Monthly Archives: March 2016

Budget 2016 – Summary

George Osborne presented the 2016 Budget on Wednesday 16 March 2016.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2016-7 tax year and beyond.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

Main Budget proposals

  • The personal allowance for tax will increase to £11,500 from 5 April 2017. (It will be £11,000 for the 2016-7 tax year).
  • The higher rate tax threshold will be £45,000 for 2017-8 (£43,000 for 2016-17).
  • Class 2 National Insurance will be abolished from 6 April 2018.
  • There will be a new ‘Lifetime ISA’ to help adults under the age of 40 save towards buying their first home or for their retirement.
  • Capital gains tax rates will fall to 10% for basic rate tax payers and 20% for higher rate tax payers – but the old rates of 18 and 28% will continue to apply for the sale of residential property not qualifying as your personal private residence.
  • Corporation tax rates will fall to 17% from 1 April 2020 (Current: 20%, 1 April 2017: 19%).
  • There will be new £1,000 allowances for trading and property income from 5 April 2017.

A reminder of key changes announced previously

  • Basic rate tax payers will have a £1,000 tax free savings allowance from April 2016.  Higher rate tax payers will have a £500 allowance.  Those paying the additional rate (income over £150,000) will not benefit from the allowance at all.
  • The deduction of tax on interest at source by bank and building societies will cease from April 2016.
  • ISAs will become more flexible – if you take money out, you can reinvest it within the same tax year without losing the tax free status.
  • From 6 April 2016, employers with apprentices under the age of 25 will no longer be required to pay employers National Insurance contributions (NI) on earnings up to the upper earnings limit, for those employees.
  • There will be a new dividend tax allowance of £5,000 per annum from 6 April 2016.  Above that, there will be new rates of tax on dividends of 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
  • Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate – the changes will be phased in from April 2017.
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Budget 2016 – Corporate and Business Tax

Corporation tax rates

As announced previously, corporation tax will fall to 19% from 1 April 2017.  It was then due to fall to 18% from 1 April 2020, however, a further reduction to 17% from 1 April 2020 was announced in this Budget.

Class 2 National Insurance (NI)

Class 2 National Insurance (paid at a weekly flat rate by the self employed) is currently paid via direct debit or bi-annual bills.

The Chancellor announced that Class 2 NI will be abolished from 6 April 2018.

There will be a consultation on the reform of Class 4 NI (paid on trading profits).

New allowances for propety and trading income

From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one income from property.

The new allowances will mean that individuals with property income below £1000 or trading income below £1000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance from their gross income.

Dividend tax

A reminder that the new Dividend Tax Allowance of £5,000 a year will start from 6 April 2016 and the new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Loans to Participators

In simple terms, these are loans from a limited company to its director/shareholders.

Tax is due on any balances not repaid within 9 months of the company year end.  From 6 April 2016, the tax rate will increase from 25% to 32.5% to mirror the higher rate of dividend tax.

Business rates

Small business rates relief was doubled from 50% to 100% and the threshold increased from £6,000 to £12,000.

This means that businesses occupying property with a rateable value of £12,000 and below pay no business rates.  Those with a rateable value of between £12,000 and £15,000 will receive tapered relief.

The threshold for the standard business rates multiplier will be increased to a rateable value of £51,000.

Employment Intermediaries and tax relief for travel and subsistence

The government will introduce legislation in Finance Bill 2016 to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary.

Budget 2016 – Personal tax

Tax rates

There were no changes to rates of income tax announced in the Budget.

Allowances and tax bands

The tax allowances and bands for 2016-7 had been announced previously, as a reminder: the personal allowance will be £11,000, with the income on which you start to pay tax at 40% increasing to £43,000.

This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1100L taking effect in April 2016.

Watch out if you have significant dividend income – HMRC are trying to include it in your tax code to collect the tax earlier.  You don’t have to pay the tax through PAYE (especially if you complete a tax return anyway) – they will amend the code if asked.

Other allowance levels can be found on the HMRC web site here.

The Chancellor announced in the Budget that the personal allowance for 2017-8 will increase to £11,500, with the 40% band starting at £45,000.

From 6 April 2016, there will be one income tax personal allowance regardless of an individual’s date of birth – ie there will be no higher allowances for older people.

Marriage Allowance

A reminder that the Marriage Allowance started from 6 April 2015.  This allows a spouse or civil partner to transfer £1,060 (£1,100 for 2016-7) of their personal allowance to their spouse (where both were born after 5 April 1935).  Neither party can be higher or additional rate tax payers.

The Marriage Allowance is set at 10% of the personal allowance.

This is mainly aimed at situations where one partner is a non-tax payer and the other pays tax at 20%.  However, it may also have benefits where one partner has a salary of less than the tax threshold and dividend income taxable at 10% and the other has income, such as PAYE income, taxable at 20% (eg, shareholder-directors taking a salary of the lower NI limit plus dividends within the 20% band).

Savings

A reminder that the personal savings allowance starts from 6 April 2016.  This will remove tax on up to £1,000 of savings income for basic rate tax payers and up to £500 for higher rate tax payers.  Additional rate tax payers will not receive an allowance.

Tax will no longer be deducted at source on interest paid by banks and building societies.

ISAs

The ISA limit will increase from £15,240 to £20,000 from 6 April 2017.

The Lifetime ISA

A new ‘Lifetime ISA’ will be introduced from 6 April 2017.  This will allow adults under 4o to open a Lifetime ISA and pay in up to £4,000 per annum.  The government will add a 25% bonus to the ISA, so, up to £1,000.

Contributions can continue up to the age of 50.

Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.

Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government, and an additional 5% charge will be applied if the withdrawal is not for the purchase of your first home.

There will be further consultations as to whether savers will be allowed to borrow against the saved money.

Help to Save

Prior to the Budget, the government announced a new Help to Save scheme for those on low incomes.

The scheme will be open to adults in receipt of Universal Credit with household earnings equivalent to 16 hours at the National Living Wage, or working tax credit.

A 50% bonus will be added on up to £50 per month of savings in a Help to Save account, paid after two years with the option to save for further two years.

Bad debt relief for peer to peer loans

A reminder that tax relief will be allowed for bad debts incurred on peer to peer loans against other peer to peer income.

Tax-free childcare

The tax-free childcare scheme first announced in the 2013 budget will be rolled out from early 2017.  Parents of the youngest children will enter the scheme first, with all eligible parents brought in by the end of 2017.

The scheme will be worth up to £2,000 per child (under the age of 12) each year (£4,000 for disabled children).

The existing scheme Employer-Supported Childcare will remain open to new entrants until April 2018 to support the transition between the schemes

Tax Credits

There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.

There were no changes to tax credits announced in the Budget 2016.   The rates of payments remain the same as 2015-6, apart from a reduction in the income rise disregard from £5,000 to £2,500,  and can be found at here.

Child Benefit

There were no changes announced to child benefit in Budget.  Rates for 2016-7 will remain at £20.70 for the first child and £13.70 for subsequent children.

A reminder that rules came in on 7 January 2013 for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

Landlords

A reminder of some announcements from the Summer Budget 2015:

Tax relief on interest

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

  • in 2017-8 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
  • in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
  • in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
  • from 2020-1 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Wear and tear allowance

From April 2016, the replace the Wear and Tear Allowance (a deduction of 10% of the rent for landlords of furnished properties) with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.

Rent a room

Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property, will increase from £4,250 to £7,500 per year from 6 April 2016.

Budget 2016 – Employment Issues

National Insurance Contributions (NI)

No changes to the rates of income based NI contributions were announced in the Budget.

Class 2 NI will remain at £2.80 per week for 2016-7.

The Chancellor announced that Class 2 NI will be abolished from 6 April 2018.

The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) will remain the same at £155 and £156 per week, respectively.

The upper earnings (or profits for the self employed) limit is £43,000 (£827 per week), aligned with the point at which 40% tax becomes payable.

Details of the rates of NI can be found here.

Abolition of employers National Insurance contributions for apprentices aged under 25

A reminder that, from 6 April 2016, every employer with apprentices under the age of 25 will no longer be required to pay Class 1 secondary National Insurance contributions (NICs) on their earnings up to the upper earning limit (UEL), for those employees.

Employer’s Employment Allowance

The employment allowance will increase from £2,000 per annum to £3,000 per annum from 6 April 2016.

It will, however, cease to be available for companies where the director is the sole employee.

Minimum wage

A reminder that the new National Living Wage starts from 1 April 2016.  This means that all workers over the age of 25 have to be paid at least £7.20 per hour.

The National Minimum Wage currently increases on 1 October every year.  This will be brought into line with the Living Wage, so both rates are amended in April from 2017.

The Minimum Wage rates from 1 October 2016 will be:

  • 21 to 24 year olds increased from £6.70 to £6.95 per hour
  • 18 to 20 year olds increased from £5.30 to £5.55 per hour
  • 16 to 17 year olds increased from £3.87 to £4.00 per hour
  • apprentices increased from £3.30 to £3.40 per hour

Trivial Benefits in Kind

From 6 April 2016 there will be a statutory exemption from tax and national insurance for qualifying trivial benefits in kind (BIKs) costing £50 or less.  There will be an annual cap of £300 for office holders of close companies (which would include the directors of most owner managed businesses), and employees who are family members of those office holders.   Those affected by this cap will be able to receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax.

Other changes to Benefits in Kind

The small earnings threshold of £8,500 that exists for benefits in kind will be abolished for employees from 6 April 2016.  This means that benefits in kind must be reported, and tax and employer’s national insurance paid, for all benefits provided to employees, not just those earning over £8,500 per annum.

Note: The exemption never applied for directors, so those paying themselves the lower NI limit, which is less than £8,500, already have to report and pay tax on any benefits

National insurance on termination payments

From April 2018 employers will now need to pay National Insurance contributions on pay-offs (for example, termination payments) above £30,000 where Income Tax is also due.

For people who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay National Insurance on any of the payment.

 

Budget 2016 – Pensions

The lifetime allowance will be reduced to £1 million (previously £1.25 million) from 6 April 2016.  The allowance will be indexed by inflation from 2018.

The annual allowance remains at £40,000.

Previous changes to pensions
A reminder that, from April 2015, significant changes happened to introduce more flexibility into how money can be drawn from pension pots.
You can find an outline of the new rules here.

Employer provided pensions advice

Legislation will be introduced to introduce a new income tax exemption and a corresponding National Insurance disregard for financial advice on pensions for the first £500 of the cost of provision, where the advice is arranged by the employer. This will come into effect from 6 April 2017.

Pensions Advice Allowance

The government will consult on allowing people to withdraw £500 tax free, before the age of 55, from their defined contribution pension to redeem against the cost of financial advice

 

Budget 2016 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits have been increased with effect from 1 April 2016 to £82,000 and £80,000 respectively

Budget 2016 – Capital Gains Tax

The capital gains tax (CGT) annual exempt amount will remain at £11,100 for 2016-7 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is £5,550.

For capital gains above the annual exempt amount the CGT rate for basic and higher rate tax payers will reduce from 18 and 28 per cent respectively to 10 and 20 per cent respectively.

Gains on residential properties (not qualifying as your personal private residence) and carried interest (the share of profits or gains that is paid to asset managers) will remain at the old rates.

 

Budget 2016 – Motoring Costs

Fuel prices

Fuel duty was frozen again.

Business mileage payments

HMRC sets an approved mileage allowance payment (AMAP) rate. This is the rate at which employers may reimburse business mileage tax-free.

The AMAP rate will remain at 45p for the first 10,000 miles per annum and 25p per mile for any excess.

Company Cars

Car benefit

Car benefits are based on a percentage of the list price of the car.  The percentage depends on the CO2 emissions of the vehicle.Rates through to 2019-20 were announced in the Budget.
As usual, there will be increase to the percentages, so that a higher percentage is payable for each CO2 band each year.  The highest rate remains at 37%.
For example, a zero emission car has a benefit rate of 5% for 2015-6.  This increases to 7% for 2016-7, 9% for 2017-8, 13% for 2018-9 and 16% for 2019-20.
Van benefit

The van benefit in kind charge will increased from £3,150 to £3,170 for 2016-7.The van benefit for zero emission vans will be 20% of the charge for conventionally fuelled vans for 2016-7 and 2017-8.  This will increase to 40% for 2018-9, 60% in 2019-20, 80% in 2010-1 and 90% 9on 2021-2.  From 2022-3, the charge will be the same at that for conventionally fuelled vans.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £22,200 (from £22,100) with effect from 6 April 2016.

The van fuel benefit charge multiplier will be £598 (increased from £594) for 2016-7.

Budget 2016 – Other Matters

Inheritance tax (IHT)

There was no change to the Inheritance tax threshold of £325,000, which was frozen until 2020-1 in the Summer Budget last year.

The Chancellor also announced in the Summer Budget that a £175,000 allowance would be phased in for passing on the family home on death, meaning that, effectively, the first £1m of a couple’s estate could be passed on free of inheritance tax.

An additional nil-rate band will be introduced for when a residence is passed on death to a direct descendant. This will be £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21.   It will then increase in line with Consumer Prices Index (CPI) from 2021-22 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The existing nil-rate band will remain at £325,000 from 2018-19 until the end of 2020-21

Stamp Duty (SDLT – stamp duty land tax)

Non-Residential Properties

SDLT on commercial properties will be updated to brings its calculation more into line with that for residential properties.

Currently, no SDLT is paid on commercial properties up to £150,000, but at £150,001, the whole purchase price becomes liable to stamp duty at 1%, so would have had £1,500 to pay.

From midnight tonight, SDLT will be paid on the proportion of the purchase price falling within each band, with the new rates for freehold properties being:

Transaction Value Band Rate
£0 – £150,000 0%
£150,001 – £250,000 2%
£250,000 + 5%

So, at £150,001, SDLT will be due on £150,000 at the 0% and £1 at 2%, so there would be nothing to pay (rounding the tax down), saving £1,500.

Second Homes

As announced in the Autumn Statement, there will be a new 3% surcharge on the purchase of second homes from 1 April 2016.

This will apply to all second homes (it was originally proposed that there would be an exemption for large scale property investors),  and also to all purchases of residential property by a limited company.

Purchasers will have 36 months (rather than 18 months as originally announced) to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence. Purchasers will also have 36 months between selling a main residence and replacing it with another without having to pay the higher rates

Sugar Levy

A new sugar levy will be introduced on soft drinks with added sugar, starting in 2018.

Parental Leave

The Government announced that it will launch a consultation in May 2016 on how to extend Shared Parental Leave and Pay to working grandparents.

Insurance Premium Tax (IPT)

IPT will increase from 9.5% to 10% from 1 October 2016.