I’m writing this after the 2016 budget given by Mr. Osborne, the chancellor of the Exchequer and I’m still surprised by how many new announcements there were that were relevant to small business.
We think that this new budget helps small businesses. This article will tell you the 6 things you need to know about the 2016 budget.
1. Corporation tax to drop to 17% by 2020
If you are a limited company, you will be paying corporation tax of 20% on your profits. This was scheduled to drop to 19% in 2017 and then 18% in 2020. This was in itself a surprise when announced last year, so it was a pretty big deal when George announced that rather than dropping to 18% in 2020, it would go as low as 17%.
What this means is that if you have a profit of say £50,000, you will effectively be saving £1,500 a year (3% of £50,000) in 2020. If you earn £100,000 profit, that will be a cool £3,000. If you then add that to the £3,000 employment allowance (a saving of Employers National Insurance) that’s a pretty hefty saving and very welcome.
It goes some way to mitigate against £2,025 dividend tax (see earlier blogs and YouTube video).
The only gripe is that the 17% is for all businesses both very small and very large so it’s a shame that there aren’t two rates (it wasn’t too long ago that the rates were 28% for larger businesses and 20% for small businesses). However, this will give owners of limited companies a decent tax saving
2. Extending small business rates relief
Currently if the business property you are in has a rateable value of less than £6,000, then you pay no business rates. However, only a minority of buildings will have a rateable value this low. If you’d like to find out what your rateable value is, follow this link:
Once you’ve found out your rateable value, you then find the multiplier and multiply this by the rate. For example, if your property has a rateable value of £10,000, you would multiply this by (for example) 0.462 = £4,620.
The big news is that from 6 April 2017, anybody with a property with a rateable value of less than £15,000 will pay no business rates whatsoever. Potentially, 600,000 small businesses will pay no rates at all whilst a further 250,000 will see their business rates cut.
This will make a huge cash difference for firms already in a business property and will also incentivise those businesses that are just starting to thinking about moving into an office.
If you’d like to know whether you would be affected by this tax cut, feel free to email me at email@example.com
3. Capital gains tax is being cut
This was unexpected news. Capital gains tax to be cut from 28% to 18% for higher rate tax payers and from 18% to 10% for basic rate tax payers. This will mostly apply to people who are selling shares since crucially it does not apply to people with residential property.
4. Class 2 NI abolished
If you are self-employed, you will pay Class 2 National Insurance, currently at £2.80 per week. From 6 April 2016 this will not be paid separately but merged with the annual tax payments. However, from the 2016 budget it was announced that it will be scrapped altogether from 5 April 2018. Good news for the self-employed (it does not affect limited companies).
5. Overdrawn director’s loan accounts will be charged 32.5% tax
If you run a limited company and take out money that is not a dividend or a salary, the payment will be classed as a director’s loan account. If the loan is still outstanding at the date which is 9 months after the company year end, then you will be charged 32.5% tax (it was previously 25% tax). Technically, it isn’t a tax since if you pay it back you will recoup the tax back but ideally you would plan not to pay it at all.
Lastly but potentially the biggest announcement of all….
6. The Lifetime ISA
If you are 39 as at 5 April 2017 (I miss this by 48 days, which I am totally gutted!), you will qualify for a lifetime ISA. Essentially this is a savings account where you can put in £4,000 ever year and the government will put in another £1,000. Also, any interest that is earned in the account is tax free. You can’t take the money out until you are pensionable age UNLESS you are about to buy a first time property. So it acts as a hybrid of a pension and a help to buy ISA.
I think this is a great idea and brilliant for anybody under 39. I would encourage everybody to apply for them when they become available.