Hello Everyone,
Summer is now in full swing, with the school holidays upon us and everyone jetting off for their holidays. It has been a busy few months for the Time office and the Time team keeps on growing. We have welcomed our new apprentice Max, who is studying for his AAT and we are teaching him everything we know.
We all have the running bug after completing the BM10K in April. Our next challenges are in October, with the Bright10 mile and the Colour Run along Madeira Drive.
As we all know, the Conservatives have won another term in office and the UK is now privy to the Chancellors speech in regards to the topic on everyone’s lips, the ‘Summer Budget 2015’. There are going to be a lot of changes over the next 5 years whether that be in terms of personal finances or being a business implementing the National Living Wage and Auto Enrolments, the 2015 Budget could be the most radical yet.
I have focused my article today on a few key points which have been a important talking point within the accountancy world since George Osbourne made his announcements.
Dividend Rules –
The Chancellor has reduced the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. He has done this by changing the tax on dividends.
From 6 April next year dividends will have no tax credit attached (thus removing the often confusing distinction between “gross” dividends and “net” dividends) and the amount received will be all that matters.
The first £5,000 of dividend income in each tax year will be tax-free. Sums above that will be taxed at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers. No tax will be deducted at source; taxpayers must use self-assessment to pay any tax due.
Basic-rate taxpayers who receive more than £5,000 in dividends will pay more tax, there are others, such as higher-rate taxpayers with £5,000 or less in dividend income, who will gain – currently they pay 25% on the whole sum (or £1,250), while under the new regime there will be no tax to pay, thanks to the £5,000 allowance.
Dividend income is still eligible for the personal allowance. So if next year you had £16,000 in dividend income, the first £11,000 would be covered by the personal allowance and the other £5,000 by the new dividend allowance. As a result, you would pay no tax.
For existing companies dividends are still generally more tax efficient that salary, though the advantage are reducing.
Rental Income –
At the moment, anyone who rents out a room to a lodger where the rental income exceeds £4,250 a year must pay tax on the amount above this. But the Chancellor announced that, from April 2016, this tax-free allowance will increase to £7,500, the first time the threshold has moved since 1997.
Under the rent a room scheme you can now make up to £7,500 a year without paying tax by renting out a furnished room in your home. If your rental income goes over that amount you’ll have to fill in a tax return. And there’s a fine line between taking in occasional B&B guests and running a business, so speak to an accountant if you’re unclear about the tax rules and are regularly taking in paying guests.
If you are a basic rate taxpayer, you will pay 20% income tax on your rental profits whilst National Insurance is not paid on rental profits.
Living Wage–
From April 2016, a new National Living Wage of £7.20 an hour for those aged 25 and over will be introduced. This will rise to over £9 an hour by 2020.
The Income Tax threshold will increase to £11,000 in 2016-17.
Personal Allowance will increase to £12,500 by 2020.
The new Law means People working 30 hours a week on the National Minimum Wage won’t pay Income Tax at all. Increases to the Personal Allowance mean that a typical taxpayer will be £905 a year better off in 2016-17.
Employment Allowance –
Businesses will have their employer National Insurance bill cut by another £1,000 from April 2016, as the Employment Allowance rises from £2,000 to £3,000. The Employment Allowance gives businesses and charities a cut in the employer National Insurance they pay.
Next year, businesses will be able to employ 4 people full time on the National Living Wage and pay no National Insurance at all.
Pensions –
Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with income of over £150,000, including pension contributions.
Those earning more than £150,000 will have their tax-free contributions allowance tapered away from its current £40,000 per year to a minimum of £10,000.
The Government is consulting on a new ISA-style pension where savers pay tax on the income they put in, but not when they take it out.
Corporation Tax –
Corporation tax to be cut from 20% to 19% in 2017 and to 18% by 2020.
Annual Investment Allowance –
Annual Investment Allowance for small and medium-sized businesses to be set at £200,000 from this year. Inheritance Tax –
Currently, Inheritance Tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.
From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18.
The family home allowance of £175,000 will be added to the existing £325,000 Inheritance Tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21.
The allowance will be gradually withdrawn for estates worth more than £2 million.
Key Dates for your Financial Diaries:
19 August 2015 is the final date to submit and pay your July 2015 PAYE.
31 August 2015 is the deadline for filing your Corporation Tax return for 31 August 2014 year ends.
For those of you with the year end 30 November 2014 remember you have until 31 August 2015 to submit your Accounts to Companies House and until 1 September 2015 to pay any corporation tax due.
You must notify HMRC of any rental income by 5 October 2015 after the end of the tax year (5 April 2015). For an online return the deadline is 31 January 2016.
Quarter ended June VAT returns to be filed and paid by 7 August.
I hope you found my article useful. Please remember to interact with me if you have any questions and let me know if you want anything covered in the next article.
My email address is hannah@timeaccounts.co.uk or you can follow me on Twitter @timeaccounts or visit our business Facebook page (Facebook/timeaccounts). Remember to like our page so you can keep on top of tax saving tips, deadlines and general Time Accounts updates.
Hope to catch you next month. New column coming Thursday 3rd September!
Time Accounts t/a Time Business Services are a local Sussex based chartered accountancy practice dealing with all aspects of small, medium enterprises and their financial requirements, so just pick up the phone and call 01273 446595 or send us a call back request via our website Time Accounts and we’ll do the rest!
