The good, the bad and the ugly
In the first Budget by a wholly Conservative government since 1996 the Chancellor made use of this freedom to announce some tough and radical changes.
Rather than regurgitate everything the Chancellor said we have tried to pick out some of the points that will have the most immediate impact on our client base.
These are the areas that you most frequently talk to us about and which provide the greatest potential gains and, unfortunately the biggest headaches.
National Living Wage
A national living wage is being introduced for all workers aged over 25, starting at £7.20 an hour from April 2016 with a target of £9 by 2020. This will clearly have a major impact on payroll costs because both NICs and workplace pension contributions will rise too.
At the same time the National Insurance employment allowance for small firms will be increased by 50% to £3,000 from 2016 to help mitigate the impact of the living wage. This does not apply to Class 2 and Class 4 contributors such as the self-employed or freelancers.
Corporation tax will be cut to 19% in 2017 and 18% in 2020 which is particularly positive for our limited company clients but may not help smaller companies offset the national living wage.
Dividend tax credit to be replaced with a new tax-free allowance of £5,000 on dividend income with increasing rates of dividend tax set at 7.5% (20% taxpayers), 32.5% (40% tax payers) and, the top rate, 38.1%. Some commentators have highlighted that the increased gap between the top rate of dividend tax and capital gains tax (which remains 28%) could encourage some business owners to sell up.
Tax relief reduced on private rental properties will be reduced to 20% over a 4 year period starting in April 2017. In addition property investors will lose the right to automatically claim 10% of the rent against wear-and-tear costs. From April next year, landlords will only be able to deduct costs they actually incur.
The Annual Investment Allowance will be fixed permanently at £200,000 from January 2016, which is an improvement on the original proposal of £25,000.
New VED bands for cars registered after April 1 2017 will be introduced. In the first year of registration there will be a special rate linked to a vehicle’s specific carbon emissions followed by a 3 band system – zero, standard and premium. The Chancellor suggested that 95% of car owners will pay standard £140 a year, although existing vehicles will continue to pay at their current rate.
For those of you doing a lot of business travel you be pleased to note that there will be no rise in fuel duty this year.
Tax Free Allowance
The Tax Free Personal allowance will rise to £11,000 and the 40p tax rate to £43k in 2016. The government’s target is for Tax Free Allowance to go up to £12,500 by 2020.
The amount people can contribute annually to their pension tax-free to be reduced for individuals with incomes over £150,000. A tapered allowance structure reduce relief by £1 for every £2 of income. At income levels of £210,000 and above the tax allowance will be capped at £10,000.
The Inheritance tax threshold will increase to £1m from April 2017 for married couple passing on the family home.
A Word of Warning
A sting in the tail from the Budget was the announcement that £7.2bn is being targeted in a clampdown on tax avoidance and tax evasion with HMRC budget increased by £750m. £2bn of the total is expected to come from a crackdown on SMEs, public bodies and individuals classed as “affluent”. Could it be time to invest in the Lewis Smith & Co. Fee Protection Service?
If the Summer Budget raises any questions in your mind about your company or personal tax position then talk to Lewis Smith & Co. today. You can arrange a confidential, no-obligation discussion with one of our experts by calling 01384 235549 or emailing firstname.lastname@example.org
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