Chancellor George Osborne has updated MPs about the state of the economy in the first Conservative party budget since 1996.
We summarise the main points of interest below:
In an advert to tell the world that Britain is open for business, the rate of corporation is to be cut to 19% in 2017 and 18% in 2020. This is down from 28% when George Osborne took over as Chancellor in 2010.
The Government will further support investment by small and medium-sized firms by increasing the permanent level of the Annual Investment Allowance (AIA) to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016. This means that businesses will be able to spend up to £200,000 per annum on plant and machinery and receive a full revenue tax deduction in the period of acquisition.
SME’s National Insurance Contributions are to fall with The Chancellor announcing an increase in the Employment Allowance from £2,000 to £3,000 from April 2016. In essence, this means that SME’s will not pay the first £3,000 in Employers National Insurance Contributions. However, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
The Chancellor announced a radical change to the taxation of dividends by replacing dividend tax credit with a new tax free dividend allowance of £5,000 and changes in the tax rates applying to dividends. At this stage, the detail has yet to be determined but naturally once these have been made available the impact will be fully analysed in terms of the remuneration structure for taxpayers who operate through Limited Companies.
Large companies (Profits in excess of £1.5M) are required to pay corporation tax earlier than companies making lower levels of profit. Changes are being announced to accelerate these payment dates even further which maybe a pre cursor to changes in payment dates for smaller companies. To date nothing has been announced in this respect but this change may well be the thin end of the wedge.
Over recent years there have been steady increases in the personal allowances and it is therefore no surprise that further increases were announced taking the personal allowance up to £11,000 in 2016/2017 as part of the overall ambition to increase this allowance to £12,500 by 2020. In addition, the threshold at which higher rate tax commences will increase to £43,000 by 2016/2017.
The Chancellor announced a new National Living Wage for the over 25’s to start in April 2016 at the rate of £7.20 per hour to be increased to reach £9 per hour by 2020.
As was highly publicised in the press, The Chancellor will be increasing the tax free allowance for each individual so that they may be able to pass their home to children and grandchildren after death. The individual allowance in this instance is increased by £175,000 meaning a married couple or those in a civil partnership have a tax free allowance of £1M from April 2017.
Changes in the tax relief available on interest payments on buy to let properties have been announced. Previously, interest has been deducted from rental profits which are then subject to income tax. Effectively this means higher rate taxpayers obtain relief at either 40% or 45% on the interest paid whilst basic rate taxpayers only receive 20% relief. The proposal is that the tax relief on the mortgage interest will be restricted to 20% for all landlords. With careful planning, we hope that we will be able to mitigate the impact this proposed changed will have.
Wear and Tear allowance which is available to landlords with furnished property is to be replaced by a new system which will grant tax relief only when furnishings are replaced.
On a more positive note, the rent-a-room relief which has remained at £4,250 since its inception in 1997 is to be increased to £7,500 from April 2016.
Current rules permit taxpayers to pay up to £40,000 per year into their pension fund (either by way of personal contributions paid net of tax or gross contributions paid by a corporate employer). High earners, which have been classified as those earning over £150,000, will find their maximum contribution reduced such that there will be a maximum of £10,000 being available to contribute without further charge.
Child Tax Credit changes announced will include the limiting of Child Tax Credit to two children for those who are born before April 2017.
More encouragingly, from September 2017 working families with 3 and 4 year olds will now be entitled to receive 30 hours of free child care representing a doubling of the amount to which they are currently entitled.
The Chancellor confirmed one or two pre-budget announcements in respect of the cost of funding TV licences for the over 75’s, increasing the pension annuities for recipients of The Victoria Cross and George Cross, lowering the annual household benefit cap as well as introducing a consultation on changing Sunday trading laws.
As we commented last year, with all matters referred to in the Chancellors announcements speech the “devil will be in the detail” and the full impact and understanding of all the announcements will not be made clear until the full parliamentary process has been undertaken and the proposals become law in the finance act. We will issue further notices should any matters of significance be announced.Last modified on