The Budget 2016 –
How will it affect you and your business?
The personal allowance will increase from the current amount of £11,000 for the next tax year (16/17) to £11,500 for 17/18.
The Basic Rate Limit will increase from £32,000 for the next tax year (16/17) to £33,500 in 17/18.
Therefore, the higher rate threshold will be as follows:
Personal Allowance £11,000 £11,500
Basic Rate £32,000 £33,500
Higher Rate threshold £43,000 £45,000
Although not a new announcement in this budget, from April 2016 there will be a new taxation rules on how dividends will be taxed on shareholders self assessment returns. The new rules are as follows:
1) The notional 10% tax credit will be abolished, (therefore there will no need to gross up any dividends when including these on your self assessment return).
2) Everyone will receive a £5,000 tax free dividend allowance. This will be used after any utilising any of your spare Personal Allowance in the year.
3) Dividends will now be subjected to income tax at the basic rate level. This will be charge at a taxable rate of 7.5%. Higher Rate tax payers will be still pay the 32.5% and there is an additional rate of 38.1%.
4) Dividend income will be treated as top band of income and anyone receiving £5,001 of dividends will now have to complete a self assessment tax return from 6 April 2016.
For more information and some worked examples of this, please see our dividend blog at:
Capital Gains Tax:
One of the biggest changes in the budget was the reduction in Capital Gains Tax with effect from 6 April 2016 but there is an exception. The exception is for chargeable gains accruing on the disposal of residential property not qualifying for private residence relief and carried interest. The changes for qualifying gains are:
Basic Rate % 18% 10%
Higher Rate % 28% 20%
Corporation Tax will be cut to 17% but this will not place until 2020. This is an increase on the reductions promised in the Summer 2015 budget, and includes a drop to 19% from 1 April 2017.
The VAT threshold will increase from £82,000 to £83,000 with the deregistration threshold being £81,000 from 1 April 2016.
Insurance Premium Tax will increase to 10% from 9.5% from 1 October 2016.
Business Rates: from April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. There will be a tapered rate of relief on properties worth up to £15,000.
Other Personal Taxes:
Class 2 National Insurance contributions are set to be abolished from April 2018.
The ISA annual limit will rise to £20,000 from £15,240 from 6 April 2017. Also, a new Lifetime ISA will be available from April 2017 for adults under 40. They will be able to contribute £4,000 per year and receive a 25% bonus from the government. The amount can be saved until you are 70 and used as retirement income, or you can withdraw it to help buy your first home.
There will be a new tax allowance for money earned from the sharing economy from April 2017. One for selling goods or providing services, and one for income from property you own. People who make up to £1,000 from occasional jobs, such as sharing power tools, providing a lift share or selling goods that they have made, will no longer need to pay tax on that income.
In the same way, the first £1,000 of income from property, such as renting a driveway or loft storage, will be tax free!
The full government budget statement can be found at: