Summer Budget 2015
Today the Chancellor presented his second budget of 2015. There were some well publicised 'big' picture stories but also he managed to squeeze in some big changes to the taxes that will affect most businesses:
- Announcing the point at which people pay tax (National Insurance has lower thresholds) from 6 April 2016 to £11,000
- Cutting Corporation Tax - but you will have to wait until 2017 for that!
- An overhaul of the tax credits system together with changes to the Minimum wage and the Employer's Allowance
- A reform of dividends including a £5,000 dividend allowance - this will feature in a future newsletter
- A consultation on the sustainability (withdrawal?) of tax relief on pension contributions
- Confirming the planned Annual Investment Allowance reduction to £25,000 in December will not go ahead and be replaced with a flat £200,000 allowance which will take out a lot of the uncertainty which we have experienced over recent years
- A surprise move to change the tax relief landlords receive on Mortgage Interest to restrict it at the basic rate of tax to be phased in over 4 years
- Further HMRC compliance resources over the term of the Parliament which has become the norm each budget and more attacks on 'disguised employment'
There is a lot to digest here, so if you have individual queries, please let me know.
As always, this newsletter is designed to draw attention to specific topical issues and is in no way intended to provide advice tailored to your business - advice must always be sought before acting on any item featured
Income Tax & Personal Allowances 2016/17
The point at which people will pay income tax rises to £11,000 for 2016/17 which is some £400 higher than the current year and higher than announced only 3 months ago. The Chancellor has also started to increase thresholds for those on the higher rate tax and the point at which higher rate tax will be paid from 6 April 2016 will be £43,000.
It was also confirmed that there would be no changes to income Tax and National Insurance rates during the Parliament. Clients claiming tax credits need to make sure that they get their income estimates spot on as the 'claw back' percentage for every pound over the threshold rises from 41p in the pound to 48p from April 2016.
Investing in New Business Equipment
The £500,000 Annual Investment allowance cap continues to 31 December 2015 when it's scheduled to drop to £200,000. To recap, this gives up front tax relief for the vast majority of investments made by clients. Don't forget this applies to vans but not to cars - some 'green' cars continue to benefit from a 100% First Year Allowance. The new £200,000 allowance is considered to be structural and is expected to be less volatile than we have experienced in previous years.
There are some large scale changes to the National Minimum Wage - now termed the National Living Wage, the hourly rate for most employees will be set at £7.20 per hour from 6 April 2016. Don't forget the National Minimum Wage changes in October so there are 2 changes within the next 12 months. Compliance continues to be monitored by HMRC. Businesses need to start planning for this as they will also be expected to provide pension schemes at the same time - see below.
The £2,000 NI employer's NI exemption called the Employment Allowance came into force from 6 April 2014. It increases into 2016/17 (to help pay for the increase in payroll costs above) effectively removing the need to pay the first £3,000 of employers NI. It's effected via payroll software so do check your software or with your payroll provider.
An the reverse side, using the Employment Allowance as a tax planning tool for sole director payrolls is seen by the Chancellor as a means of avoidance and sole director payrolls cannot claim the allowance from 6 April 2016.
It's also worth remembering that over the next 2 years small employers will be required to provide a pension to the vast majority of employees so the combination of the increase in minimum wage and the impact of the cost of providing pension schemes need to be factored in. More information is available via the Pensions Regulator's website.
It was confirmed that VAT rates would not change over the Parliament.
- 22 July 2015 - Class 1A National Insurance to be paid electronically
- 22 July 2015 - Quarter 1 2015/16 PAYE payments due electronically
- 31 July 2015 - October Company Year Ends must be filed with Companies House
- 31 July 2015 - Second Payment on Account for 2014/15
- 21 October 2015 - National Minimum Wage rises to £6.70