There have been many changes in George Osborne’s “Emergency Budget” today, 8/7/15, many of which we at Moore Accountancy did not expect.
Below are our top 10 things to consider for small businesses and Individuals:
PERSONAL ALLOWANCE INCREASES
Individual’s personal allowances will increase from £10,600 to £11,000 in April 2016. Moore Accountancy had been expecting a rise of £200 to £10,800. It does bring things in line with the planned £12,500 allowance by 2020.
The level at which higher rate kicks in has also increased more than expected from a current £42,385 to £43,000 next year. Hopes are that £50,000 will be the eventual threshold but no timescales have yet been provided for this.
LIVING WAGE INTRODUCED
From April 2016 a new living wage will be introduced for employees aged 25 and over. This will be at £7.20 (versus current minimum wage of £6.50). By 2020 it is set to reach £9ph. Whilst this is great news for low income earners, small businesses may have to evaluate their costs and it may restrict the ability for SMEs to expand.
MORTGAGE RELIEF FOR BUY TO LET LANDLORDS
Moore Accountancy has numerous clients who have rental property portfolios and this change is bad news for many of them.
At present, finance costs, such as mortgage interest, are fully tax deductible against rental profits. But from tax year 2017/18 this will begin to be limited for higher rate tax payers.
The proposal is that income will be taxed at your marginal rate, but whereas the mortgage expense is currently also expensed at the marginal rate, in the future they will be restricted to the basic rate of 20%.
Our clients will need to evaluate their portfolios and if highly geared, may be less likely to meet mortgage liabilities.
Further changes were made to the wear and tear allowance that landlords of furnished property can claim. From 6/4/16, this will be withdrawn, to be replaced by a tax deduction when the expense is incurred.
PENSIONS FOR ADDITIONAL RATE TAX PAYERS
As expected, George Osborne has put a restriction on pension tax relief for individuals earning over £150,000 of £10,000 compared to the £40,000 currently in place.
TAXES ON DIVIDENDS
At present, dividends is the most tax efficient way of taking funds from a company, especially for many of Moore Accountancy contractors and one person companies. If you are a basic rate taxpayer, then there is no further tax to pay. Even if you are a higher rate, you only pay a marginal rate of 32.5%.
From 6/4/16, the first £5,000 of dividend income is tax free but anything above this will be taxed at 7.5%, 32.5% or 38.1% depending on your tax bracket.
This means shareholders of owner managed companies will be paying a lot more tax going forward and it may be in their best interests to bring forward dividend payments into the current tax year.
CORPORATION TAX RATES
These have come down over recent years to 20% for all companies. Surprisingly, further cuts in the tax rate will take place from 1/4/17 with the rate dropping to 19%. From 1/4/20 the rate will drop further to 18%.
This is good for UK businesses and also for encouraging overseas investment in the UK
ANNUAL INVESTMENT ALLOWANCE (AIA)
This allowance allows businesses to claim 100% of the cost of qualifying plant and machinery in the year of purchase.
It had been indicated that it would reduce from the current rate of £500,000 to £25,000 but George Osborne announced today it would be set at a new level of £200,000 from 1/1/16.
Currently all employers running a PAYE scheme receive a £2,000 allowance to offset their employer Class 1 NIC liabilities.
This is increasing by 50% to £3,000 from 6/4/16. However this will be withdrawn from companies with one director/employee. This is not good news for many of Moore Accountancy owner managed businesses. Further information as to how this will be recorded is still to come.
INHERITANCE TAX – MAIN RESIDENCE
This had been publicised already by the Conservative government.
Currently everyone has a £325,000 nil rate band after which Inheritance tax (IHT) is payable. The new relief adds a further £100,000 (from 6/4/17) up to £175,000 by (6/4/20) to the IHT exemption level to be used against a residential property.
By 2020, everyone will have £500,000 or £1 million for couples.
There are further tweaks in place, such as if someone downsizes and a reduction in relief for estates exceeding £2million but for the majority of people, this is a welcome relief.
Proposals will affect many people in the UK.
Tax credit (and the new Universal credit) will be restricted for families with more than 2 children; only affecting those born after April 2017.
Many benefits will be frozen for the next four years, but maternity pay and disability benefits should be exempt from this.
Local Authority/Housing Association tenants who earn more than £30,000 will lose their subsidised housing. They will have to start paying the market rate for their property. The income level will be £40,000 for those in London.
Young people will no longer be able to automatically claim housing benefit. There will be a new “earn to learn” scheme put in place.
This budget had lots to give, but lots to take away too.
Many of the changes have different implications depending on your personal and business situation and if you would like further advice to discuss any of these with Moore Accountancy, then please contact us at firstname.lastname@example.org , on 07542 299 247 or via twitter at @sidmooremanc