Taxes on Personal Income
We recommend you undertake an annual review of your financial affairs to check if you are paying more tax than you need to, and whether the structures you set up in the past are still appropriate. Under Self Assessment, your personal return for 2015/16 must be submitted and the tax liability settled by 31 January 2017; between then and the end of the tax year (5 April 2016) is a good time to assess whether you are as well defended against the taxman as you can be.
Of course, the precise circumstances of each individual have to be taken into account in deciding whether any particular plan is suitable or advantageous – but these suggestions may give you some ideas. We'll be happy to discuss them with you in more detail.
Hidden tax rises
The Government claims it needs to raise funds to reduce the national deficit, and to supply the security services with the resources they need to fight terrorism. But the Chancellor limited the scope to raise mainstream taxes by writing into law his pre-election promise not to raise the rates of Income Tax, VAT or employee and employer National Insurance.
So tax revenue must be collected in less obvious ways. Duties are a good way to do this, as they tend to be imposed in circumstances which are difficult to avoid or on products that are addictive. For example, the duty on insurance policies was raised from 6% to 9.5% on 1 November 2015 and hardly anyone noticed.
New taxes are another way. From 6 April 2016 a new tax will be imposed on dividend income which will hit anyone who receives more than £5,000 of dividends per year. This will affect many owners of small companies, who will have a significant tax bill to pay on 31 January 2018.
Another way to increase taxes by stealth is to reduce the tax relief available for business expenses, such as travel costs or interest paid. Temporary workers who work through employment intermediaries or umbrella companies will see their travel expenses significantly restricted from 6 April 2016. Landlords of residential properties will also suffer a restriction in the amount of interest they can set against rental income from April 2017.
Existing tax charges may also be increased. Purchasers of residential properties, which are to be used as second homes or to be let, will have to pay an additional 3% supplement on top of the Stamp Duty Land Tax (SDLT) due from 1 April 2016. This supplementary charge is designed to hit individual landlords as it won't be payable by companies that invest in property.
This Review explains these tax changes in more detail. If you are likely to be affected, you may need to review how your company pitches for new contracts and rewards you with dividends. Landlords in particular need to assess whether their letting business will be economic once the interest relief changes are fully implemented in 2020.