Budget 2016 – Overview for Small Business

Lots changes have been announced recently in the last couple of budgets for small business and the budget in March 2016 added a bit more for the small business to consider and adapt to. Here is a summary of the Budget announcements.

Limited Companies

  • Corporation tax will be reduced to 17% by 2020 (currently 20%) this adds to the already announced cut to 19% from 1st April 2017
  • Directors Loans not repaid within 9 months of the Company year end will attract an increased tax charge of 32.5% (currently 25%) for loans on or after 6th April 2016 – This applies to “Close Companies” ie Companies with fewer than 5 Directors.
  • Dividends will be taxed at 7.5% after the first £5,000 tax free allowance has been exceeded from April 2016 (previously free of tax), if the income goes into higher rate tax then the dividend will be taxed at 32.5% (same as before)

Sole Trader – Partnership Businesses – Personal Allowances

  • Class 2 National Insurance payments will no longer be paid from April 2018 (currently £2.80 per week) only Class 4 National insurance payments will be made which are calculated in your self assessment tax return in line with your profits.
  • The personal tax free allowance will be increased to £11,500 for the tax year 2017/18 (this year £11,000)
  • The higher rate threshold will be £33,500 for the tax year 2017/18 (this year £32,500) This means that you will be able to earn a total of £45,000 before hitting the higher rate tax threshold (£43,000 this year)
  • A new allowance has been introduced whereby you can earn £1,000 from “occasional jobs”  either property income such as renting a driveway or trading income from April 2017 and you will not need to declare this or pay tax on that income.
  • From 2018 you will have the ability to opt for pay as you go tax in line with the new digital tax system which will  oblige self employed individuals to provide quarterly updates on their expenditure and income via a digital submission. This new digital tax will see the end of the annual tax return and a move towards needing to report your income and expenditure through an electronic platform such as cloud bookkeeping. Full details yet to be confirmed.

Business in General

  • Business rate relief has been doubled – permanently, from 1st April 2017 and the government will raise the small business rate relief to rateable values of up to £12,000 tapering to £15,000.
  • For a company car to qualify for 100% first year allowance the emissions have been reduced to 50g/km (currently 75 g/km) from 1st April 2018.  The capital allowance threshold for cars to receive the higher allowance has been cut from 130k/km to 110k/gm.
  • Trivial benefits in kind (benefits to staff under £50) will not need to be reported to HMRC from 6th April 2016.
  • From April 2018 employers who have their employment terminated, (redundancy) payments over £30,000 will now attract National Insurance charge where there was previously none.
  •  VAT registration threshold has gone up to £83,000 from April 2016 (currently £82,000)
  • HMRC is looking to offer support on Sundays from 2017 in readiness for supporting small businesses who will need to convert to the new quarterly digital tax system in 2018.

Landlords

  • The wear and tear allowance is no longer available from April 2016 and is replaced with actual costs allowed re replacing furniture with the usual receipted evidence of purchase.
  • Landlords will be obliged to report their income via the new quarterly digital tax system in 2018 if their income is over £10,000 per year.

Other

  • Insurance premium tax increases from 9.5% to 10% from 1st October 2016

Personal

  • A new lifetime ISA will be introduced in April 2017, anyone under the age of 40 will be able to save up to £4,000 each year and for every £4 you save the government will give you £1. The government bonus will be added until the person reaches 50. This pot of money can then be used after 12 months towards buying a first home or as a pension pot to help self employed save for retirement
  • ISA limits will be increased to £20,000 from April 2017 (currently £15,000)
  • The personal tax free allowance will be increased to £11,500 for the tax year 2017/18 (this year £11,000)
  • The higher rate threshold will be £33,500 for the tax year 2017/18 (this year £32,500) This means that you will be able to earn a total of £45,000 before hitting the higher rate tax threshold (£43,000 this year)
  • Capital Gains Tax has been reduced from April 2016 from 28% for higher rate tax payers to 20% and for standard rate tax payers from 18% to 10%