Our guide to the 2016 Budget – Good news for you & your money?

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This week was George Osborne’s eighth budget as Chancellor and second as part of a full Conservative government.

 

He announced a range of eye-catching measures, including a levy on sugary drinks, lower income tax bills, a cut in corporation tax and help for small businesses, in a Budget he said would “put the next generation first”.

 

The stakes were higher this year, with the Chancellor aiming to hold on to small business support ahead of a European Referendum. He stated the economic forecasts are “predicated on the UK remaining within the European Union”.

 

‘We must act now so we don’t pay later’ and with that he revealed the contents of the famous red case which was filled with tax cuts, reliefs and freezes aplenty.

 

Here is our short but ‘sweet’ summary of all the key points that will effect you and your money from the latest Budget.

Business Rates

The Chancellor announced a new £15,000 threshold for small business rate relief, more than double the previous level of £6,000. He also increased the higher rate from £18,000 to £51,000, and said the changes mean 600,000 small firms will pay no business rates at all.

 

Savings

Under a new Lifetime ISA announced in the Budget millions of adults under 40 will receive a 25% bonus from the government. From April 2017 they will be able to put in up to £4,000 a year, with the annual bonus of up to £1,000 paid until the age of 50. The Chancellor said that savers would be able to withdraw money from a Lifetime Isa at any time, and would not pay any tax on it. “For the self employed, the lifetime ISA is the kind of benefit they just can’t get from pension industry,” Osborne said.

 

From April 2017 all savers will be able to put up to £20,000 a year into ISA’s, up from £15,240 at the moment.

 

Personal Tax, Higher Rates, NICs & Allowances

The tax free personal allowance will increase to £11,500 next year, in excess of the £11,000 planned.

 

The higher rate threshold will increase from £42,385 to £45,000 from April 2017.

 

The self-employed will soon no longer have to pay class 2 national insurance contributions. It is to be abolished from April 2018.

 

The Government will introduce two new £1,000 allowances for people trading online and renting out their properties through sharing economy websites. Individuals with related income below the level of the allowance will no longer need to declare or pay tax on that income. The government said the measure is designed to support “micro-entrepreneurs” driven by “the rapid growth of the digital and sharing economy”.

 

Corporation Tax

Corporation tax will be to cut to 17% by April 2020. The Treasury estimates this will benefit one million companies. The reduction will leave Britain with one of the most competitive rates of profits tax among large nations – America’s rate is 40%, while Germany and France are on 29% and 32% respectively.

 

The Chancellor announced measures to stop multinational companies manipulating the tax system and avoiding payment. Banks and multinationals will be hit by new restrictions on how they can deal with historic losses and interest on their debts. Restrictions will be bought in barring all such carried forward losses to 50% of profits.

 

Capital Gains Tax

The top rate of capital gains tax is to be cut from 28% to 20% and the basic rate falls from 18% to 10% from 6 April 2016. This will not extend to residential property but will include the sale of equity in businesses. The change will be effective from the start of the new tax year in April.

 

Duties

The Chancellor avoided raising fuel duty for the sixth year in a row and maintained freezes on beers, spirits & the majority of ciders.

 

Stamp Duty

The Chancellor has reformed stamp duty for commercial property in a similar way to how he changed the residential system in 2014. The overhaul introduces a “slice” system, in which stamp duty is payable on the portion of each transaction that falls within the relevant price band.

 

As of midnight on the 17th March 2016, there will be no commercial stamp duty paid on property purchases up to £150,000, 2% on £150,000 – £250,000 and a top 5% rate thereafter.

 

The Treasury says 90% of businesses will pay the same or less as a result of this change.

 

Sugar Tax

The levy assessed by volume, which will start in April 2018, will put up the price of drinks such as Red Bull, Capri Sun, Sprite and several versions of cola. The Treasury has not decided exactly how much extra they will force producers to charge for heavily sweetened drinks, but health campaigners want it to be 20%. It is thought this will decrease the child obesity crisis and cut the disease’s £5bn a year cost to the NHS.

 

Conclusion

Small businesses have praised George Osborne’s Budget, welcoming changes to corporation tax, business rates and tax relief for the sharing economy. Other commentators however predict that the various Budget giveaways mean the Chancellor will now have to unveil a “huge tax bombshell” in 2019-20 and that George Osborne has focused on “gimmicks” and “catchy announcements” rather than fundamental reforms.

 

With uncertainty casting a deep shadow over this Budget, a budget deficit that appears to be almost impossible to bring under control and a pressing need to keep the electorate onside in advance of the June Referendum, this was very much a ‘safety first’ Budget. Major changes were kept to a minimum and it was a creditable effort in more challenging circumstances, but the challenges in the next four months are likely to be even more daunting for the Chancellor.

 

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. We have a friendly and reliable team ready to assist with your accountancy needs so just pick up the phone and call 01273 446595 or send us a call back request via our website www.timeaccounts.co.uk and we’ll do the rest!

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