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Summer Budget 2015 – impact on business owners

The Chancellor delivered an ambitious Budget today, announcing tax changes which will impact almost all small business owners and entrepreneurs. Here, we look at the main points.

Small Business Budget

Dividend Tax

From April 2016, the current system of dividend tax credits will be abolished, and replaced by a new set of dividend tax rates.

All taxpayers will have a £5,000 dividend allowance, so from April 2016 (when the personal allowance will rise to £11,000), most shareholders will start to pay dividend tax from £16,000 onwards.

The new rates are: 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).

Unfortunately, this means that any limited company owners who earn more than £16,000 from April 2016 will be worse off as a result of this change, which could cost those affected several thousands per year in additional taxes.

Employment Allowance

This allowance currently writes off the first £2,000 of employers’ National Insurance Contributions which would ordinarily be paid by firms on their workers’ salaries. This will be increased to £3,000 from April 2016, however directors who are also the sole employees of their companies cannot claim.

Annual Investment Allowance

This incentive provides firms with tax relief on eligible purchases of plant and machinery items. You can currently claim up to £500,000 during the 2015 calendar year. This amount is set to fall to £200,000 from January 2015, which is a significant cut, but still far higher than historical limits.

Corporation Tax

The rate of CT is set to 19% in 2017, and even further, to 18% in 2020. This measure is expected to benefit over 1m businesses.

Personal Tax

The Conservatives already pledged to raise the higher rate income tax threshold to £50,000, and the personal allowance to £12,500 over the next five years.

Today, the Chancellor confirmed that the personal allowance will rise to £11,000 from April 2016, and the higher rate threshold to £43,000.

Inheritance Tax

You can currently leave £325,000 in your will free of Inheritance Tax (£650,000 for a couple). This threshold has remained unchanged for over 6 years. From April 2017 onwards, you will be able to pass on your family home free of tax (this will be a phased tax change) – up to the value of £175,000 per individual.

High Earners’ Pensions

From April 2016, individuals earning £150,000 or more (including pension contributions) will receive less tax relief on these contributions. The value of the relief will fall by £2 for every £1 earned over this threshold, with a minimum of £10,000.

Other Measures

  • Insurance Premium Tax (IPT) will rise from 5% to 9.5% from November 2015.
  • Tax relief on finance costs (e.g. mortgage interest) for Buy-to-Let landlords will be restricted to basic rate relief of 20%, in a phased withdrawal of higher-rate relief between 2016 and 2020.
  • Permanent ‘non dom’ tax status will be abolished from 2017, so individuals who have lived in the UK for 15 of the past 20 years will be taxed as normal UK citizens.
  • The Government is planning to undertake another review of the notorious IR35 rules, which it says are ‘inefficient’.
  • The Bank Levy will be phased out, and replaced by a tax on banking sector profits from next January.
  • New National Minimum Wage is to be introduced – rising to £9 per hour by 2020.
  • You can read about the Budget in more detail via the HM Treasury Budget 2015 microsite.

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