The Chancellor delivered his 2015 Summer Budget (the second Budget of 2015) on Wednesday 8 June 2015. In stark contrast with the last coalition Budget delivered on 18 March 2015, there were a few important changes which affect small businesses (including a lot of changes announced which come into effect during the next 5 years). The following is a review of those announcements.
Income Tax
The rates at which income tax bite have been increased from previous announcements. The personal allowance threshold is due to increase to £11,000 from 6 April 2016 (previously £10,800). Also, the 40% tax rate from 6 April 2016 will be £43,000 (previously £42,700).
In addition to the National Minimum Wage, a new National Living Wage for all workers aged over 25 will be introduced, starting at £7.20 p/h from April 2016 and increasing to £9.00 p/h by 2020.
Corporation Tax
Corporation tax is currently 20%. It will be cut to 19% in 2017 and 18% in 2020.
Tax relief on the purchase of goodwill is being removed for asset purchases after 8 July 2015.
Inheritance Tax
Inheritance tax will be significantly increased with the introduction of a transferrable nil-rate band, although the normal nil-rate band will remain at £325,000. The new nil-rate band will be £100,000 for 2017/18, £125,000 for 2018/19, £150,000 for 2019/20 and £175,000 for 2020/21. Therefore, from 2020/21, and with the normal nil-rate band, a married couple will have a combined nil-rate band of £1,000,000.
National Insurance
The National Insurance (NI) Employment Allowance was introduced in April 2014 and removed the first £2,000 of Employer’s NI for small employers. From April 2016, this is being increased to £3,000. However, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
Capital Allowances
The Annual Investment Allowance, which provides tax relief for the investment in plant and machinery, will be set at a permanent level of £200,000 from January 2016.
Landlords
Investors in Buy to Let income currently receive tax relief on mortgage interest at their highest level of tax. However, this will be restricted to the basic level of tax. This will be introduced in 2017 and phased in over the following 4 years.
Also, wear and tear allowance will no longer be available from April 2016.
And Finally….
Dividend Income
This is the biggest change which will affect small businesses who trade as limited companies. From April 2016, the Government will remove the dividend tax credit and replace it with a new tax free dividend allowance of £5,000 p/a for all taxpayers. Dividend income in excess of this will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers. We shall be contacting clients to advise the best way of dealing with this.
