George Osborne presented his eighth budget on 16th March 2016. We summarise below some of the principal changes that are likely to be relevant to our clients in the 2016 budget.
The Personal Allowance and Basic Rate Band
These had already been set at £11,000 and £43,000 for the 2016/17 year. The Chancellor announced well in excess of inflation increases to £11,500 and £45,000 for the 2017/18 year.
Corporation Tax in the 2016 budget
The corporation tax rate had been set to drop from its present 20% level to 19% from 1st April 2017 and 18% from 1st April 2020. It will now drop to 17% from 1st April 2020.
Simplifications have been introduced to the way losses are relieved and restriction on the use of losses have been introduced for very large companies and banks.
Capital Gains Tax
A number of changes were made to capital gains tax. From 6th April 2016 the rates which have been 18% for non and basic rate taxpayers and 28% for higher taxpayers and additional rate taxpayers will drop to 10% and 20%, except for gains made on residential property.
Entrepreneur’s relief was extended and in particular a person who subscribes for shares in an unlisted company after 5th April 2016 will be entitled to claim this relief so long as they hold their shares for at least three years.
Targeted Anti Avoidance Rules will be introduced and whilst the final details are not yet known, it is possible that capital gains tax treatment will be denied where a company holding an excessive amount of cash is liquidated.
VAT in the 2016 budget
The VAT registration and de-registration thresholds have been increased to £83,000 and £81,000 respectively.
Loans to Participators
The rate of corporation tax payable when a company makes a loan to a participator (usually a director) from 6th April 2016 increases from 25% to 32.5%.
IR35 in the 2016 budget
Whilst IR35 was not specifically referred to, a small section of the budget entitled “Off-payroll engagement in the public sector”. From 6th April 2017 public sector bodies and agencies will be responsible for determining whether the new rules should be applied to ensure that contractors using limited companies pay the right tax. It seems that it will be the responsibility of the agency or public sector body to actually deduct and pay over employment taxes.
The ISA investment limit will increase from 6th April 2017 to £20,000 per annum and within this overall limit there will be a new investment called a Lifetime ISA.
The Lifetime ISA will be available from 6th April 2017 to anyone under 40. Up to £4,000 per annum may be contributed and the government will top it up with a 25% bonus. An individual will be able to use it either to assist in the purchase of a first home with a cost of up to £450,000 or, after age 60 to provide tax free pension income. If an individual withdraws funds for any other purpose, the bonus (plus any growth on it) will be paid back to the government along with a 5% charge.