Churchill Knight_Budget 2016 represents good news for contractors and small businesses_18 March 2016
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Transcript of Churchill Knight_Budget 2016 represents good news for contractors and small businesses_18 March 2016
1st Floor Metropolitan House Darkes Lane Potters Bar Hertfordshire EN6 1AG
Email: [email protected] Tel: 0808 1209113 www.churchill-knight.co.uk
Budget 2016 is largely positive for contractors and small business owners
Published on Thursday, March 17, 2016 Written by Dinah Makani
In his eighth Budget, George Osborne has set out measures to improve the health of the
UK economy. The 2016/17 Budget aims to balance the country’s finances as well as
reduce national debt and the budget deficit.
The long-term plan for a budget surplus stands and there appears to be support for
smaller businesses and the self-employed in terms of tax reductions and an increase to
the personal income tax allowance and the higher rate tax threshold.
Budget 2016 also targets large multinationals to ensure they pay their fair share of tax,
helping to reduce the pressure and tax burden on small businesses.
In this blog, you can find our short summary of each of the major changes announced to
see how they will affect your candidates’ take home pay.
Travel and Subsistence (T&S):
In September 2015, the government published a document discussion aimed at
modernising tax rules for T&S expense claims for contractors working through
employment intermediaries, i.e. umbrella company users. This has concluded that as of 1st
April 2016, T&S claims will be abolished for all workers claiming home to work expenses
when engaged in work via an employment intermediary.
For your candidates who may incur these expenses during contract work, working through
an umbrella company may no longer be the best option for them from 6th April 2016.
However, if they operate through their own limited company outside IR35, they may be
able to claim T&S expenses. Find out more here.
Personal Allowance Increase:
The government will increase the Personal Allowance for income tax from £11,000 in
2016/17 to £11,500 in 2017/18. Therefore, the typical basic rate taxpayer will pay £1,000
less income tax in 2017/18 than they did in 2010/11.
1st Floor Metropolitan House Darkes Lane Potters Bar Hertfordshire EN6 1AG
Email: [email protected] Tel: 0808 1209113 www.churchill-knight.co.uk
Higher rate tax threshold increase:
Currently, anyone earning over £40,000 is taxed at 40% for all income above this amount.
In the 2016/17 tax year, the government will increase this threshold to £43,000 and in
2017/18, a further increase will raise the threshold to £45,000.
In addition to this, National Insurance Contributions (NIC) Upper Earnings Limit will also
increase to remain aligned with the higher rate threshold.
George Osborne has said that the increase of the higher rate tax threshold is a positive
change in that it ensures that individuals who should not be in the higher rate tax band no
longer are. From April 2016, your candidates who currently earn at least £43,000 in the
2015/16 higher rate tax band will now save up to £123 income tax in 2016/17.
Corporation Tax:
Corporation Tax will be reduced as of 1st April 2017 to 19%, and the government has
confirmed that by 2020 this will be as low as 17%. This will provide a long term saving on
the amount of Corporation Tax that businesses need to pay on company turnover. This
applies to small profit rates only.
This means that any of your candidates who operate through their own limited company
will pay less Corporation Tax, a move, George Osborne claims, to support the growth of
small businesses in the UK. If you would like more information about how your candidates
can start contracting through their own limited company, click here.
Capital Gains Tax:
Capital Gains Tax (CGT) will be reduced from 6th April 2016, the higher rate of CGT will be
reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%. To find
out more about Capital Gains Tax and how it applies to your candidates who operate
through their own limited company, contact us here.
VAT Registration threshold:
The government will increase the VAT registration threshold in line with inflation to
£83,000 from 1st April 2016.
Property Income:
In April 2017, the government will provide landlords with a £1,000 tax free property
allowance.
Abolishing Class 2 National Insurance Contributions:
The government will abolish Class 2 NICs for all self-employed workers. This means a
saving of £2.80 per week if profits are £5,965 or more per year for your self-employed
candidates. The government says this will result in a tax saving of more than £130 to
three million self-employed workers from 2018.
1st Floor Metropolitan House Darkes Lane Potters Bar Hertfordshire EN6 1AG
Email: [email protected] Tel: 0808 1209113 www.churchill-knight.co.uk
ISA:
The overall annual ISA limit, meaning the tax free amount that can be added to an ISA
savings account each year, will increase on 6th April 2017 to £20,000. This is an increase
of £4,760 from the current ISA contribution limit of £15,240.
Additionally, a new Lifetime ISA account is being introduced for anyone under 40, which
includes a 25% government boost on savings put in. To help save for a house deposit or
retirement, individuals can save up to £4,000 each year in the Lifetime ISA. With the
government paying £1 for every £4 saved, it means that some savers will be able to save
up to £5,000 a year until they turn 50 years old.
Anyone who wants to use the savings towards buying a home (of a maximum value of
£450,000 in London) may do so after just a year, while those saving for retirement may
use the savings from the age of 60.
Dividend Taxation:
As confirmed in the Summer Budget, the government will proceed with the removal of the
dividend tax credit, and instead permit a £5,000 tax free dividend allowance from 1st April
2016. If you are worried that your candidates with limited companies will be affected by
this change, see our advice on dividend tax planning here or use the contact information
below to speak to one of our experts for more information to help your candidates.
Employment Allowance:
The employment allowance is changing. As of 6th April 2016, the Employment Allowance
will no longer be available to companies where the director is also the sole employee of
the company.
While the Employment Allowance is increasing from £2,000 to £3,000, due to the
additional criteria your candidates will need to meet, a large number of them who operate
their own limited company will no longer be able to make use of the employment
allowance. You can contact our team to find out more about this change.
Loans to participators:
If a company director has a director’s loan outstanding, they will pay an additional
Corporation Tax amount (s455) at 25% of the total outstanding loan amount (deducting
any repayments within 9 months of the year-end). Once a director repays this amount
back fully then the s455 Tax is recoverable from HMRC. It is not quick and can take some
years to receive back.
The Budget states that any director’s loans taken out after 6th April 2016, will see an
increase in the tax rate to 32.5% from 25%. Due to the s455 tax, it is advisable to
discourage your candidates from incurring director’s loans.
By using our accounting services and following our advice, your candidates will be able to
avoid the increased s455 tax and continue to maximise their take home pay.
1st Floor Metropolitan House Darkes Lane Potters Bar Hertfordshire EN6 1AG
Email: [email protected] Tel: 0808 1209113 www.churchill-knight.co.uk
The restriction on the use of Personal Service Companies (PSCs) for public sector
workers:
In a clamp down on false self-employment by public servants, the government has stated
that individuals, who work through their own limited companies but undertake jobs that
would ordinarily mean they are employees of that business, will find they are going to be
restricted in the use of their limited company for such cases.
Under these circumstances, from April 2017, where the public sector engages an off-
payroll worker through their own limited company, that body (or the recruiting agency if
the public sector body engages through one) will become responsible for determining
whether the rules should apply, and for paying the right tax.
If your agency provides contract work to the public sector, this is important to note as
your agency’s responsibilities may change as a result.
Other good news:
Other good news coming out of the Budget includes a freeze on fuel duty for the 6th year
in a row. This represents savings of £75 per year for the average driver, and £250 savings
per year for the average small business owner with a vehicle.
George Osborne has also decided on a freeze on duties for beer, cider, whiskey and other
spirits for the 2016-2017 tax year.
The key phrase that will resonate with your candidates and all contractors is that George
Osborne wants to “let them keep more of the money they earn”.
Osborne is in support of the small business community in the UK in this Budget with
“lower taxes on business and enterprise” in order to help small businesses and the
economy to grow.
How we can help:
Our service provides contractors with an accountancy payroll service that stays a step
ahead of the changes. We have responded quickly to the dividend taxation changes and
devised a plan that will help your candidates who are limited company Directors to
maintain the maximum take home pay possible.
We work closely with recruitment agencies across the UK to help candidates decide on the
best accountancy service for their business needs. We help your candidates set up their
limited companies and manage their accounting and tax affairs, including providing advice
on dividend tax planning.
To find out how we can help to reduce the impact of the changes on your candidates that
come into effect this April, contact our team on 0808 1209113 or click here to find out
more about partnering with Churchill Knight & Associates Ltd.