Having previously announced increases in dividend tax rates for 2016/17, the Chancellor had some good news for small business owners in his Budget Speech. Business rates relief has been expanded and made permanent and some of the restrictions on Entrepreneurs' Relief recently introduced have been relaxed.
In addition, £1,000 allowances are introduced for trading profits and rental income which will mean some people will not need to declare such income.
He also cut the top rate of Capital Gains Tax to 20%, however the top rate remains 28% for disposals of second homes and buy-to-lets.
It is fair to say that it is now virtually impossible for taxpayers to work out their tax liabilities using a pencil and paper. This may all be part of the Government's grand plan to encourage taxpayers to use accounting software to communicate with HMRC electronically.
From 2018 small businesses will be required to submit quarterly updates to a digital tax account held by HMRC. Those businesses will be able to volunteer to pay their tax as pay-as-you-go amounts, set by the business itself. We expect further details to be released in the coming weeks on how the administration of taxes will be made digital for all businesses.
By 2017 HMRC will be expected to provide telephone access to businesses and tax credit claimants seven days a week, with extended hours on week days.
Savers will be pleased by the increased ISA limit of £20,000 from 2017. The new lifetime ISA for those aged under 40 looks like an imaginative way to save for long-term needs, such as house purchase or pension.
The Budget was bad news for tax avoiders, in particular for overseas businesses that try to avoid VAT on products sold in the UK, or which seek to avoid paying Corporation Tax generated by letting or developing properties in the UK. Tax avoiders who fall foul of the General Anti-Abuse Rule (GAAR) will suffer a penalty set at 60% of the tax due. A new criminal offence of tax evasion will apply to people who fail to declare significant amounts of offshore income and gains.
The following pages summarise the main announcements from the speech and the documents released on the internet afterwards, and sets out the effect on typical taxpayers. We will be happy to advise you on what it all means for you personally.
- Personal Income Tax
- National Insurance Contributions
- Savings and Pensions
- Capital Gains Tax
- Business Tax
- Value Added Tax
- Other Measures
- Tax-free Personal Allowance will be increased to £11,500 with effect from 6 April 2017.
- Individuals will be able to earn up to £1,000 from trading, and a further £1,000 from letting property, before they need to declare the income or pay tax.
- SDLT due on the purchase of commercial property is reformed, with new bands and rates effective from 17 March 2016.
- Entrepreneurs' Relief reinstated for gains made on business goodwill transferred on incorporation to a close company.In some circumstances this change is backdated to 3 December 2014.
- Capital Gain Tax rates reduced to 20% for higher rate taxpayers and 10% for basic rate taxpayers from 6 April 2016, but no change for CGT due on disposals of residential property or receipts of 'carried interest'.
- Corporation Tax charged on directors' loans increased from 25% to 32.5%, where the loan is still outstanding nine months after the company's year end.
- Business rates relief for small businesses expanded and made permanent.