Budget 2016 – The Headlines

The Chancellor, George Osborne, today delivered his 8th budget, in which he said he was choosing to ‘put stability first’. Announcing that the UK economy is ‘set to grow faster than any other major advanced economy in the world’, he promised that he will ‘redouble his efforts to make Britain fit for the future.’
Although we’ve not yet had chance to read every page of the ‘Red Book’ that is distributed once the Chancellor sits down, here are the main headlines affecting the general public, and the contractor and freelancer industry in particular:

General Taxation

  • Income tax personal allowance rises to £11,000 in April 2016, and £11,500 in April 2017
  • Higher rate tax threshold similarly increases to £43,000 and then £45,000
  • No changes to national insurance thresholds, or the main income tax rates themselves
  • Capital gains tax rates – currently 18% (basic rate) and 28% (higher rate) are going down, to 10% and 20%, except for a restricted list of special gains, notably including residential property. (Speak to us if you’re interested in thinking about putting an investment property into a company)
  • The stamp duty premium for second properties, of 3% will go ahead as planned
  • No big changes to Entrepreneurs Relief as such, with more shareholdings set to benefit from similar tax advantages, despite concern about possible changes affecting the tax treatment of shareholders when a company is wound up
  • Fuel, beer and some other products have not had their duty rates increased, but cigarettes and similar products have
  • A sugar tax is coming soon, to be used to fund efforts in schools to promote health
  • Self employed national insurance (Class 2 contributions) are being abolished
  • The annual ISA limit is being increased to reach £20,000 by April 2017
  • A new ‘Lifetime’ ISA is being introduced for the under 40s, to help people save up for a first home or a pension. Savings will be topped up by Government
  • Much discussed changes to tax relief on personal pension contributions did not go ahead
  • VAT and inheritance tax did not get much attention in the budget
  • New allowances will allow people making modest sums from selling online through sites like ebay and airbnb to make a little money (£1,000) before paying any extra tax. More details to come on this

Umbrella workers

  • The expected changes to travel and subsistence rules, and salary sacrifice arrangements are going ahead as planned

Limited company workers and small businesses

  • Corporation tax is to fall even further than expected, from a current 20% rate to 17% by 2020
  • The already announced dividend tax changes are coming in April 2016
  • The rate of withholding tax on loans to shareholders goes up from 25% to 32.5% for advances after 5 April 2016 – to reflect the increased dividend tax rate
  • There’s a continued interest by the Treasury in further capturing those workers who have taken part in aggressive tax schemes and arrangements. We don’t support those schemes at JSA
  • Using a company to hold investment property will remain an interesting possibility as the reduction in capital gains tax mentioned above does not apply to residential property
  • Business rates for small companies will get increased special status, benefitting around 600,000 small businesses who will pay no business rates at all
  • There are extra rules for larger companies, regarding interest relief restrictions, and more restrictions on groups appearing to take advantage of international oddities to ‘get around’ tax rules. These are unlikely to affect most small businesses in the UK

Future developments

  • In future, company contractors who work for the ‘public sector’ will have their employment status assessed by the organisation that pays them – the agency or any other body that pays the contractor company. This will take the form of a kind of IR35 assessment, and if the contractor is seen as working in the nature of an employee, tax and national insurance will be withheld from the payment to the company. This change will take effect from April 2017, and will not apply to the private sector
  • The critical issue here is that for such a contractor, the decision as to whether they are ‘caught’ under a version of the IR35 rules will not be up to them – it will be up to the organisation paying the contractors company to assess this, and abide by the results
  • Although as stated above there are no plans to extend these rules to the private sector, and the changes to the public sector are scheduled for next April, 2017, it is possible that some of the online tools and other guidelines will form part of the more general review of IR35 being conducted in the summer of 2016. Watch this space!

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