This month we look at the tax implications of employing your children in the business, we review the national minimum wage rises from 1 April 2018. Are you aware of the rent a room relief rules if you let a room in your own home? Other articles include PAYE codes and VAT penalties.
Welcome to our quarterly newsletter. In our 1st edition, we look at national insurance for the self employed, a new property allowance, the introduction of Simple Assessments and the government’s plans for Making Tax Digital which will start in April 2019.
We have summarised on one page all the key points announced in the November Budget. If you require further information on any of the changes please contact email@example.com
We have summarised all the key tax changes announced by Philip Hammond in this years budget and their effect on small businesses, landlords and individuals.
Philip Hammond presented his first and last Autumn Statement on 23 November 2016. Our summary of the Autumn Statement provides details of all the key announcements and tax changes.
Having previously announced increases in dividend tax rates for 2016/17, the Chancellor had some good news for small business owners in his Budget Speech. Business rates relief has been expanded and made permanent. In addition, £1,000 allowances are introduced for trading profits and rental income which will mean some people will not need to declare such income.
Click here for key points announced in the budget.
The highlights of George Osborne’s speech on 25 November 2015 was the government’s climbdown on tax credits and the increase in stamp duty land tax for buy-to-lets and second home purchases.
The main tax changes introduced by the Chancellor can be found in our Autumn Statement Tax Summary
From April 2017, the amount of income tax relief landlords can claim on residential property finance costs will be reduced. The income tax relief on mortgage interest will be restricted to 20%. This change will be introduced gradually over a 4 year period.
Wear and Tear Allowance
The Wear and Tear Allowance has been a valuable tax relief for those landlords that let fully furnished properties. From April 2016, this will be replaced by a new relief that allows landlords to deduct the actual costs of replacing furnishings.
The level of rent-a-room relief will be increased from £4,250 to £7,500 per annum.
The new dividend allowance will represent a significant tax increase for owners of small companies who have for some years been able to extract profits from their business with a tax efficient mixture of salary and dividends.
In 2015/16 Paul takes a dividend of £18,000 net (£20,000 gross) from his own company. His only other income is a small salary below the tax and national insurance limits. Currently he pays no tax on both the salary and dividends.
In 2016/17 Paul takes a dividend of £18,000 (gross, no tax credit) and a similar salary to 2015/16 above. He pays tax at 7.5% on £13,000 after deducting the dividend allowance of £5,000, resulting in a tax liability of £975.
Annual Investment Allowance
This allowance is the maximum amount a business can spend on equipment in one year and get full tax relief in that year. The allowance will be increased to £200,000 from 1 January 2016.
From 1 April 2015, the main rate of corporation tax is 20% and this will continue for the 2016/17 financial year. The main rate will then be reduced as follows;
From April 2016, the government will increase the National Insurance Employment Allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new National Living Wage without paying any national insurance.
To ensure the Employment Allowance is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
If you require any further information on how the budget affects you and your business please give us a call.
The Chancellor announced that the personal allowance will be increased to £11,000 for 2016/17 and to £11,200 for 2017/18. The government plans to raise the allowance to £12,500 by the end of this parliament.
Personal Savings Allowance
From 6 April 2016 all bank and building society interest will be paid gross, without deduction of tax. The personal savings allowance will be introduced from this date and will apply for up to £1,000 of savings income (£500 for a higher rate taxpayer) resulting in a tax saving of £200.
The dividend tax credit will be abolished from 6 April 2016 and a new Dividend Tax Allowance of £5,000 will be introduced. Dividend income received in excess of the allowance will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers. This will significantly affect owner managed businesses who remunerate themselves through a combination of salary and dividends.
Individual Savings Accounts (ISAs)
In 2015/16 the overall ISA limit is £15,240. From 6 April 2016, ISA savers will be able to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription.
National Living Wage
From April 2016, all employees aged 24 or over will have to paid a national living wage (NLW) of £7.20 per hour. The national minimum wage will continue to apply to younger workers. The government hopes that the NLW will reach £9 per hour by 2020.
From April 2016, the income threshold for tax credits will reduce from £6,420 to £3,850 per year. Once claimants earn above the threshold, their award will be reduced at 48% (previously 41%) for each £1 claimed.
From April 2017, the child element of tax credits and universal credits will no longer be awarded for third and subsequent children.
The government is introducing a new extra allowance to be applied only to the value of a home left on death to a direct descendant of the deceased. The allowance will start at £100,000 per person from April 2017 and increase over four years to £175,000 per person, allowing a couple to eventually pass on a family home worth up to £1m (Includes the current inheritance allowance of £325,000 per person) with no tax payable.
Capital Gains Tax
No changes were announced in respect of capital gains tax rates or the annual exemption.
One of George Osborne’s first acts as Chancellor was to establish the Office of Tax Simplification (OTS). That organisation has spent the last five years identifying needless complexity in the tax system and recommending changes to make dealing with tax less taxing. Sadly, whatever the OTS does to reduce complications, the Chancellor seems to replace with more. Few people expected the July Budget to be so full of far reaching measures that over the next few years will significantly change the way tax is calculated.
We were promised, of course, the ‘tax lock’ – a law to prevent the Government putting up the rates of income tax, national insurance and VAT but there are more ways to increase taxes than just putting up the headline rates. A significant reform of the taxation of dividend income next year will affect those who have been able to extract profits from their personal company in a tax-efficient way. The reduction of income tax relief on mortgage interest relief will put up the tax charges for buy-to-let landlords from April 2017. Restricting the tax advantageous of people who are currently classified as ‘foreign domiciled’ is another potential tax-raising measure, but it is not clear whether wealthy international people will pay more tax or will move elsewhere.
As expected, the Chancellor has focused his attention on the welfare budget, hoping to save £12 billion. He said he wanted to move to a ‘higher wage, lower tax, lower welfare economy’. He has announced a higher National Living Wage and higher personal allowances – and has certainly cut welfare. It remains to be seen whether that will generate the economic activity he hopes for.
For more information regarding any of the changes announced in the budget please give us a call. We would be happy to advise you on what it all means for you personally.
The law on workplace pensions has changed. Every employer with at least one member of staff now has new duties, including putting those who meet certain criteria into a workplace pension scheme and contributing towards it. This is called automatic enrolment. It’s called this because it’s automatic for your staff – they don’t have to do anything to be enrolled into your pension scheme. But it’s not automatic for you. You need to take steps to make sure they’re enrolled. Click on the link below for more information;
If you run a limited company and do not have any staff, you can claim exemption from auto-enrolment. Follow the instructions on the link below;
Act now to ensure you are meeting your legal obligations!
The Treasury confirmed on Saturday that Chancellor George Osborne will present the second budget of 2015 on 8 July.