Further to the Chancellor’s recent Summer Budget, some of the key headlines for our small and medium businesses are as follows:
- The Annual Investment Allowance has been set at £200k from 1 January 2016 for an indefinite period, giving businesses a chance to plan their capital expenditure.
- The rate of corporation tax will be reduced to 19% from April 2017 and to 18% from April 2020;
- Corporation tax relief will be removed from companies who write off the cost of goodwill purchased on or after 8 July 2015.
- Dividends paid out of company profits will see a change in the way they are taxed in the recipient’s hands; from April 2016 the dividend tax credit will be abolished and a new dividend tax allowance of £5,000 a year will be introduced. Dividend income above this allowance will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Payroll and National Insurance
- The annual Employment Allowance for National Insurance Contributions will be increased from £2,000 to £3,000 from April 2016. However, companies where the director is the sole employee will no longer be able to claim this allowance.
- The National Minimum Wage (NMW) for employees over 21 will increase from 1 October 2015 to £6.70 per hour; from April 2016 a new National Living Wage (in the form of a premium on top of the NMW) will be introduced for workers aged 25 and above, initially set at £7.20 per hour, it is expected to rise to over £9 by 2020.
- The personal allowance is set to rise from £10,600 in 2015-16 to £11,000 in 2016-17 and to £11,200 in 2017-18.
Other key proposals
- Farmers will be allowed to average their incomes for tax purposes over five years rather than two from April 2016.
- From 6 April 2017, landlords will no longer be able to deduct all of their finance costs from their residential property income, they will instead receive a basic rate deduction from their income tax liability for their finance costs.
- Rent-a-room relief will be increased from April 2016 from £4,250 to £7,500.
- Inheritance tax nil-rate band (NRB) will remain frozen at £325,000 until April 2021; with an additional NRB for the main residence if passed to a direct descendant of maximum value £100,000 in 2017/18, rising £25,000 per year until it is £175,000 in 2020/21. This NRB cannot exceed the value of the property, and is tapered away to £nil for estates exceeding £2m in value. Any unused residence NRB can be transferred to the surviving spouse
- From April 2017, IHT will be payable on all UK residential property owned by non-domiciles including property held indirectly through an offshore structure.
- From April 2016, the Government will introduce a taper to the Annual Allowance (the limit of tax relieved pension saving that can be made by an individual or their employer each year) for those with adjusted annual incomes (including their own and employer’s pension contributions) of over £150k;
- From April 2017, anyone who has been resident in the UK for more than 15 of the past 20 tax years will be deemed UK-domiciled for VAT tax purposes and be liable to UK tax on their worldwide income and assets;
- Government to consult on improving the effectiveness of IR35 legislation to counter disguised employment.