Budget 2016 – The Headlines

There were a number of very important announcements made by the Chancellor in the 2016 Budget and they are highlighted below.

Personal Taxation – Income Tax

Personal Allowance and Rate Bands

The personal allowance is the amount of income most people can earn before becoming liable to UK income tax. The personal allowance is currently £10,600 but this will be increased to £11,500 for the 2017-18 tax year.

The basic rate limit will also be increased to £33,500 for 2017-18 tax year. As a result, the higher rate threshold will be £45,000 in 2017-2018.

New tax allowances for money earned from the sharing economy

From April 2017, there will be two new tax-free £1,000 allowances. One will be for selling goods or providing services, and one for 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.

In the same way, the first £1,000 of income from property such as renting a driveway or loft storage will be tax free.

Personal Taxation – Capital Gains Tax (“CGT”)

CGT Rates

Capital Gains Tax is a tax on the gain or profit you make when you sell something (a ‘chargeable asset’) that has gone up in value. It is paid at a basic or higher rate depending on the rate of Income Tax you pay.

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 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).

Employee Shareholder Status – CGT exemption

Employee-shareholder contracts was a measure introduced a few years ago where employees were given shares in their employers in return for giving up certain rights.

One tax benefit to encourage uptake was the capital gains exemption on gains made on the disposal of up to £50,000 of shares. The new measure places a lifetime limit of £100,000 on the Capital Gains Tax (CGT) exempt gains that a person can make on the disposal of shares acquired under Employee Shareholder Agreements entered into after 16 March 2016.

Entrepreneurs’ Relief (“ER”) changes

There were a number of minor changes made to entrepreneurs’ relief. The relief allows gains to be taxed at a rate of 10% if the relevant conditions are met.

The first measure is in relation to goodwill on incorporation. Legislation will be introduced that is expected to have retrospective effect allowing ER to be claimed in respect of gains on goodwill where the claimant holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company.

New measures will be introduced which will extend ER to external investors. The measure is intended to provide a financial incentive for individuals to invest in unlisted trading companies over the long term.

Corporation Tax

Corporation Tax Rate

The rate of corporation tax will be cut from 1 April 2020 to 17%. This is in addition to the cut previously announced by the Chancellor last year.

Loans to participators

Currently if a close company (a company controlled broadly by any number of directors or five or fewer shareholders) makes a loan or an advance to a participator (broadly a shareholder or close relation to the shareholder), the company has to pay a tax of 25% of the outstanding loan balance. The 25% rate is set to increase to 32.5% from 6 April 2016.

Vaccine Research Relief

This relief will cease in respect to expenditure incurred on or after 1 April 2017.

Petroleum Revenue Tax (“PRT”)

PRT is a tax paid by companies on the profits from oil and gas production in the UK or on the UK continental shelf. The rate from 1 January 2016 was initially set up at 35%. The measures announced will permanently zero rate Petroleum Revenue Tax and further reduces the rate of supplementary charge payable in respect of adjusted ring-fenced profits from 20% to 10%.

Business Rates

Business rates

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 to a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less.

There will be a tapered rate of relief on properties worth up to £15,000.

National Insurance Contributions (“NIC”)

Class II NIC

Currently self-employed individuals pay Class II NIC at £2.80 per week. Class II NIC will be abolished from April 2018.

Termination payments

Many employers offer employees termination payments. If certain conditions are met, the first £30,000 will be free from income tax while the entire amount is completely free from NIC.

From April 2018, employers will need to pay NIC on such one-off payments above the £30,000 limit where income tax will also be due.

Stamp Duty Land Tax (“SDLT”)

Non-residential property

This measure will take effect from 17 March 2016.

The slab system in calculating SDLT will be abolished for commercial property transactions.

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.

Value Added Tax (“VAT”)

Registration & Deregistration Limits

The compulsory limit which a business has to register for VAT will increase from 1 April 2016 by £1,000 to £83,000.

The voluntary deregistration limit will also increase from 1 April 2016 by £1,000 to £81,000.

Other Indirect Tax

Vehicle Excise Duty

Vehicle Excise Duty rates will increase in line with the Retail Price Index (“RPI”) in the 2016-2017 year.

Insurance Premium Tax (“IPT”)

The standard rate of IPT will increase by 0.5% to 10%.

Air Passenger Duty (“APD”)

Flights will be a little bit more expensive for the tax years 2016-17 and 2017-18 as the APD rates will increase in line with RPI.

Fuel Duty

This will be frozen for another year.

Beer & Cider Duty

The duty on beer, cider and spirits and other drinks above 22% alcohol by volume will be frozen in cash terms this year.

Non tax measures

Lifetime ISA

A new lifetime ISA will be introduced from April 2017 which will be available to adults under 40 to help them save for retirement or buy their first home.

Up to £4,000 can put into these lifetime ISAs a year by savers and the government will pay a 25% bonus.

If you have any queries following the 2016 Budget, please do not hesitate to contact your Barnes Roffe contact.

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