March 2016 Budget
George Osborne delivered a budget which backs small businesses, his eighth budget as Chancellor. The budget highlights include prepared tax cuts, reliefs and duty freezes for businesses.
- A restructure of stamp duty land tax on commercial properties.
- Business rates have been scrapped for properties with a rateable value of £15,000 or less.
- Abolishing of Class 2 National Insurance Contributions for the self-employed from 6th April 2018.
- An increase in personal allowances for property income and trading income, starting in April 2017.
- A cut in corporation tax rate to 17% in 2020 and greater flexibility in the use of tax losses by smaller companies.
- An extension of entrepreneurs’ relief to cover long term external investors in unlisted companies.
- A cut in the main rates of capital gains tax from 16/17 to 20% for higher and additional rate taxpayers and 10% for others.
- VAT Threshold to be raised to £83K
The Chancellor has scrapped business rates for properties with a rateable value of £15,000 or less. This measure is designed to appeal to small businesses. As this more than doubles the current small business rate relief threshold of £6,000 and will be brought in on a permanent basis.
Business rates are now going to be linked to the Consumer Price Index (CPI) from 2020 and moved from the current Retail Price Index (RPI), a welcomed move from business lobby groups and the CBI.
ACCA head of taxation Chas Roy-Chowdhury commented: “Finally we’ve seen some movement on this, with business rates relief more than doubled to £15,000, meaning more than 600,000 small businesses will pay not business rates at all.”
The Stamp Duty reforms on non-residential property and works just like income tax. Rather than paying the same rate on the whole value of the property depending on which price bracket it falls into, the rates will now only apply to the portion of the price which it falls into. Previously, if you paid just £1 more on a property you could end up with a stamp duty bill which was thousands of pounds higher because it fell into a higher bracket.
The new rates will be 0% on the price between £0 and £150,000; 2% between £150,001 and £250,000; and 5% above £250,000. Osborne stated that the new system would raise an extra £500m a year and only 9% of transactions would end up paying more stamp duty than previously.
George put it like this: “So, if you buy a pub in the Midlands worth, say, £270,000, you would today pay over £8,000 in stamp duty. From tomorrow you will pay just £3,000,” Osborne told the House of Commons. “It’s a big tax cut for small firms. All in a Budget that backs small business.”
Class 2 NICs and Tax Allowances
Class 2 NICs are to be abolished in April 2018, which means the self-employed will soon not have to pay them. The chancellor also stated he is going to raise the threshold for paying income tax by 2017 to £11,500. The threshold for paying a higher rate of tax is going to be raised, from £43,000 to £45,000 in the tax year 2017/18. People who make up to £1,000 from occasional jobs – such as sharing power tools, sharing a lift to work or selling goods which they have made – will no longer need to pay tax on that income.
All businesses will now benefit from a cut in corporation tax to 17% by 2020, this is lower than what was announced in 2015’s Summer budget.
Entrepreneurs’ Relief Extended
Entrepreneurs’ tax relief will be extended to long term investors in unlisted companies.
The new rules state entrepreneurs will be able to access a 10% rate of capital gains tax on newly issued shares in unlisted companies purchased after 17 March 2016, they will need to be held for a minimum of three years from 6 April 2016.
Capital Gains Tax
The rate of capital gains tax is to be cut from 28% to 20% and the basic rate will fall from 18% to 10%. Residential property will not be affected but it will include the sale of equity in businesses. The change will be in effect from the new tax year in April.
VAT Threshold raised to £83,000
From 1 April 2016, the VAT registration threshold will increase from £82,000 to £83,000, and the deregistration threshold from £80,000 to £81,000.
The turnover limit for income tax self-assessment ‘3 line accounts’ is also going to be raised to ensure it sits in line with the VAT registration threshold. The entry and exit thresholds for the income tax cash basis accounting will also be increased in line with the VAT registration threshold.