Budget statement 8th March 2017- Key Points
We have gathered below the key points of what the Chancellor said in his latest statement. Please note this only covers the taxes updates which in our opinion are most relevant to our clients. If you require any further information, please feel free to contact us for help and advice on technical matters. Please note that these are not the final changes and some things might still change after HMRC has conducted its consultations.
Tax Free Dividends Update
From April 2018, the total amount of dividends that company directors and shareholders can receive tax-free will fall from £5,000 to £2,000.
It means a basic rate tax payer who receives £5,000 in dividends will have to pay an extra £225 tax from April 2018. A higher rate tax payer will pay an extra £975.
It means a basic rate tax payer who receives £5,000 in dividends will have to pay an extra £225 tax from April 2018. A higher rate tax payer will pay an extra £975.
Corporation Tax Update
The Corporation Tax rate will fall each year from 1 April 2017 to the financial year beginning 1 April 2020, reducing the Corporation Tax main rate by 2% by 2020. The Corporation Tax main rate for 1 April 2016 is set at 20%. The rate will be reduced to 19% for the financial year beginning 1 April 2017 and will be set at this rate for the financial years beginning 1 April 2018 and 1 April 2019.
The Corporation Tax main rate will be reduced by a further 1% to 18% for the financial year beginning 1 April 2020.
The Corporation Tax main rate will be reduced by a further 1% to 18% for the financial year beginning 1 April 2020.
Flat Rate Scheme Update
In the Autumn Statement, Chancellor Philip Hammond announced changes which affect businesses which have a very low cost base. The new rules start on 1 April 2017, but may also affect invoices issued, and goods bought, from now on.
The Flat Rate Scheme is still available for most businesses which fulfil the criteria, but their percentage will be 16.5% as oppose to 14.5% previously. So if they invoice £120 of work, including £20 of VAT, the flat rate amount is £19.80 (£120 x 16.5%).
It will increase the VAT paid by labour-intensive businesses where very little is spent on goods. For example, this may affect IT contractors, consultants, hairdressers and accountancy firms.
The Flat Rate Scheme is still available for most businesses which fulfil the criteria, but their percentage will be 16.5% as oppose to 14.5% previously. So if they invoice £120 of work, including £20 of VAT, the flat rate amount is £19.80 (£120 x 16.5%).
It will increase the VAT paid by labour-intensive businesses where very little is spent on goods. For example, this may affect IT contractors, consultants, hairdressers and accountancy firms.
Personal Allowance Update
Personal tax-free allowance is to rise as planned to £11,500 this year from April 2017 and to £12,500 by 2020/21.
The threshold for higher rate will go up from £42,385 to £43,000 and eventually to £45,000 by 2020/21.
Please also note from April 2015, married couples who earn less than £10,600 will be able to transfer some of the unused allowance their spouse so long as the recipient doesn't pay higher rate (40%) or additional rate (45%) tax. This also applies where a higher earner is self-employed and it means that together, a couple will pay less tax.
The threshold for higher rate will go up from £42,385 to £43,000 and eventually to £45,000 by 2020/21.
Please also note from April 2015, married couples who earn less than £10,600 will be able to transfer some of the unused allowance their spouse so long as the recipient doesn't pay higher rate (40%) or additional rate (45%) tax. This also applies where a higher earner is self-employed and it means that together, a couple will pay less tax.
ISAs
The amount that can be saved in a tax-free Individual Savings Account (ISA) is rising from £15,240 a year to £20,000.
The launch of a new Lifetime Individual Savings Account (LISA) for those aged between 18 and 40 will help to save up to £4,000 a year, and the government will add a 25% bonus if the money is used to buy a home or as a pension from the age of 60.
The launch of a new Lifetime Individual Savings Account (LISA) for those aged between 18 and 40 will help to save up to £4,000 a year, and the government will add a 25% bonus if the money is used to buy a home or as a pension from the age of 60.
IR35 Update
The changes to the IR35 from 6th of April mean public sector ( central and local government, the armed forces, the police, the NHS and Transport for London among other ) employers will have to deduct tax and national insurance contributions from contractors pay at source. If you provide your services to the public sector, it is the end client who assesses whether your assignment falls inside or outside IR35. If the assignment was deemed to fall inside the IR35 rules then your agency has to deduct tax and NI before making payments to your private limited company.
Residential Rental Property Finance Costs Update
The amount of Income Tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax.
The changes will:
• affect you if you let residential properties as an individual, or in a partnership or trust
• change how you receive relief for interest and other finance costs
• be gradually introduced over 4 years from April 2017
Finance costs won’t be taken out of taxable property profits as an expense. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.
You’ll be able to use some of your finance costs to work out your property profits and use your remaining finance costs to work out your basic rate tax deduction. Please feel free to contact us on [email protected] if you need help with your rental accounts.
The changes will:
• affect you if you let residential properties as an individual, or in a partnership or trust
• change how you receive relief for interest and other finance costs
• be gradually introduced over 4 years from April 2017
Finance costs won’t be taken out of taxable property profits as an expense. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.
You’ll be able to use some of your finance costs to work out your property profits and use your remaining finance costs to work out your basic rate tax deduction. Please feel free to contact us on [email protected] if you need help with your rental accounts.
