July 2015 Budget Summary

The first fully Conservative budget in 20 years contained a lot of big changes to both personal and business taxation. The ones that tended to grab the headlines were increases to personal tax allowances and IHT bands but the far more significant one for small businesses trading as companies related to changes to the taxation of dividends.  This change means that from April 2016 directors will no longer be able to draw dividends up to the higher rate tax threshold without having any personal tax to pay. The new rates are 7.5% for basic rate tax payers, then 32.5% and 38.1%. So for a director currently paying himself a basic salary of £8,000 and topping this up with dividends of £30,000, they will go from having no personal tax to paying around £1,875, a big tax hike that’s going to upset a lot of small business owners. I’ll have a look at what this means in more details in a later blog.

Business tax summary

Corporation tax rate to reduce from 20% to 19% in 2017 and 18% by 2020.

Annual investment allowance for purchase of large capital assets to go up to £200,000 from 1 Jan 2016.

Employment allowance increased to £3,000 from April 2016 but limited to businesses employing more than 3 people.

Increase in the rent a room allowance to £7,500 a year from April 2016.

Removal of the 10% wear and tear allowance for landlords from April 2016.

Restriction on tax relief on mortgage interest for landlords to basic rate from April 2017.

Personal tax summary

Personal allowance increased to £11,000 from April 2016

Higher rate threshold increased to £43,000 from April 2016.

New £5,000 dividend allowance above which dividends will be taxed at 7.5%/32.5%/38.1% from April 2016.

Inheritance tax threshold increased to £500,000 from April 2017

For a more detailed review of the budget and it’s implications for small businesses have a look at this blog by the good people at Freeagent.