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The Start of the New 2016/17 Tax Year: How does it affect you?

Today, 6th April 2016, witnesses the start of another new tax year. As with any new tax year, the usual changes in personal taxation will come into force (such as the fluctuations in the personal allowances and tax thresholds), but the 2016/17 tax year will also introduce some unexpected changes, therefore it is important to consider the impact of these changes on both your personal and business circumstances. 

This is particularly the case for limited company director-shareholders with the new dividend tax regime effective from today, and for buy to let investors with changes in stamp duty, exemptions from the new decreases in capital gains tax rates for the sale of their residential buy-to-let properties, and the abolition of the ‘wear and tear’ allowance.

Key changes effective for the new tax year from 6 April 2016 are summarized as follows:

Personal Taxation

  • The tax-free personal allowance has risen to £11,000 for the 16/17 tax year (from £10,600 for the 15/16 tax year)

  • All individuals will be entitled to the same personal allowance regardless of their date of birth

  • The threshold at which individuals pay 40% tax (the basic rate band) has risen to £43,000 (from £42,385 for the 15/16 tax year)

  • The upper profits limit for class 4 national insurance contributions has risen to £43,000 (from £42,385)

  • Capital gains tax has been reduced considerably from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers, but the new rates do not apply to transactions involving residential property or carried interest. Capital gains tax rates for these will continue to be 18% and 28% respectively

  • The personal savings allowance has been introduced. This is set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Individuals can earn this much in interest before any tax is therefore due

  • The new dividend taxation regime has started, which entitles individuals to a £5,000 tax free dividend allowance and abolishes the old 10% tax credit system (therefore dividends will be stated on an individual’s personal tax return at the net amounts rather than grossed up). However, the use of the £5,000 does form part of an individual’s basic rate band, and any dividend income in excess of the  allowance will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers

  • Class 2 NIC will be collected through your personal tax return (as opposed to a monthly or quarterly charge)

  • ISA limits will continue at £15,240 (as per the 15/16 tax year) until April 2017 when they will rise

  • The marriage allowance has increased to £1,100 (from £1,060 for the 15/16 tax year)

  • The car fuel benefit charge multiplier has increased to £22,200 (from £22,100 for the 15/16 tax year)

  • The van benefit charge has increased to £3,170 (from £3,150 for the 15/16 tax year)

  • The new ‘single rate’ state pension becomes payable for individuals who reach state pension age after today. Those individuals will be encompassed in the new single tier state pension system under which a single payment replaces the current set up of a basic state pension plus a ‘second’ state pension

  • There is a new tax on top earners’ pension which states that those with income in excess of £150,000 have a reduced pension contribution limit which has decreased to £10,000 (from £40,000 for the 15/16 tax year)

  • Stamp duty has increased for buyers of additional residential properties (including buy to lets and second homes). Buyers will now have an extra 3% payable in stamp duty (effective from 1 April 2016)

  • The removal of the ‘wear and tear’ allowance. Previously, a landlord could claim 10% of their rent as tax relief for wear and tear, but this is no longer the case. Instead, the allowance is being be replaced by a system that only allows landlords to claim tax relief when they replace furnishings

Business Taxation

  • Employers to legally pay the National Living Wage to individuals aged 25 and over, amounting to £7.20 per hour (effective from 1 April 2016)

  • The Employment Allowance has increased to £3,000 (from £2,000 for the 15/16 tax year). However, further anti-avoidance rules will come into force today including the potential exclusion of single director companies

  • Corporation tax to remain at 20%

  • New stamp duty rates on commercial properties (effective from 17 March 2016) The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000. Therefore buyers of commercial property worth up to £1.05 million will pay less in stamp duty this tax year

  • Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.

If you require further information on any of the above, please do not hesitate to contact a member of the Spirare team.

Introduction of the National Living Wage effective from 1 April 2016

The highly publicized National Living Wage (NLW) which was announced in last Summer’s budget has come into effect today, 1 April 2016.

The mandatory NLW requires employers to pay workers aged 25 and over a minimum of £7.20 per hour.

The policy was introduced by the Chancellor in an effort to create a higher-wage, lower-welfare economy, and it is estimated that it will provide 1.3 million workers with an immediate pay rise.

Employees aged 21 to 24 will continue to be entitled to the National Minimum Wage of £6.70 an hour.

The intention is for the NLW to rise to more than £9 an hour by 2020.

The independent Office for Budget Responsibility has warned that 60,000 jobs could be lost as a result of the above as businesses struggle to pay the new higher wages.

This will undoubtedly have a detrimental effect on small businesses, particularly following the new tax changes on dividends which will be effective from 6 April 2016.

The Living Wage Foundation, which inspired the idea of the NLW (although does not set the level of the NLW) welcomed the introduction today, and further urged businesses to "aim higher" and pay more than the statutory minimum, which some employers have advised they shall do so.

However, the Foundation did point out that it is still lower than it’s own suggested level of pay - £8.25 an hour and £9.40 in London.

Today’s increase in the minimum pay per hour for over 25’s, combined with the new auto-enrolment rules which are starting to come into force for small to medium sized businesses will undoubtedly have a detrimental impact on the labour market and employability factor. It is however important to consider the positive tax implications of employing workers, such as the abolition of employers national insurance contributions for apprentices aged under 25 from 6 April 2016, the apprenticeship schemes available (which reduce hourly rates and can provide access to grants), and of course the employers national insurance allowance which increases from £2,000 to £3,000 from 6 April 2016.

Should you require further information on the above please contact the Spirare team.


 

The Budget Summary March 2016

Personal Taxation Surprises and the Introduction of the Sugar Tax

 
As Mr Osborne’s eighth budget commenced, there were some surprises, particularly from a personal taxation perspective including decreased capital gains tax rates and the increased higher tax rate threshold.
 
According to the Chancellor, this budget sees the Government "Act now so we don’t pay later", which is particularly the case for the introduction of the new sugar tax on soft drinks in two years’ time in an effort to combat childhood obesity issues. He introduced his speech by stating that Britain is "not immune to slowdown and shocks" and that the "financial markets are turbulent", which is likely to have impacted the key changes surrounding business rates.
 
It is important to note that the economic forecasts (which the Chancellor would have taken into consideration when introducing the changes below) were predicted based on the UK remaining within the European Union. Therefore the outcome of the EU referendum in June may have a further impact later in 2016 on some of the more general changes.
 
Key points from the Chancellor’s budget were as follows:
 
 
Personal Taxation

  • The tax-free personal allowance to rise to £11,500 in April 2017 (an increase of £500 compared to originally stated)
  • New state backed savings scheme for low-paid workers, worth up to £1,200 over four years
  • The threshold at which individuals pay 40% tax will rise from £42,385 to £45,000 in April 2017
  • Capital Gains tax to be reduced considerably from 28% to 20% for higher rate taxpayers, and from 18% to 10% for basic rate taxpayers
  • Class 2 NIC to be abolished effective from 2018

 
Savings/Pensions

  • The annual ISA limit will rise from £15,240 to £20,000
  • New ‘lifetime’ ISA for individuals aged under 40 with the government contributing £1 for every £4 saved (maximum of £1,000 top up)
  • New state backed savings scheme for low-paid workers, worth up to £1,200 over four years

 
Business Taxation

  • Corporation tax (currently at a rate of 20%) will fall to 17% by 2020
  • Annual threshold for small business rates tax relief to be raised from £6,000 to a maximum of £15,000, exempting 600,000 firms, and the higher rate from £18,000 to £51,000
  • Business rates will also be linked to CPI, the official measure of inflation which has historically been lower than the RPI rates (which is what rates are currently linked to)
  • Anti-tax avoidance and evasion measures to raise £12bn by 2020 

General

  • 0.5% increase in insurance premium tax
  • Fuel duty to be frozen for sixth year in a row
  • Beer, cider and spirits duties to be frozen
  • Excise duties on tobacco to rise by 2% above inflation
  • The Money Advice Service, which has provided financial advice to consumers since 2010, is to be abolished
  • New tax free allowances for "micro-entrepreneurs" who rent their homes or sell their services through the internet
  • Supplementary charge for oil and gas producers to be halved from 20% to 10%
  • Petroleum revenue tax to be "effectively abolished’"
  • £9bn to be raised by closing corporate tax loopholes
  • Use of personal service companies by public sector employees to reduce tax liabilities to end
  • Commercial stamp duty changes effective from midnight as follows: 0% rate on purchases up to £150,000, 2% on the following £100,000, and 5% top rate above £250,000. New 2% rate for high value leases with a net present value above £5m
  • New sugar levy tax on the soft drinks industry to be introduced in two years’ time
  • Plan for 25% of secondary schools to stay open after 3.30pm
  • Plan for all schools in England to become academies by 2022
  • Plans to enable pupils to study maths until 18
  • £700m available for flood defence schemes
  • Tolls on Severn River crossings to be halved by 2018
  • Disability benefits bill to increase in real terms
  • Tax on the North Sea oil is being cut and will be back dated, effective from the start of the year
  • New elected mayors for cities and towns in Southern England 

 
 
If you require further information on any of the above, please do not hesitate to contact a member of the Spirare team.

PROPERTY INCOME AFTER APRIL 2016: THE GOOD NEWS AND THE BAD NEWS

I own a buy to let property and/or rent a room in my main residence. What do the new Budget changes from 6 April 2016 mean for me?

Last year’s Summer Budget announced on 8 July 2015 introduced key changes for individuals with property income. If you rent a room in your main residence or own a buy to let property, the following changes are key for your end of year tax return:

Rent a Room: The Good News

For those who ‘rent a room’ to a lodger in your main residence, from 6 April 2016 you will benefit from the budget’s announcement to increase the rent a room allowance (the amount of tax free income you can receive from your lodger) from £4250 to £7500 per annum. Therefore you can receive an additional £3250 income tax free every year from renting a room in your main residence, which represents a substantial tax saving for a basic rate tax payer of £650 per year.

Read more ...

The New Taxation of Dividends – How will it affect you?

The New Taxation of Dividends – How Will it Affect You?

 

In July 2015, the first budget of the new Conservative Government in the last two decades, announced significant changes to the way dividends are taxed. 

 

The Chancellor George Osborne described this as a “Budget for working people’. The proposed changes to the taxation of dividends will undoubtedly affect those the budget was reported to assist. The effect is an acceleration in tax and attack on the people it is looking to assist. 

Read more ...

National Minimum Wage Increases with effect from 1 October 2015

Following on from recommendations made by the Low Pay Commission (LPC) in March 2015, the National Minimum Wage will increase from today – 1 October 2015.

It has been suggested that the increases imposed will have a positive effect on 1.4 milpon of the lowest paid employees in Britain today. Although an additional cost to employers, this should benefit the economy as a whole.

The government announced a 20p increase in the adult rate (from £6.50 to £6.70 per hour); a 17p increase in the rate for 18 to 20-year-olds (from £5.13 to £5.30 per hour); an 8p increase in the rate for 16 to 17-year-olds (from £3.79 to £3.87 per hour) and a 57p increase in the rate for apprentices (from £2.73 to £3.30 per hour).

However, not all workers qualify for the national minimum wage. It is important to distinguish the difference between apprentices and standard employees. An apprentice is an individual aged 16 to 18 (and aged 19 or over who are in their first year of their apprenticeship). Apprentices qualify for the apprentice minimum wage, and not the standard worker minimum wage. All apprentices aged 19 and over and in the second year of their apprenticeship qualify for the standard national minimum wage rates for their age.

Employees who qualify for the minimum wage are workers of school leaving age (aged 16 the last Friday in June of the school year). Those workers can be part-time, casual workers, agency workers, trainees and workers on probation, disabled workers, agricultural workers, foreign workers, seafarers and offshore workers. It is important to note that contracts for payments below the minimum wage are not legally binding. The worker is still entitled to the minimum wage.

Certain individuals do not qualify for the minimum wage. These include self-employed individuals, company directors, volunteer workers, workers on a government employment program, family members of the employer living in the employer's home, workers younger than school leaving age (usually below 16), higher and further education students on a work placement up to one year, workers on government pre-apprentice schemes, members of the armed forces, share fishermen, prisoners, people living and working in a religious community and people working on a Job Centre Plus work trial for 6 weeks.

Holiday days also need to be taken into consideration when employing a worker/apprentice. Apprentices are entitled to a minimum of 20 days of holiday per annum, excluding bank holidays which is the same as standard employees working a 5 day week.

If you require any further information on the national minimum wage increases, employee classification, or holiday entitlements please contact the team at Spirare.