One of the most notable announcements in this years’ Summer Budget was the introduction of a compulsory National Living Wage.
The new National Living Wage of £7.20 per hour will take effect from April 2016, being a top-up of 50p per hour to the National Minimum Wage (£6.70) for those employees aged 25 and over. The National Living Wage is set to increase each year, eventually hitting £9.00 per hour by 2020.
You may want to consider the cost implications of this for your business and importantly you may need to be aware that employees cannot make a ‘salary-sacrifice’ which takes them below the hourly minimum (£7.20) and you therefore may need to reconsider any existing or future sacrifice arrangements.
While many have been calling for the introduction of a ‘Living Wage’ for some time, it’s important to recognise the difference between the Chancellor’s’ newly announced National Living Wage and the Living Wage that is voluntarily paid by some employers.
The ‘other’ Living Wage that is talked about is calculated according to the basic costs of living in the UK by the Living Wage Foundation. There are two rates, a UK rate which is £7.85 and a London rate which is currently £9.15. Employers can choose to pay the Living Wage on a voluntary basis.
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.
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.
Income tax personal allowance to rise to £11,000 in April 2016
New National Living Wage from April 2016
Future cut in Corporation tax to 18%
Annual Investment Allowance set to £200,000 from Jan 2016
Permanent non-dom status abolished from April 2017
Employment Allowance increased to £3,000 from April 2016
Pension tax relief annual allowance to be reduced from next year
Summer Budget 2015 Summary
The Chancellor’s Summer Budget 2015 contained some important announcements and confirmed a number of changes planned for the new tax year. Following this, we have put together a Budget Summary PDF which contains the latest tax and financial information, which we trust you will find useful.
There is also a handy Tax Data Card for 2015/16, giving details of all the allowances and limits you’ll need to know. You can download both the PDFs for free via the links below:
Our summary goes into more detail on all of the points raised in the budget, aimed to give you a clearer picture of the announcements and how the changes will affect you and your business. however, as always, if there is anything you would like to discuss, please do not hesitate to contact us on 01872 271655 or via email at firstname.lastname@example.org