The Summer Budget 2015 was surprisingly jam packed of tax and relief changes that will affect businesses, many in a positive way, however, on some changes the jury is still out. The following is just a brief overview of the main items that I believe will affect SMEs and is not meant to be a full list of changes as some of the full budget is still being disseminated.
Overview of the market:
The current market overview was presented as positive with GDP growth forecast to be 2.3-2.4% per annum to 2017. One of the government’s favourite phrases was once again used when forecasting a surplus from 2020, that they will be “fixing the roof whilst the sun is shining” and will be building up reserves, however, that is still a long way off in 2020 and much can change in the next 5 years so I won’t be betting on a surplus just yet. Another positive factor was employment, with another buzz phrase of “full employment” mentioned, unemployment has continued to decrease and the Office for Budget Responsibility is forecasting approximately 1 million new jobs during this parliament, however, Mr Osborne has higher ambitions and is aiming for 2 million new jobs.
Lots of interesting changes in this area, with the main areas discussed listed below:
Personal Allowances – these will continue to increase each year with the Government aiming to reach £12,500 by the end of the parliament.
Higher Rate Thresholds – these are to be increased, however, if you look at the last 5 years figures these have been decreased in many years, which is demonstrated in the table below:
Dividends – a major overhaul of how dividends are to be taxed has been announced with the abolition of the 10% dividend relief (which most people didn’t understand) and the introduction of a £5,000 tax free amount along with a basic rate of 7.5%. The full detail still needs to be disclosed but it appears that many business owners who are paid via a small salary with dividend mix, are likely to end up paying more tax. Once full details are disclosed full comparisons will be calculated.
Pension Relief – As already widely known, the Lifetime allowance will be reduced from £1.25m to £1m from April 2016 and the annual tax deductible allowance is to be gradually tapered to £10,000 per year for those with income over £150,000.
Property Letting by Individuals – This area was speculated upon pre-budget, and indeed some relief against mortgage interest is to be reduced for buy-to-let landlords, as the relief is to be for basic rate only from 2020/2021. At the moment it appears to just affect landlords that own properties personally and not via a property company.
Non-Doms – This area is to be tightened up, including the change that if anyone resident in the UK for more than 15 of the last 20 years will be UK domiciled from, April 2017.
Inheritance Tax – Standard nil rate band to remain at £325,000 (£650,000 per couple) until 2021.
Additional nil rate band when residence passed on death to a direct descendant.
2017/18 £100,000 2018/19 £125,000 2019/20 £150,000 2020/21 £175,000
Will allow a £1m residence to be left inheritance tax free. Relief also applies when property downsized. Phased out for estates exceeding £2m.
Vehicle Excise Duty – various changes including increasing the first year rate for many new cars.
Corporation Tax – the rate is to continue decreasing from 20%, lowering to 19% in 2017 and 18% in 2020.
Employment Allowance – Current £2,000 allowance to increase to £3,000 from 2016 which reduces employer’s national insurance payments. However, allowance will not be available to single director companies whose sole employee is the director.
Tax Relief for Capital Expenditure – Annual Investment Allowance is to be at a permanent limit of £200,000 from 1st January 2016, which gives more predictability for businesses. However, relief from goodwill and other intangible assets is to be abolished from acquisitions from Budget Day.
New National Living Wage – To be introduced at £7.20 per hour from April 2016 increasing to £9 per hour for 25s and over from 2020.
Conclusion: There are lots of changes for businesses to digest and not all positive. However, on balance many SMEs will certainly welcome the future decrease in corporation tax and the increase in employment allowance.