At 1.30pm on Wednesday 16 March, 2016, George Osborne delivered his eighth Budget as Chancellor of the Exchequer.
The overall headlines include the introduction of a sugar tax on soft drinks from 2017, extra funding for schools to have longer days and a downward revision of growth forecasts for the UK, but what did Budget 2016 bring for small businesses?
Here are the main points that affect business owners, both self-employed and limited company directors;
- Corporation tax to be cut from the current 20%, to 17% by 2020.
- Class 2 National Insurance Contributions to be abolished for sole traders from April 2018. Move will save around 3 million self employed workers £130 per year.
- Annual threshold for small business rates relief to be raised from £6,000 to £15,000. Higher rate threshold also increased from £18,000 to £51,000. Chancellor estimates this means some 600,000 small businesses will pay no business rates at all from April 2017, with a further 250,000 businesses benefiting from a rates cut.
- Public sector employees to be prevented from using “personal service companies” to cut their tax liabilities.
- Commercial stamp duty 0% rate on purchases up to £150,000, 2% on next £100,000 and 5% top rate above £250,000. New 2% rate for high-value leases with net present value above £5m. Effective from midnight 16 March, 2016.
- Closure of corporate tax loopholes to raise £9bn, and anti-tax avoidance and evasion measures to raise a further £12bn from big businesses by 2020.
- Personal tax-free annual allowance to rise from £10,500 to £11,000 for 2016/17 tax year, and to increase to £11,500 for 2017/18.
- Threshold at which individuals begin paying the higher rate of tax to be raised from £42,385 to £43,000 in April 2016 and to £45,000 in April 2017.
- Capital Gains Tax (CGT) is being cut from April 2016. The rate of Capital Gains Tax paid by higher rate taxpayers will be cut to 20%, from 28%, with the CGT rate for basic rate taxpayers falling to 10%, from 18%. However, residential property will not benefit from the new lower rates of CGT.
- Entrepreneurs’ Relief (ER) to be extended to external investors in unlisted trading companies. This means gains made by investors on the sale of ordinary shares in an unlisted trading company will qualify for CGT at 10%, providing that shares were newly issued to the claimant, were bought after 16 March 2016, and held for a period of at least three years from 6 April 2016. Qualifying gains are also subject to the ER lifetime cap of £10 million.
- Annual tax-free ISA limit to be increased to £20,000 from April 2017.
- Introduction of a new “Lifetime ISA” for the under-40s. For every £4 saved, the Government will add a further £1. People can save up to £4,000/yr until they reach 50 years of age. You can find out more details on the New Lifetime ISA here.
- Fuel duty to be frozen.
Business response to the Budget
On the whole, the business community has welcomed Budget 2016.
Commenting on the announcements affecting small businesses, Mike Cherry, Policy Director at the Federation of Small Businesses, said; “The Chancellor has listened to our calls for the tax system to be made simpler for small businesses and the self-employed and taken important action to make Small Business Rates Relief permanent and to take many small firms out of the system altogether. The combined measures announced on business rates – the single biggest tax cut in today’s Budget – will be viewed by our members as a welcome and important step on the road to fundamental reform.”
While, Simon Walker, Director General of the IoD, concluded; “There was plenty in the Budget for small and medium-sized businesses. They will welcome measures including more relief on business rates and cuts to capital gains tax, and a further corporation tax reduction coming in a few years. Business leaders and workers alike will be pleased with increases to the income tax personal allowance and the higher rate thresholds next year.
And Jim Duffy, CEO of Entrepreneurial Spark added, “Reducing corporation tax to 17% by 2020 will have a transformational effect on startups and scale-ups, allowing ambitious entrepreneurs to reinvest more profits and create new jobs. Additional small business relief will ensure more small businesses pay no rates at all, which is to be applauded as we encourage people to start their own businesses and create wealth. Removing VAT loopholes for international ecommerce businesses will help the UKs digital firms be much more competitive.
More from ByteStart
The Budget has tax implications for many business owners. For more on tax matters, try these ByteStart Guides;
- Dividend tax changes from April 2016 – A summary of the financial effects for small business owners
- 10 ways small business owners can pay less tax
- Corporation Tax – How to reduce your bill
- 10 common Self-Assessment Tax Return mistakes and how to avoid them
- Tax rates for small business owners – 2014/15
- Capital Allowances – A review of the various schemes available for businesses to cut their tax bill
- Using Research and Development tax relief to reduce your corporation tax bill
- How setting up a salary sacrifice scheme can reward staff and cut your tax bill