Further to the Autumn Statement yesterday afternoon, we have now uploaded an overview to our website here.
The main points to highlight after yesterday’s statement and the summer Budget are:
Corporation Tax Rates
As announced in the summer Budget Corporation Tax rates will from 1 April 2017 reduce to 19% and 1 April 2020 it will be 18%.
This was probably the biggest change for the owner managed business that was announced in the summer Budget, a change to the way Dividends are taxed. Currently all Dividends come with a 1/9th tax credit, which means basic rate tax payers (20%) pay no further personal tax.
From 6 April 2016 this will change. The first £5,000 of dividends will be covered by a Dividend Allowance, which means no personal tax will be due. Everything over this £5,000 Allowance for basic rate tax payers (20%) will incur a further personal taxation cost of 7.5%, higher rate tax payers 32.5% and for the additional rate tax payers it will be 38.1%.
National Living Wage (NLW)
For those who employ staff from 6 April 2016 those workers over 25 will be subject to the NLW which is £7.20 per hour (the National Minimum Wage rate is £6.70 per hour). The NLW will be £9 per hour by 2020.
As already mentioned in the summer Budget from April 2017 couples will be able to pass on £1m (£500,000 each) free from Inheritance Tax.
Employers National Insurance Allowance
It was announced in the summer Budget that this will rise from £2,000 to £3,000 in April 2016. This is the amount of Employers NIC that is not payable, once your Employers NI bill goes over this then you have to pay that over to HMRC together with your employees’ deductions as usual.
It was also announced in the summer Budget that this allowance would no longer be available for Director only business with no staff. Although this is a loss, to most Director only businesses it only had a saving of (at best) c.£170 per year (per Director), not a huge amount of money, but in view of the Dividend tax it is a shame that this government seem intent on hindering the smallest of businesses.
Buy to Let Property Investors
We heard in the summer Budget that those higher rate tax payers involved in Buy to Let (dwellings not commercial) will from 6 April 2017 start to lose the 40% tax relief on the financing costs (mortgage interest), those who pay tax a 20% (basic rate) are not affected, nor are those that hold property in a Limited Company.
There will be a gradual phasing in over four year for this change. In the tax year 2017/2018 only 75% of financing costs will be allowed at the higher rate, 2018/2019 50%, 2019/2020 25% and from 2020/2021 only financing costs at basic rate will be allowable.
Announced yesterday was a further blow to the Buy to let market (and second homes) with an additional 3% Stamp Duty Tax above the current rates. This will come into effect from 1st April 2016.
It’s not all bad though, stamp duty is an allowable cost on eventual sale when calculating the amount of Capital Gains Tax due.
Capital Gains Tax ‘CGT’
From April 2019 a payment on account of CGT due on the sale of residential property will need to be made within 30 days of completion. Currently, this time scale can be up to 21 months after the sale. Please note: this does not apply to your personal home, as that is covered by Private Residence Relief, therefore no CGT is due on your home.
Probably the hardest hit of all owner managed businesses. Not only do they have to deal with the Dividend Taxation increases, the loss of the Employers National Insurance Allowance now they also have to deal with the loss of Travel and subsistence costs (the rules covering this will not be published until 9 December).
Employees of “umbrella” companies and owners of personal service companies ‘PSC’ may recall an HMRC consultation aimed at removing tax relief for travel and subsistence costs where there is an “overarching” employment contract. This Autumn Statement confirms that these changes are to be implemented from 6 April 2016.
At the moment it appears that HMRC have conceded that the restriction will not apply to those PSCs which are “IR35 compliant”. It looks as if such companies will continue to be able to claim tax relief for travel costs (subject to the existing rules, including the requirement that the engagement at a particular site should not exceed 2 years).
There is something to note here: As you will know IR35 when argued by HMRC looks at control, the rules for travel and subsistence are based on a test that uses Control as defined by Supervision, Direction OR Control, so not quite such a narrow description.
If you have any questions about anything in our Autumn Statement or this posting please do not hesitate to contact us.