There is a separate purely technical article on the budget changes posted on our website but I thought I would take this opportunity of just making a few comments on the various changes proposed by the Chancellor which will be legislated during the course of the year.
The phrase certainly comes to me 'the Chancellor give the and the Chancellor take the away', most certainly that is what we have in this budget. There is a lot of good news with various changes and tax reliefs and some of which start from 6 April 2016 and some which are phased in over the next few years. In particular we have an increase in the personal allowance threshold and also increase in the basic rate band of tax for 2016/17 together with reductions in corporation tax rates although not starting until April 2017.
For the low earners there is the news that there is going to be a new living wage but much of this is offset by reduction in tax credits.
Most notably the two major issues which will affect our clients where the Chancellor is 'taking away' are:
- The withdrawal of higher rate tax relief on finance charges in relation to lettings income.
- Much more seriously the new tax rate on dividends, although there is going to be a nil rate band of £5K. Dividend income will be taxed at 7.5% for those within the basic rate band of tax and 32.5% and 38.1% for those who are higher rate tax payers.
This will effect quite significantly any of our clients who are owner managed Companies! Where if you are only a basic rate tax payer the Company just pays corporation tax at 20% on its profits and any dividends withdrawn are totally free of tax. This now changes and dividends in excess of £5K a year will be taxed at 7.5%. If you are a higher rate tax payer it increases from 20% (basic rate band) to 32.5%/38.1%.
In due course we will have to give consideration as to how remuneration is structured within small Companies as to levels of salaries and levels of dividend and the likely taxation effects.
The Chancellor is increasing the small Company national insurance allowance currently £2K to a level of £3K. This will only effect those Companies with employees from 6 April 2016.
There are some minor changes. Rent-a-room relief is increasing and a new wear and tear allowance instead of the existing charge. But again it is an area where something is given and something is taken away
We will of course be reviewing all these changes over the next few months and will be giving advice to our clients accordingly.