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The Budget Highlights

 

I have kept this simple…it was a very small budget, less than a third normal size, and as far as I can see the pertinent points for you are:

 

  • Income Tax – As previously announced, the personal allowance will be raised to £11,500 and the higher rate threshold to £45,000 from April 2017.
  • National Insurance – The main rate of Class 4 National Insurance contributions to increase from 9% to 10% in April 2018 and 11% in April 2019.
  • Dividends – The tax-free dividend allowance for shareholders will be reduced from £5,000 to £2,000 from April 2018.
  • ISAs – As previously announced, the annual ISA allowance will increase to £20,000 from April 2017.
  • Corporation Tax – Mr Hammond confirmed the level of corporation tax will fall, as was previously announced, to 19%  for years beginning  1 April 2017 and then 17% in 2020.

 

In my opinion, this is a poor budget in many ways.

As you recall, dividend tax was changed last year. Up to that point you could get £43000 out of your business tax free…then the government hit us with  the new rules- a £5000 free allowance, the rest at 7.5%-that little trick cost each of us just over £2000 in extra tax.

That £5000 allowance lasted one year! It is now £2000, costing us an EXTRA £225!

Last year the budget hit landlords hard…the wear and tear allowance (10% of rents) is now gone…you now have to claim the actual cost of replacement of goods.

Add that on to the gradual elimination of relief for interest paid on the property (That has GOT to be illegal) and you have a bit of a double whammy.

As for you self employed out there, a 2% hike on national insurance will hit hard.

Any light at the end of the tunnel?  Corporation tax relief is welcome, certainly.

This is not a political blog…but come on…I did not expect this form a conservative government. The landlord tax is in my opinion illegal and the National insurance changes are in direct contravention of the electoral promises. Hammond says the  Self employed tax “corrects” some of the discrepancies between employed and self employed…however self employed get NONE of the benefits of paternity pay, maternity pay, Annual holiday allowance or redundancy! It is all a bit disingenuous if you ask me.

As normal I am here for your questions…I just need  a little time to work through this ever changing scenario!

Budget 2016 – Key points for small businesses

 

At 1.30pm on Wednesday 16 March, 2016, George Osborne delivered his eighth Budget as Chancellor of the Exchequer.

The overall headlines include the introduction of a sugar tax on soft drinks from 2017, extra funding for schools to have longer days and a downward revision of growth forecasts for the UK, but what did Budget 2016 bring for small businesses?

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Here are the main points that affect business owners, both self-employed and limited company directors;

 

For businesses

  • Corporation tax to be cut from the current 20%, to 17% by 2020.
  • Class 2 National Insurance Contributions to be abolished for sole traders from April 2018. Move will save around 3 million self employed workers £130 per year.
  • Annual threshold for small business rates relief to be raised from £6,000 to £15,000 Higher rate threshold also increased from £18,000 to £51,000. Chancellor estimates this means some 600,000 small businesses will pay no business rates at all from April 2017, with a further 250,000 businesses benefiting from a rates cut.
  • Public sector employees to be prevented from using “personal service companies” to cut their tax liabilities.
  • Commercial stamp duty 0% rate on purchases up to £150,000, 2% on next £100,000 and 5% top rate above £250,000. New 2% rate for high-value leases with net present value above £5m. Effective from midnight 16 March, 2016.
  • Closure of corporate tax loopholes to raise £9bn, and anti-tax avoidance and evasion measures to raise a further £12bn from big businesses by 2020.

 

For individuals

  • Personal tax-free annual allowance to rise from £10,500 to £11,000 for 2016/17 tax year, and to increase to £11,500 for 2017/18.
  • Threshold at which individuals begin paying the higher rate of tax to be raised from £42,385 to £43,000 in April 2016 and to £45,000 in April 2017.
  • Capital Gains Tax (CGT) is being cut  from April 2016. The rate of Capital Gains Tax paid by higher rate taxpayers will be cut to 20%, from 28%, with the CGT rate for basic rate taxpayers falling to 10%, from 18%. However, residential property will not benefit from the new lower rates of CGT.
  • Annual tax-free ISA limit to be increased to £20,000 from April 2017.
  • Introduction of a new “Lifetime ISA” for the under-40s. For every £4 saved, the Government will add a further £1. People can save up to £4,000/yr until they reach 50 years of age.
  • Fuel duty to be frozen.

 

Budget Round Up 2016

With all the political grandstanding and scaremongering over the EU referendum, it was easy to forget that the Chancellor, George Osborne, had a Budget to deliver this week.

It was his fourth Budget statement in 12 months and, with businesses still reeling from the previous three, business support organisations were calling for some calm. The British Chambers of Commerce urged “a steady approach that gives businesses, individuals, and Government itself the time needed to work through existing commitments and reforms”.

This was echoed by Mike Cherry, policy director of the Federation of Small Businesses: “In the face of a number of emerging global and domestic pressures, small businesses are looking to the Chancellor to back them through what are set to be challenging times ahead.”

However, this was always going to be easier said than done. The Office for Budget Responsibility is expected to reduce its Budget surplus forecast for 2019-20, with weaker growth and lower tax revenues. If the Chancellor is to stick to his Budget deficit plans, he needs to find money from somewhere.

So what plans did the Chancellor lay out to keep his economic plan on track?

  • Income tax: higher rate threshold to increase to £45,000 from April 2017.
  • Personal tax-free allowance: increasing to £11,500 from April 2017.
  • National Insurance: Class 2 NICs to be abolished for the self-employed from April 2018.
  • VAT: registration threshold to increase to £83,000 from April 2016.
  • Corporation tax: will fall to 17% by 2020.
  • Capital Gains Tax: from April 2016 the main rate will be cut from 28% to 20% and the rate for basic rate tax payers will be cut from 18% to 10%. There will be an 8% surcharge on residential property and interest paid to asset managers.
  • Digital Tax Accounts: the self-employed and landlords who keep their records digitally and who submit regular digital updates to HM Revenue & Customs will be able to opt to pay tax on a ‘pay-as-you-go’ basis from April 2018.
  • Business rates: businesses with a rateable value up to £12,000 will pay no business rates from April 2017. There will be tapered rate relief for properties with rateable values between £12,000 and £15,000.
  • Business rates: London will be able to retain 100% of all business rates collected to reform core services and invest in long-term growth in the capital. Similar schemes will be piloted in Greater Manchester and Liverpool.
  • Stamp duty: new bands to be introduced for commercial properties with immediate effect. The commercial property stamp duty regime will be aligned with residential property stamp duty, which is paid on the proportion of the property’s value falling within each band. The portion of a property’s price up to £150,000 will attract a 0% charge, the portion of its price between £150,001 and £250,000 will attract a 2% charge and amounts over £250,000 will attract a 5% charge.
  • Stamp duty: new 2% rate for leasehold rental transactions with a value over £5 million.
  • Business losses: the amount of profit that can be offset by losses that have been carried forward will be restricted to 50% for profits in excess for £5 million from April 2017.
  • National Minimum Wage: the hourly rates of NMW will increase from October 2016 to £6.95 per hour for 21 to 24-year olds; to £5.55 per hour for 18 to 20-year olds; to £4.00 per hour for 16 and 17-year olds and to £3.40 per hour for apprentices.
  • New tax-free allowances: it will be possible to earn up to £1,000 per year from ‘occasional jobs’ without paying any tax. This includes income from selling goods you have made, providing services or relating to income from property you own (such as renting a driveway).
  • Employee Shareholder Status: there will be a new lifetime limit of £100,000 on gains eligible for capital gains exemption through ESS for agreements entered into on or after 17 March 2016.
  • SME access to finance: the Government has set out a £1bn commitment to support SMEs through the Business Bank. The first loans are expected in spring 2016. They have also confirmed the extension of the Enterprise Finance Guarantee programme until at least 2018.
  • Insurance Premium Tax: increasing by 0.5% from 1 October 2016.
  • Capital Allowances: the capital allowance main rate threshold for cars will be reduced to 110 grams of CO2 per kilometre and the First Year Allowance threshold will be reduced to 50 grams of CO2 per kilometre from April 2018.
  • First Year Allowances: extended for a further three years until 2021 for businesses purchasing low-emission cars.
  • Fuel duty: frozen for the 6th year running.
  • Termination payments: employers will have to pay National Insurance Contributions on pay-offs such as termination pay-offs over £30,000 from April 2018 where tax is also due.
  • ISA allowance: increasing to £20,000 per year from April 2017 (up from £15,240). There will also be a new Lifetime ISA which will allow savers under the age of 40 to save up to £4,000 per year. The Government will add a 25% bonus to the money saved.
  • Climate Change Levy: increasing from April 2019 to replace the Carbon Reduction Commitment, which will be abolished after the 2018-19 compliance year.

 

Photo Credit: Uprising.org

Photo Credit: Middlesbrough Means Business

Dividends are still more tax-efficient

 

Dividends are still more tax-efficient

As an owner-manager, you should be paying yourself a mixture of salary and dividends. Unfortunately, this will soon become more expensive in tax terms.

As a shareholder in your own company, you are probably (or should be) paying yourself using a mixture of salary and dividends. Unfortunately, this will become slightly more expensive in tax terms from next April.

Currently, the effective rates of tax on dividends are:

  • Basic rate taxpayers – 0%
  • Higher rate taxpayers – 25%
  • Additional rate taxpayers – 30.6%

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Dividend tax is technically higher than this but, once the related tax credit is taken into account, these are rates of tax that you actually pay.

Dividends received by pension funds that are currently exempt from tax, and dividends received on shares held in an Individual Savings Account (ISA), will continue to be tax free.

As a basic rate taxpayer, you can therefore pay yourself £38,952 during 2015-16 (a salary of £155 per week, plus dividends) without incurring any income tax or national insurance liabilities.

Alternatively, if you were happy to pay higher rate tax but did not wish to lose your personal allowance (and suffer 60% tax), you could pay yourself up to £90,806 (including that £8,060 salary). On this income, your tax bill would be £12,963 (an effective tax rate of 14.3 per cent) in 2015-16.

Changes to come

From April 2016, the notional 10 per cent tax credit (which causes great confusion to many people) will be abolished and replaced by a new tax-free dividend allowance of £5,000. The dividend allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have. The allowance is available to anyone who has dividend income. You will pay tax on any dividends you receive over £5,000 at the following rates:

  • Basic rate taxpayers – 7.5%
  • Higher rate taxpayers – 32.5%
  • Additional rate taxpayers – 38.1%

Dividends within your allowance will still count towards your basic/higher or additional rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.

Thus, for example, if you pay yourself a salary of £8,060 and a dividend of £39,940 during 2016-17 it is taxed as follows. The salary is tax-free, covered by the £11,000 personal allowance. The balance of the personal allowance of £2,940 is then utilised against the dividend income leaving £37,000 taxable. The basic rate tax band for 2016-17 is £32,000 therefore £5,000 of the dividend income will be taxed at the higher rate of 32.5 per cent. £32,000 less the £5,000 covered by the new dividend allowance will then be taxed at the basic rate of 7.5 per cent. Therefore on this income your tax bill would be £3,650 (an effective tax rate of 7.6 per cent).

You will, of course, still need to keep your total income below £100,000 if you want to keep your personal allowance intact. At that level, assuming that the vast majority of this is dividend income, your tax bill could be as low as £20,550 (an effective tax rate of 20.6 per cent) in 2016-17.

Remember also the cash flow benefit of paying dividends rather than salary or bonuses. If your company pays you a salary or bonus, it must account for the related income tax and national insurance contributions on a monthly basis under PAYE, and might not obtain the benefit of the associated corporation tax saving until nine months after the end of its accounting period.

If you habitually take dividends of a similar amount each year and take a dividend now, you would not pay the income tax until January and July 2016; and you would have until January 2017 before the tax becomes due if there is no prior history of such income. Although by taking a dividend the company’s taxable profit is not be reduced, as it would be if you take a bonus, the higher corporation tax liability will typically be payable only after the year-end.

The new rules on dividend taxation will increase the tax bills of most owner-managers, but it will still be cheaper in tax terms (looking at both the company paying you the income and you receiving the income) to declare a dividend in 2016-17 rather than pay yourself a bonus subject to PAYE

Dividend tax changes from April 2016 – A summary of the financial effects for small business owners

 

From 6 April 2016, the way dividend income is taxed will change significantly. The changes will affect hundreds of thousands of small business owners, many of whom will see a big jump in the amount of tax they will have to pay.

At present, company dividends are treated as ‘tax paid’ in the hands of shareholders. However, from April 2016 the tax treatment of dividends will be altered dramatically, and as you can imagine, this isn’t going to result in limited company directors paying less tax!

Currently (up to the tax year 2015/16), dividends are received with a notional tax credit – one-ninth of the dividend – and higher rate taxpayers have to pay some extra tax on top of that.

But, from April 2016, every individual will receive an annual £5,000 tax-free limit for dividend income. Dividend income over £5,000 will be subject to taxed at varying rates, depending on your personal circumstances.

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From April 2016 dividend income over £5,000 will be taxable

Dividend income of over £5,000 (and after using up any remaining personal allowance) will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for those on the highest incomes who pay additional rate income tax.

The impact of these changes will fall particularly on smaller businesses, where owner-managers take income from their companies as a mixture of salary and dividends.

The following tables illustrate the possible financial effects the dividend tax changes will have on how much tax both sole traders and limited company directors have to pay:

Tax Year 2015/16

Annual Profit

Sole Trader

Limited Company

Difference

£30,000 £6,000 £4,388 £1,612
£40,000 £8,900 £6,388 £2,512
£50,000 £12,790 £9,053 £3,737
£75,000 £23,290 £19,053 £4,237

 

Tax Year 2016/17

Annual Profit

Sole Trader

Limited Company

Difference

£30,000 £5,920 £5,109 £811
£40,000 £8,820 £7,709 £1,111
£50,000 £12,630 £10,309 £2,321
£75,000 £23,130 £21,462 £1,668

Fill in your tax returns FOUR TIMES every year.

Self-employed workers, landlords and small business owners faced with ‘strangling’ quarterly returns.

  • - Financial experts say move will add more red tape for small businesses
  • - Plans to change were slipped out in George Osborne’s autumn statement
  • - Government expects most self-employed people to file quarterly by 2020

Millions of earners are to be forced to file tax returns four times a year.

Self-employed workers, landlords and small business owners currently have to submit their figures just once every 12 months.

Switching them to quarterly returns will bring them into line with big corporations. But financial experts say the move will simply add to the reams of red tape already strangling small firms.

‘These changes are going to be very onerous,’ said Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants.

‘It is not just about filling in a form, it is going to be a real burden.

‘Workers will have to make sure their books and records are up to date at least four times a year in case the taxman decides something is amiss and investigates them.’

Initially workers will not have to pay tax four times a year. But accountants suspect quarterly returns are a step towards this.

The plans were slipped out in the small print of George Osborne’s autumn statement. Around four million people will be affected: the self employed, small business owners and landlords who make more than £10,000 a year in profit.

The Government expects more self-employed workers to be filing quarterly and online by 2020. It will thrash out the details over the next year when the plans go out to consultation.

The first stage of the £1.3billion digital revolution at HMRC is expected soon with the launch of personal tax accounts for a millions workers. These will act like an internet bank account, and keep an up-to-the-minute record of tax paid.

At present every self-employed worker or small business owner need to file a paper return by October 31, or an online one by January 31. Tax must be paid by January 31.

Under the new system however, they will have to file online every three months – like big firms that report their financial results quarterly. They face having to use a complicated and lengthy online form each time.

As well as adding to the burdern of red tape, there are concerns that many small business owners could be fined for missing deadlines. Two in every five self-employed workers are either unable to use the internet or need help using Government online services, according to HMRC figures.

Fines of up to £100 are imposed for being a day late in filing.

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Given its track record for poor customer service, there are also doubts as to whether HMRC will be able to roll out a system efficiently and with proper support for taxpayers. In June it emerged that the taxman had failed to answer 18million phone calls from the public in 12 months.

Small firms are already under pressure from the burden of setting up and paying into employee pension schemes.

And owners of small shops have complained of being forced to close by soaring business rates.

John Allan, of the Federation of Small Businesses, said he was deeply concerned about quarterly filing. ‘The annual tax return can be a major challenge and many smaller businesses still complete theirs manually,’ he said. ‘We believe the policy needs to be rethought. The push towards digital must be introduced alongside tax simplification and businesses should have a choice around the tax reporting process appropriate to them.’

Michelle Partington, 42, owner of small food business Lakeland Picnic, which is based near Kendal, Cumbria, said: ‘I could easily see how this could be a nightmare for some small business owners – especially one-man bands like plumbers.

‘When the Government first came to power it seemed to be very supportive of small business but it seems to have changed its approach. It is putting more and more things on us and putting barriers in the way of people who want to set one up.’

In their election manifesto, the Conservatives promised to cut £10billion of red tape and make Britain the best place in Europe to do business. In a recent speech to entrepreneurs, David Cameron hailed small business owners as ‘heroes and heroines’ and as Britain’s ‘life blood’.

A HMRC spokesman said: ‘Many taxpayers have told us they would like more certainty over their tax bill and we acknowledge that they shouldn’t have to wait until after the end of the year before being landed with an unexpected tax bill. That’s why we’re making it easier for them to update their tax information more regularly from 2018. We will ensure people have access to guidance and support where needed, including access to telephone filing.

‘Ninety-nine per cent of businesses already file their corporation tax online and 98 per cent of VAT returns are filed online. The new digital accounts simply integrate the different information businesses provide to HMRC into a simple, streamlined system.

‘We are focussed on creating a tax system that is more effective, more efficient and easier for taxpayers.’

This article was originally featured on www.dailymail.co.uk. You can read the article in full here.

Featured image via Flikr (CC.20)

The New Dividend Tax

Following an announcement in the Summer Budget, the taxation of dividends is set to change from April 2016.

Under the current system, dividends carry a 10% tax credit, meaning that basic rate tax payers have no further liability for income tax, while higher-rate and additional-rate taxpayers see their liability reduced to 25% and 30.56% respectively.

 

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THE NEW RULES

As a result of the changes announced, investors will have a tax-free dividend income allowance of £5,000. After this limit has been used up, any further dividends will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers. If your dividend income takes you into the next income tax band, you will pay the higher dividend rate on that portion of the dividend income.

The government says that as far as ordinary investors are concerned, those receiving modest dividend income from company shares should see no change in their tax liability, some may even find themselves paying less tax. Non-taxpayers will see no change, and neither will basic rate tax-payers with dividend income under £5,000. Where the changes will be felt by basic-rate taxpayers is when their dividend income that’s not generated within a tax wrapper such as an ISA exceeds £5,000; under the new rules it will be taxed at 7.5%.

Other clear winners are those higher and additional rate taxpayers who receive dividend income of less than £5,000; they will receive their income with no further liability to income tax.

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WAYS TO REDUCE DIVIDEND TAX

There are ways of reducing the amount of dividend tax payable, including

• Married couples can look at equalising their portfolios so that they each make full use of each spouse’s £5,000 allowance

• Using tax-efficient savings vehicles. Make the most of your annual ISA limit (£15,240 for tax year 2015-16) and get the benefit of tax-free dividends and no capital gains tax.

• Think about topping up your pension. Self-invested personal pensions benefit from tax-free dividends.

photo credit: HM Revenue & Customs via photopin (license)
photo credit: Tax via photopin (license)

Summer Budget 2015

Summer Budget 2015

Chancellor George Osborne presented his first Budget Statement of the new Parliament on Wednesday. As well as being the first of the new Parliament, it was also the first budget speech to a Conservative majority since November 1996.

With the deficit anticipated to be somewhat lower than predicted following the delivery of the March budget, the Chancellor is using the resulting ‘wriggle room’ to slow the pace of the £12bn welfare savings cuts he announced in March, with these now to take place over three years rather than two.  Having received criticism in March for providing insufficient detail on these cuts, Mr Osborne has now outlined his proposals in full with the emphasis on reforms to the tax credit system.

The long awaited changes to Inheritance Tax relating to the passing on of the family home have now been detailed, along with some other less anticipated changes which will affect our clients. We have prepared our usual Budget Summary outlining the changes announced by the Chancellor and hope that you find this to be of interest.  Should you have any questions or require more detailed information in relation to any specific aspect of the Budget Statement, please do not hesitate to contact us.

 

Main Highlights

Personal

• Personal Allowance – increasing to £11,000 from April 2016 and £12,500 by 2020
• Higher Rate Threshold – increased to £43,000 from 16/17
• National Living Wage – from April 2016 at £7.20ph rising to £9ph by 2020 for over 25s
• Inheritance Tax – Increase in IHT threshold to £1m for married couples by 2017
• Welfare saving of £12bn with major reforms to tax credits

Property

• Restriction on mortgage interest relief for wealthier landlords
• Rent-a-Room relief increase

Investment

• Dividend tax credit to be replaced by tax-free dividend allowance of £5,000 from April 2016
• New tax rates for dividend income above the £5,000 allowance

Pensions

• Annual Allowance – reduced from April 2016 for top rate tax payers

Business

• NI Employment Allowance no longer available where director is sole employee
• NI Employment Allowance to £3,000 from April 2016
• Annual Investment Allowance (AIA) to be set permanently at £200,000 from January 2016

Corporate and Banking

• Corporation tax rate reduced to 19% from 2017 then to 18% in 2020
• The Bank Levy – phased reduction in rate between 2016 and 2021
• Banking Sector – introduction of new 8% tax on profits from January 2016
• Standard rate of Insurance Premium Tax increased to 9.5% from November 2015

Tax Evasion and Avoidance

• Permanent non-domicile status to be abolished from 2017 with new deemed domicile rules
• New rules for IHT on UK residential property through offshore structure from April 2017
• Tax Avoidance – further consultation on persistent avoiders and possible surcharges

 

Personal

Mr Osborne detailed further increases to personal allowances and thresholds already announced in his March budget.  The Chancellor has also introduced his changes to Inheritance Tax on the family property and has provided detail on the previously announced cuts to the welfare system.

Personal Allowance – the amount that a person can earn before paying any income tax will now rise to £11,000 from April 2016, an increase from the £10,800 previously announced.  The Marriage Allowance will also rise in line with the personal allowance.

Higher Rate Threshold – the level at which taxpayers will start to pay tax at the higher rate will rise to £43,000 for 2016/17.

National Living Wage (NLW) – A new National Living Wage of £7.20 per hour will be introduced from April 2016 for all workers over 25.  This will rise to in excess of £9 per hour by 2020.
Inheritance Tax – the Chancellor, as anticipated, has announced the introduction of an additional nil-rate band where the family home is passed on death to direct descendants.  From April 2017 this will amount to £100,000 rising to £175,000 from April 2020, thereafter increasing in line with CPI from 2021/22 onward.  This will also be available where a taxpayer downsizes or ceases to own a home on or after 8 July 2015 on assets of the equivalent value passed on to direct descendants, although the detail of this extension is yet to be confirmed.  A tapered withdrawal of the additional nil-rate band will apply to estates with a net value of more than £2 million.  For a married couple this will increase the joint nil-rate band to £1 million from April 2020 on assets passed to direct descendants.

Welfare – Significant changes will be made to the welfare system with a view to reducing the total amount of benefits paid to working-age claimants by £12bn by 2019/20.  Tax credits are bearing the brunt of the cuts with working age benefits (not including statutory payments) being frozen for the next 4 years, affecting Working Tax Credit recipients in particular.  Child Tax Credit has also been targeted and payment will be limited to 2 children for births occurring from April 2017.  In addition, the overall benefit cap will be reduced to £20,000 (£23,000 in London) per household.

 

Property

Mr Osborne has introduced changes to the taxation of property income which will have an effect, in particular, on residential property landlords who expand their portfolio through borrowing.

Mortgage Interest Relief – Tax relief on mortgage interest will be restricted to the basic rate (20%) for landlords who pay tax at the higher or additional rates.  The restriction is to be phased in over a period of four years starting from April 2017.

Wear and Tear Allowance – In addition, from April 2016, the 10% wear and tear allowance will be withdrawn for all landlords.  Tax relief will only be available when furnishings are actually replaced.

Rent-a-Room Relief – As a reflection of the fact that this relief has not been increased since 1997, the sum allowed as a deduction under the rent-a-room scheme will rise to £7,500.  This means that individuals who have lodgers staying in their home will only pay tax on any rental income exceeding this amount.

 

Investment

The Chancellor has detailed a major change to the way in which dividend income is taxed.  The dividend tax credit, which has existed in its current format since 1999, is to be removed completely.  This change is likely to result in increased tax bills for investors with large portfolios and will affect directors of owner managed businesses who regularly use dividends as part of their remuneration planning.

Dividend Income – The taxation of dividend income will be substantially reformed with the 10% tax credit that currently accompanies such payments being abolished.  Instead, from April 2016, a £5,000 tax-free allowance on dividend income will be introduced.  Dividend income exceeding this amount will be taxed at new basic, higher and additional tax rates for dividends of 7.5%, 32.5% and 38.1% respectively.

 

Pensions

There was a further modest change to the rules on pension savings, affecting only top-rate tax payers.  However, the proposed Green Paper may bring about further changes in the future.

Annual Allowance – it was announced that the annual allowance for pension contributions that benefit from tax relief for taxpayers with adjusted income in excess of £150,000 is to be reduced.  This allowance will be tapered at a rate of £1 for every £2 of adjusted income, from the current allowance of £40,000 down to a minimum of £10,000.  This reduction will take effect from April 2016.

Pension Savings – the Chancellor announced that the government will be consulting on whether there is a case for reforming pension tax relief, with a view to strengthening incentives to save whilst allowing greater simplicity and transparency.

 

Business

The Chancellor has introduced changes to a couple of existing reliefs for employers and businesses.  The change to the already proposed reduction in AIA will be welcomed, especially as it will give some stability to this relief which has been subject to a number of temporary changes since its original introduction in 2008.

National Insurance Contributions (NICs) – The NIC Employment Allowance which was introduced by Mr Osborne in the 2013 budget is to be increased from £2,000 to £3,000 with effect from April 2016.  However, where the sole employee of the company is a director, the allowance will no longer be available.

Annual Investment Allowance (AIA) – AIA will be reduced to a permanent level of £200,000 for investment in qualifying plant and machinery made on or after 1 January 2016.  This change replaces the previously planned reduction of the allowance to £25,000 in January 2016.

 

Corporate and Banking

An unexpected further reduction to the rate of Corporation Tax may encourage unincorporated businesses to review their structure.  However, the changes to taxation of dividend income and the loss of Employment Allowance for directors could serve to counter any advantage to the lower rates, and careful planning will be required.

Corporation Tax – The main rate of corporation tax will reduce again to 19% from April 2017 with a further cut to 18% being introduced in April 2020.  Payment dates for Corporation Tax payments for companies with profits greater than £20 million will be brought forward.

Banking Sector – Substantial changes are to be made to the way banks are taxed.  The existing Bank Levy charged on banks’ balance sheets will be gradually lowered from the current 0.21% to 0.1% between 2016 and 2021.  Replacing this will be a new tax on the profits of banks, which will be introduced from January 2016 and will, initially, be set at 8%.

Insurance Premium Tax – The standard rate of Insurance Premium Tax will be increased to 9.5% from November 2015.

 

Indirect Taxation

Vehicle Excise Duty (VED) – A new Vehicle Excise Duty (VED) banding system will be introduced for cars registered from April 2017.  This will reflect the technological improvements that have been made and the resulting decrease in carbon dioxide emissions.  A new Roads Fund will be created and, from 2020/21, all of the receipts generated from VED in England will be used to support the fund, which will reinvest the money by way of improvements to the road network.

 

Tax Evasion and Avoidance

The Chancellor continues to tackle tax evasion and avoidance through the extension of several existing measures along with some new rules relating to domicile and ownership of UK residential property.

Non-Domicile Status – new rules to be introduced from April 2017 will apply deemed domicile status to individuals who have been resident in the UK for 15 of the previous 20 tax years.  In addition, an individual born in the UK to parents who are UK domiciled will no longer be able to claim non-domicile status if they leave but then return and resume UK residence.  The changes will remove the permanent non-domicile status.

IHT on UK residential property – from April 2017 new rules will be introduced  to ensure that anyone who owns UK residential property, and would otherwise be subject to IHT on that property, cannot avoid the charge by way of holding the property in an offshore structure.

Tax Avoidance – the government is to publish a consultation and subsequently introduce legislation in the 2016 Finance Bill to target serial offenders making persistent use of tax avoidance schemes which fail.  This will introduce special reporting requirements, a surcharge specific to those whose latest return is inaccurate due to the use of another failed avoidance scheme, restriction of access to reliefs and development of the scope to name persistent avoiders.

General Anti-Abuse Rule (GAAR) – the government is to produce a consultation document considering the possibility of introducing a specific GAAR penalty together with further measures to strengthen the GAAR further.

 

Other Points of Interest

• From 2016/17 student maintenance grants will be abolished and replaced with student loans, which will become repayable once the individual is earning over £21,000 per year.

• The Climate Change Levy exemption currently available for renewable electricity will end.

• The annuity payable to recipients of the Victoria Cross and George Cross will be increased from £2,129 to £10,000.

• Apprenticeship levy to be introduced for all large employers.

• New ‘youth earn or learn scheme’ to be introduced.