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Wednesday, 16 March 2016 12:38

Commentary on Budget 2016

This is the first really full Budget of the new Parliament (Mr Osborne’s 8th Budget), although the summer 2015 Budget and the Autumn Statement were mini-Budgets in themselves.

Both those painted a pretty optimistic view of the nation’s finances and economic well-being. However, since then, things have changed considerably and today’s Budget took a longer-term view of things. Mr Osborne said that “the world outlook was materially weaker”. But, the UK economy will grow faster than any other major economy in the world.

The Chancellor has previously said that he is “fixing the roof whilst the sun is shining”, but it seems that there are now more storm clouds than sunshine. Today he said he is “putting stability first”.

Of course, this Budget came only three months before the EU Referendum, and so Mr Osborne had to be particularly careful to try and avoid antagonising either side of the debate with his announcements. By the end of the speech, he was certainly popular with his Conservative colleagues who were busy cheering. And there were a number of surprises in his hat, particularly the changes to capital gains tax.

A surplus by 2019-20

The Government claims that this year the deficit will have been cut by almost two thirds from its peak. Over the next four years, the deficit will have been eliminated and the government will be running a surplus – where more tax is raised than is spent.

To help achieve this, there will be a further £3.5 billion of savings from departmental spending in 2019-20, less than 50p in every £100 the government spends. There will be an efficiency review to inform future spending decisions.

It’s also important to note that the OBR’s forecasts, on which this Budget is based, are predicated on the UK remaining in the EU. Things could be very different if we leave the EU.

So what are the main measures affecting businesses and individuals?

Capital Gains Tax

Capital Gains Tax rates will be cut from 6 April 2016, but residential property will still be taxed at current rates

From April 2016, the higher rate of capital gains tax will be cut from 28% to 20% and the basic rate from 18% to 10%. There will be an additional 8% to be paid on residential property (not main residences though) and carried interest (the share of profits or gains that is paid to asset managers).

In addition, entrepreneurs’ relief will be extended to long-term investors in unlisted companies. This will apply to newly-issued shares on or after 17 March 2016, held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.

Corporation tax

Corporation tax will be cut again to 17% in 2020

The main rate of corporation tax has already been cut from 28% in 2010 to 20%, the lowest in the G20. It will now be cut again to 17% in 2020, benefitting over 1 million businesses.

Loss relief

There will be changes to loss relief, making the system more flexible for businesses, but limiting how many losses brought forward can be used against current years’ profits.

For losses incurred on or after 1 April 2017, businesses will be able to use carried forward losses against profits from all other income streams or from other companies within a group. From 1 April 2017, for profits in excess of £5 million, only 50% of the profit can be reduced by brought forward losses.

Corporation tax payment dates

The expected bringing forward of the CT payment dates for large companies will be delayed until accounting periods beginning on or after 1 April 2019.


Lifetime ISA: a new £4,000 ISA that you can use to save for retirement or to buy your first home

From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year and savers will receive a 25% bonus from the government on this money. Money put into this account can be saved until you are over 60 and used as retirement income, or you can withdraw it to help buy your first home.

For main ISAs, the annual savings limit will be increased from £15,240 to £20,000 from April.

Personal tax

The personal allowance will increase to £11,500, and the higher rate threshold will rise to £45,000 in April 2017

The personal allowance is the amount of income you can earn before you start paying tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017. The point at which you pay the higher rate of income tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017.

Business tax

New tax allowances for micro businesses

From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one 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 they have made – will no longer need to pay tax on that income. The first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.

Cutting business rates for all rate payers

From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. Currently, this 100% relief is available if you’re a business that occupies a property (eg, a shop or office) with a value of £6,000 or less. As for residential dwellings, where there were changes last year, there will be a tapered rate of relief on properties worth up to £15,000. This means that 600,000 businesses will pay no rates.

Tax avoidance

Shifting profits out of the UK

Some large companies use interest payments to reduce the tax they pay on their profits in the UK. Relief on interest payments will now be capped at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.

There will be rules to prevent multinational companies avoid paying tax in any of the countries they do business in, a technique called hybrid mismatches. For those using intellectual property there will be changes to outbound royalty payments meaning multinationals pay more tax in the UK.

Employers will pay National Insurance on termination payments above £30,000 from April 2018

From April 2018 employers will now need to pay National Insurance contributions on termination payments in excess of £30,000 where income tax is also due.

Loans to participators

The rate of tax on loans to participators (essentially shareholders in SMEs) will increase to 32.5% for new arrangements made on or after 6 April 2016.

Disguised remuneration schemes

There will be further legislation in the 2016 Finance Bill to block the use of disguised remuneration schemes and EBTs.

Personal service companies

From April 2017, there will be a new requirement for public sector bodies to ensure that the rules are being applied correctly.

Employee shareholder status

There will be a new £100,000 individual lifetime limit on gains eligible for exemption through the ESS.

National Insurance

Class 2 National Insurance contributions (NICs) for self-employed people will be scrapped from April 2018

Currently, self-employed people have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay Class 4 NICs if their profits are over £8,060 per year. From April 2018, they will only need to pay one type of National Insurance on their profits, Class 4 NICs. After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.

Stamp Duty Land Tax

New stamp duty rates for commercial property from 17 March 2016

The way stamp duty on freehold commercial property and leasehold premium transactions is calculated will change. Currently, these rates apply to the whole transaction value. From 17 March 2016 the rates will apply to the value of the property over each tax band, in a similar way to residential property. The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.

Yet to come…

There’s more to come. We know that the Finance Bill will contain technical changes on SEIS/EIS/VCTs, share schemes, flexible benefits, home to work travel, trivial expenses, PSAs, pension draw-down, lump sum critical illness/life assurance benefits, Patent Box, OECD/BEPS transfer pricing rules, CGT entrepreneurs’ relief, and much more…



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