Many of the changes in yesterday’s Budget had already been revealed in the Autumn statement, such as the change to the taxation of dividends that I’ll come to in a minute. However there were also some genuinely unexpected announcements as well, such as the reduction in the capital gains and corporation tax rates. The reaction from most commentators was that it was a good Budget for small businesses.
However this is certainly not the case if you own your own company and take money from the company as a mixture of salary and mostly dividends.
I’ve summarised below the key changes that are likely to have an impact on small business owners and landlords.
Rates and allowances
| 2016/17 | 2015/16 | |
| £ | £ | |
| Income tax rates – (non-dividend income) | ||
| 10% lower rate tax – savings rate only | Up to 5,000 | Up to 5,000 |
| 20% basic rate tax | Up to 32,000 | Up to 31,785 |
| 40% higher rate tax | 32,000 – 150,000 | 31,786 – 150,000 |
| 45% additional rate tax | Above 150,000 | Above 150,000 |
| Personal allowance | ||
| Personal allowance those born after 5 April 1948 | 11,000 | 10,600 |
Corporation tax
The main rate of corporation tax is 20% and from April 2017 to 19%.
Dividends
Tax is payable on dividends over £5, 000 at the following rates:
7.5% on dividend income within the basic rate band
32.5% on dividend income within the higher rate band
38.1% on dividend income within the additional rate band
Personal Savings Allowance
A basic rate taxpayer will be able to receive up to £1,000 of interest per year tax free on their savings.
A higher rate taxpayer will be able to receive up to £500 of interest per year tax free on their savings.
An additional rate tax payer will not have a Personal Savings Allowance.
Any amount received above these limits will be charged at the marginal rate.
Capital gain tax reduction
Legislation will be introduced in Finance Bill 2016 to reduce the 18% and 28% rates in those provisions to 10% and 20% respectively, subject to exclusions for chargeable gains on disposals of residential property.
Restriction on mortgage interest deduction
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their rental profits. The relief in respect of finance costs will be restricted as follows:
| 2017/18 | 75% allowed | 25% ba sic rate |
| 2018/19 | 50% allowed | 50% basic rate |
| 2019/20 | 25% allowed | 75% basic rate |
| 2020/21 | Nil | 100% basic rate |
The end of wear and tear allowance
From 5 April 2016 wear and tear allowance and the renewable allowance for property business will be replaced by a system allowing landlords of residential property to deduct only the actual costs incurred on replacing furnishings in the tax year. Capital allowances for furnished holiday lets will not be affected.
IR35
The government will introduce in Finance bill 2017 legislation that will move the liability to pay the correct employment taxes from a worker’s own company to the public sector body or agency / third party paying the company.
VAT
| 2016/17 | 2015/16 | |
| £ | £ | |
| VAT | ||
| Standard rate | 20% | 20% |
| Registration threshold | 83,000 | 82,000 |
| Deregistration threshold | 81,000 | 80,000 |
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