Budget 2016: What it means for you and your business
The Chancellor, George Osborne’s 2016 Budget was surprisingly positive, promising a host of changes to boost productivity and re-balance the UK economy with tax cuts and investment measures featuring heavily. Small businesses seem to be big winners, with savers being rewarded with new saving schemes.
At our seminar, Business Commentator Michael Taylor suggested ironically ‘the devil will be in the detail’…. Now the dust has settled, our tax team have produced a run-down of some of the main points from today’s Budget speech and what the announcements will mean for you and your business;
What it means for Business
Capital Gains Tax (‘CGT’)
This change came out of the blue and will have an effect on individuals, trusts and personal representatives who pay CGT. The measure will affect relevant gains arising on or after 6 April 2016 and is aimed to reduce the CGT liability for persons who make a variety of transactions, which are liable to CGT during the tax-year. This includes those persons disposing of shares and other financial/non-financial assets.
The measure will see a change in the current 18% rate for basic rate tax payers, which will fall to 10% and the higher rate of 28% will fall to 20% for certain chargeable gains. However, it is important to note that these changes will not apply to disposals of residential property and carried interest which will be charged at the same rates as they are currently.
Cowgill’s Expert View
By cutting the rates of CGT for most assets, the Government are intending to support companies to access the capital they need to expand and create jobs. Retaining the 28% and 18% rates for residential property is intended to provide an incentive for individuals to invest in companies over property. This was a complete surprise when many have thought the non-business CGT rate would increase as George Osborne had no ability to increase income taxes, VAT or National Insurance.
Investors relief (NEW!)
The new provision have been announced to extend the scope of Entrepreneurs Relief(ER). From April 2016 new investors into limited unquoted trading companies will be able to claim a new ‘Investor Relief’ which has most of the same benefits of ER. The rate of CGT charged on the qualifying gain will be 10%, with the total amount of gains eligible for Investors’ Relief subject to a lifetime cap of £10 million per individual. The key difference will be that the investor will not be required to be an employee or directors of the company. A key requirement to claim the relief will be that the shares must be subscribed for on or after the 17 March 2017 and must be held for a minimum of 3 years from 6 April 2016. This new Investor Relief will not replace ER and will be available only were the qualifying conditions for ER are not met.
Cowgill’s Expert View
Again a CGT rabbit out of the hat! This is a great incentive to investment into unquoted trading companies for those not meeting the employee requirement to claim ER. Business angels and seed investors will obviously benefit from this new measure.
Corporation Tax (CT)
At Summer Budget 2015, the government announced a reduction in the CT rate from 20% to 19% for the Financial Years beginning 1 April 2017, 1 April 2018 and 1 April 2019, with a further reduction from 19% to 18% for the Financial Year beginning 1 April 2020.
Additional measures have been taken and as announced during the March 2016 Budget the Corporation tax rate will reduce further to 17% from the financial year beginning 1 April 2020.
|Corporation Tax Rate (%)|
Cowgill’s Expert View
It was thought at Cowgills Budget Seminar today that this additional reduction in the CT rate is to compensate for the additional expense of the living wage increased due to be phased in over the next couple of years. Irrespective of the reason for the change, business will be grateful for any measure which reduces the CT burden.
Loans to participators
The loans to participators rules aim to prevent owners of close companies avoiding Income Tax and National Insurance contributions by remunerating themselves through loans or advances that are not repaid, rather than taking dividends or salary. Budget 2016 announces an increase in the rate of tax payable by close companies under the loans to participators rules so that it continues to mirror the higher rate of dividend tax.
The loans to participators tax rate will be increased from 25% to 32.5% in April 2016, with effect for loans, advances and arrangements made on or after 6 April 2016.
Cowgill’s Expert View
This differential was an anomaly that was left over from when the effective rate of tax on a dividend was 25%. The S.445 tax was originally introduced to discourage owner managers from just taking loans out and never repaying them. This measure seeks to bring parity back to the calculation to match that of the dividend tax rate, although interestingly you could be a higher rate tax payer and suffer tax at 38.1% on your dividend, and taking the loan could still give you a tax advantage!
What it means for you
A new lifetime ISA will be introduced from April 2017. The aim of this is to help young people save for their first home and also for their retirement. People under the age of 40 will be able to contribute a maximum of £4,000 per year into the ISA and will receive a bonus from the government of 25% of their contributions. This bonus continues until the age of 50. The investment growth and any withdrawals are tax free. If an 18 year old invested £4,000 each until they reached 50, they would have made contributions totalling £128,000 and would receive a Government bonus of £32,000. The funds can be used to buy a first home and withdrawn from age 60 to be used in retirement.
Cowgill’s Expert View
This is again welcome to try and encourage young savers adverse to pensions to save using a tax free wrapper. The ISA will effectively earn ‘interest’ at 25%. If an individual is saving towards their first home then this is a very attractive offer. However if the funds are withdrawn from the ISA before the age of 60 of they are not used to buy a first home, then a charge is due of 5%, plus all the capital growth along with the Government bonus.
Stamp Duty Land Tax
New SDLT rates have been introduced from 17 March 2016 for purchases of non-residential properties (commercial property, children’s homes etc.) . Currently SDLT is charged as a single percentage of the whole price paid for the property. The new rules mean that SDLT will be charged at each rate on the portion of the purchase price which falls within each rate band.
The new rates and thresholds are as follows:
|Transaction Value Band||New Rate|
|£0 – £150,000||0%|
|£150,001 – £250,000||2%|
This equates to a tax saving of £4,500 for a purchase of a non-residential property valued at £300,000.
Cowgill’s Expert View:
This aligns the SDLT rules for residential property which were introduced from 4 December 2014 so SDLT gradually increases with the price of the property. Hold off purchasing non-residential property until tomorrow!
It’s arguable that disguised remuneration avoidance schemes have already died a death with the withdraw of any cash flow incentive with the introduction of Advanced Payment Notices (APN’s), however further measures were introduced today to prevent employers paying a financial contribution to a third party such as an EBT instead of paying the employee, which avoided paying income tax and NICs. Currently a transitional relief exists so the amount treated as earnings, and any investment returns accruing on that amount, will not be taxed when distributed to the employee by the third party. This relief worked alongside the EBT Settlement Opportunity which closed on 31 July 2015 and encouraged individuals to settle with HMRC. The new rules withdraw the transitional relief on investment returns from 30 November 2016.
Cowgill’s Expert View:
The continued spotlight on anti-avoidance has seen George Osbourne succeed where other Chancellors have failed. This attention doesn’t seem to be wavering with further anti avoidance measures to deter those wishing to extract profits and avoid income taxes.
Opinions from Bolton’s business leaders and experts;
Lisa Wilson, tax partner at Cowgill Holloway said: “The headlines in the lead up to the budget have been remarkably accurate, although there were a number of surprises: the continued freeze on fuel duty came as a positive surprise, as well as the reduction in the rate of CGT from 18/ 28% to 10/20% for investment assets. For my clients the changes to the loans to participators, the restriction on the use of corporation tax losses will be of most interest. The news of a move from the slab system of stamp duty on commercial property was also welcome, but tempered by the news that the 3% surcharge on second properties was going to proceed. The increase in insurance premium tax from 9.5% to 10% was another knock back as the tax may apply three times to my clients if they insure their car, home and business.”
Tom Rosillo, operations director at Bring Digital in Bolton said: “From a business perspective, it was certainly positive to hear the announcements around capital gains tax and relief for investors. Being part of a business where the oldest person is 35, I felt it was a good Budget for younger people and we particularly liked the announcement around lifetime ISAs. This is something which would be really appealing for a number of our employees.”
Lisa Atherton, finance and operations manager at Forward Role said: “Overall it was a positive, but political speech. It was a good Budget for small businesses. The changes to stamp duty and business rates will help. As a recruitment business in the north west, I was also pleased to hear that the region is leading the country by having the fastest growing employment rates.”
Chris Houghton, chief executive at Eventura, said: “Today’s announcement was almost a ‘non-budget’ – I was surprised by what wasn’t in it as much as it was what was, such as the absence of any increase on fuel duty. There seemed to be a real emphasis in four key areas: small businesses, Scotland, low income families and Europe. In particular, it was interesting that Mr. Osborne seized the opportunity to use the platform to emphasise his European agenda. Nonetheless, there were some really positive takeaways for small businesses and working families.”
Simon Whittle, chairman of Westgrove Group, said: “I woke up this morning feeling rather pessimistic about what today would bring. Whilst it wasn’t all sunshine and rainbows there were a number of positives results – namely the new tax evasion and avoidance measure and the cut to stamp duty. Small businesses have been given a real boost which can only be a positive thing for the economy.”
Valerie Allen MBE, commercial director at General Welding Supplies (NW) Ltd, said: “By and large I am pleased with today’s announcement: The infrastructural plans to reinforce the Northern Powerhouse will help immensely in the long-term and hopefully bring some balance to the country. I am also delighted to see the long-overdue plans to clamp down on tax avoidance – hopefully we will see a fair contribution from multinationals and large corporations.
We were privileged to have some younger attendees at our budget seminar today, a number of students from Bolton School, Boys Division. They were astonished at the theatrics of the budget (who knew the Chancellor could issue such one liners…?) and were impressed by the content of the budget issued by the Chancellor, items of particular relevance to them was the introduction of the lifetime ISA’s, transport spending in the North to rebalance the economy, and not unexpectedly the Sugar Levy which aims to tackle childhood obesity. The boys gave the Chancellor a gold star for effort, but it remains to be seen if he will pass the exam.
The information was correct at time of publishing but may now be out of date.