.

Travel for Contractors

Under the new rules certain groups of workers will no longer be able to claim tax relief on travel and subsistence expenses, specifically:

  • Those employed via umbrella companies (employment intermediaries).
  • If you personally provide services to another person.
  • The draft legislation confirms that limited company contractors are not affected by this new restriction, except for any contract work they carry out which is caught by the IR35 rules.

Trivial Benefits

From the April 2016 a trivial benefits exemption will become law and set at limit on the benefit of £50 per employee per benefit.

There will be an annual cap of £300 for directors and other office holders of close companies and members of their families and households who are employees of the company.

Its designed for seasonal gifts, flu jabs, small gifts, flowers etc.

  1. It can’t be cash, or cash vouchers.
  2. The employer must bear the cost (salary exchange won’t work)
  3. It must not be in recognition of services or part of a contractual agreement

Loans to Participators

The rate of tax charged on loans to participators and other arrangements (currently 25%) is being specifically linked to the dividend upper rate, which will be 32.5% from 6 April 2016.

Lifetime ISA

The Budget announced that from 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in.

Edinburgh Office:

Phone: 0131 516 3885
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Bonnington Bond,
2 Anderson Place,
Edinburgh,
EH6 5NP
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info@stuartfergusonaccountants.co.uk

Falkirk Office:

Phone: 01324 632500
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Office 10,
16 Melville Street
Falkirk
FK1 1 HZ
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info@stuartfergusonaccountants.co.uk