Following Budget 2015, and the start of a new financial year, here are the main tax rates and allowances (those which most relate to small business owners) for 2015/16.
- The main rate (that charged to companies with a turnover of £1.5m or more) has fallen to align with the small profits’ rate (paid my businesses with a turnover of £300,000 per year) – at 20%
- If your annual profits fall between the £300,000 and £1.5m thresholds, then a system of ‘marginal relief’ applies. You can find out more in our Corporation Tax guide.
Value Added Tax (VAT)
- From 1st April 2015, you have to register for VAT if your turnover over the past 12 months is £82,000 or more.
- The de-registration threshold is £80,000.
- Dividends are taxed at the same rate as income (basic, higher and additional rates).
- However, you do receive a 10% notional tax credit on all dividends.
- This means that if you’re a basic rate taxpayer, there is no further tax to pay on dividend income.
- The higher and additional dividend tax rates are 32.5% and 37.5% respectively, but after the tax credit has been applied, the effective rates are 25% and 30.55% respectively.
- For more information, read our guide to how dividends are taxed.
Income Tax – Personal Allowance
- The personal allowance (the amount you can earn before any income becomes taxable) is £10.600 (a rise of £600).
- If your income is higher than £100,000 this year, you lose £1 of this personal allowance for every £2 you earn above this threshold. So, if your taxable income reaches £121,200, the entire personal allowance will have been eroded.
Income Tax Bands
- The basic rate band (20%) applies to income up to £31,785 (it was £31,865).
- The higher rate band (40%) applies to income from £31,786 to £150,000.
- The upper (additional) rate band (45%) is applied to income of £150,000 and above.
National Insurance (NICs)
- If you run a company (or work for one), then Class 1 NICs apply.
- For sole traders and partnerships, you pay Class 2 and Class 4 NICs.
- Employers’ Class 1 NICs are payable at 13.8% on salaries paid out of £156 per week or more.
- Employees’ Class 1 NICs are payable at 12% on salaries received between £156 and £815 per week, and at 2% on income received above £815 per week.
- Don’t forget that all businesses can reclaim up to £2,000 per year of their employers’ NIC costs, thanks to the Employment Allowance.
- Class 2 NICs are payable at £2.80 per week.
- Class 4 NICs are 9% of annual profits between £8,060 and £42,385 per year, and 2% on profits above £42,385 per year.
- Try our guide to National Insurance for further information.
Pensions savings tax relief
- The annual allowance limit remains at £40,000, subject to a lifetime allowance of £1.25m.
- The maximum tax free lump sum is 25% of your pension pot.
Individual Savings Accounts (ISAs)
- The overall ISA investment limit rises to £15,240.
Capital Gains Tax
- CGT rates remain at 18% and 28% (the same tax bands as income tax).
- The lifetime limit for Entrepreneurs’ Relief remains £10m, and the tax rate remains at 10%.
- Each individual as an annual CGT exemption of £11,000.
- The Annual Investment Allowance (AIA) remains at £500,000, but controversially, the Chancellor failed to extend this for a further year during Budget 2015. So, the current threshold is due to end on 31st December 2015. We may only know if this will be extended or not when the Autumn Statement is made later this year.
- Plant & Machinery – main rate is 18%, and the special rate stays at 8%.
- First year allowances remain at 100%.
- The England standard multiplier is 49.3p
- The England ‘small business’ multiplier is 48p (if your property has a rateable value of £18,000 or less – or below £25,500 in Greater London).
- The Inheritance Tax Threshold (IHT) remains at £325,000. The value of estates above this threshold is taxed at 40%.
- A combined threshold of £650,000 applies to civil partners / spouses.
Stamp Duty Land Tax
The SDLT regime was significantly changed during December 2014, with rates as follows, charged on a progressive basis (i.e. no longer just on the band into which the purchase price falls):
- Up to £125,000 – no tax
- £125,001 – £250,000 – 2%
- £250,001 – £925,000 – 5%
- £925,001 – £1,500,000 – 10%
- £1,500,000 or more – 12%