The Budget announcements that happened in March have left many of us with mixed emotions and some unaware of what it means for their business. Here is a simple breakdown of the Budget 2016 and the relevant key points that could or will affect your business this year.
Dividend tax changes
New £5,000 tax free dividend allowance is to be introduced with increased rates of dividend tax thereafter.
The amount an individual can earn before having to pay income tax is increasing to £11,000 and we expect this to rise to £11,500 in April 2017, according to an announcement made by George Osborne.
Income Tax Higher Rate increase
The Higher rate income tax threshold is due to rise from £43,000 to £45,000 in April 2017.
Corporation Tax is due to remain at 20% however the chancellor is committed to reducing this rate to 17% by 2020.
VAT Registration Threshold
The threshold for VAT Registration will rise to £83,000 from April 1st 2016.
Director’s Loan Accounts
If a Director’s Loan is not repaid within 9 months it is currently subject to a 25% tax charge – this rate will increase to 32.5% in April 2016.
A Personal Savings Allowance will be introduced for the 2016/17 tax year, meaning those who pay basic rate tax (earning less than £43,000 a year) won’t have any tax charged on the first £1,000 of savings interest. Higher rate taxpayers are still entitled to the new scheme, but for them the threshold is £500.
The Chancellor also announced in the 2016 Budget the introduction of new Lifetime ISAs. The Lifetime ISA allows those under 40 years old to save up to £4,000 annually plus they will receive a 25% top-up from the Government. The regular ISA limit will also rise to £20,000. Both these measures will go live in April 2017.
Employers can currently reduce their Employer National insurance bill by £2,000 through claiming employment allowance; this is set to rise to £3,000.
Making Tax Digital
For those who enjoy keeping their tax details up-to-date, the Government is looking to introduce “pay-as-you-go” tax accounts with flexible payment rules. Potentially meaning tax can be paid as soon as the income is received, moving tax payments for the self-employed closer to those of PAYE employees. Development of these services is expected to continue through 2016.
Class 2 National Insurance contributions (NICs) for self-employed people will be abolished.
Self employed individuals currently have to pay Class 2 NI (which is £2.80 per week) and also Class 4 NIC on profit £8060 per year. From April 2018, the class 2 NI will be abolished and self employed individual will only pay Class 4 NI on their profits.
Support following the recent Budget announcements
If you need further advice following the proposed changes announced by George Osborne, you can contact our office today and we would be more than happy to answer any queries you may have.