How does the Budget affect the running of your own business?
While adviser focus at Budget is predominantly on the effect for clients, quite rightly, we look at key points that may impact on the running of your business
George Osborne announced various measures in the 2016 Budget that are likely to have an affect on adviser businesses one way or another. Here we outline the key points you may wish to consider in respect of your business.
The main rate of corporation tax is already set to reduce to 19% from 1 April 2017; this will now reduce further to 17% from 1 April 2020.
Corporation tax – reform of loss relief
For losses incurred on or after 1 April 2017, businesses will be able to use carried forward losses against profits from other income streams or from other companies within a group.
For companies with profits in excess of £5 million, from 1 April 2017, losses carried forward is restricted to 50% of profits over the £5m mark.
If you trade as a group, the £5 million allowance will apply per group.
The Treasury said these latter reforms are to avoid “a situation where a large company pays no tax in a year when it makes substantial profits”.
The government will permanently double the small business rate relief in England from 50% to 100%, from 1 April 2017.
Businesses with a property with a rateable value of £12,000 and below will receive 100% relief. Businesses with a property with a rateable value between £12,000 and £15,000 will receive tapered relief.
The threshold at which business rate bills in England are calculated using the standard multiplier will be increased to properties with rateable values of £51,000 and above from 1 April 2017.
The annual uprating of business rates will change from the RPI to the CPI, from
1 April 2020. The government is also aiming to introduce more frequent business rate revaluations – at least every three years.
Further plans for business rates
Further plans include linking the local authority business rate systems with HMRC digital tax accounts so that businesses can manage their rates bills in one place alongside other taxes. Also, to standardise business rate bills so ratepayers have the option to receive and pay bills online by April 2017.
Once the local authority and HMRC systems are linked, the government will consider the feasibility of replacing Small Business Rate Relief with a business rates allowance for small businesses – this would be applied to a business’s total property portfolio across local authority areas allowing businesses that grow and acquire more property to benefit from relief
For new leasehold transactions, Stamp Duty Land Tax is already charged at each rate on the portion of the net present value (NPV) of the rent that falls within each band.
There is now a 2% rate for leasehold rent transactions where the net present value is above £5 million.
The new rates bands and thresholds for rent paid under a lease are:
Net present value of rent Rate
£150,001 – £5,000,000 1%
Above £5,000,000 2%
Buying a new property for your company
Stamp Duty Land Tax on non-residential property transactions, is being reformed from a block system to a slice system (similar to that introduced for residential, property last year) so that SDLT is payable on the portion of the transaction value which falls within each tax band. The new rates will be:
Transactional value band Rate
£0 – £150,000 0%
£150,001 – £250,000 2%
Above £250,000 5%
Business Premises Renovation Allowance
This allowance will expire on 31 March 2017 for corporation tax and 5 April 2017 for income tax.
The Employment Allowance will increase from £2,000 to £3,000 from April 2016, reducing the cost of employer National Insurance contributions by up to that amount every year for businesses.
Class 2 National Insurance for Self-employed persons
At present, a self-employed person in business is required to pay class 2 national insurance contributions (NICs) if their profit is over the small profits threshold. From April 2018, class 2 national insurance will be abolished and only class 4 NICs will be payable. As class 2 NICs currently enable self-employed individuals to build entitlement to the state pension and other contributory benefits, class 4 national insurance will be reformed in April 2018 so that self-employed people can continue to build benefit entitlement.
Trivial benefits in kind
A statutory exemption from income tax for qualifying trivial benefits in kind costing £50 or less will be introduced from 6 April 2016. The exemption will also remove the charge from class 1A NICs, with a corresponding disregard for class 1 national insurance taking effect later in the year.
National Insurance review
The government is commissioning the Office of Tax Simplification (OTS) to review the impacts of moving employee NICs to an annual, cumulative and aggregated basis and moving employer NICs to a payroll basis. It will also commission the OTS to review the options to simplify the computation of corporation tax.
Taxation of employment termination payments
Currently, certain forms of termination payments are exempt from employee and employer National Insurance contributions and the first £30,000 is income tax free. From April 2018, the government will tighten the scope of the exemption so employer National Insurance contributions are due on those payments above £30,000 that are already subject to income tax.
The government is considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. This is likely to exclude pension saving, childcare and health-related benefits such as Cycle to Work.
Employee provided pension advice
The available exemption from tax and national insurance for employer arranged pension advice will increase from £150 to £500 from April 2017.
Employee Shareholder Status
While recognising that Employee Shareholder Status (ESS) provides “vital flexibility for early stage firms”, and that it is right that employee shareholders receive tax benefits on shares awarded in exchange for relinquishing certain employment rights, it has introduced a measure “ to ensure that the benefits for individuals are proportionate and fair”.
This limits gains eligible for Capital Gains Tax (CGT) exemption through ESS to an individual lifetime limit of £100,000. The limit applies to arrangements entered into on or after 17 March 2016, not to those already in place.
Entrepreneurs’ relief will be extended to external investors in unlisted trading companies. This new relief will apply a 10% rate of CGT to gains accruing on ordinary shares in an unlisted trading company held by individuals that were newly issued to the claimant and acquired for new consideration on or after
17 March 2016, and have been held for at least 3 years from 6 April 2016.
There will be a lifetime cap for investors of £10m.
Entrepreneurs’ relief on associated disposals
Unintended consequences of the Finance Act 2015 prevented entrepreneurs’ relief being available on associated disposals when a business was being sold to a member of the family as part of the succession planning for the business.
Legislation will be introduced in Finance Bill 2016 to amend the definitions of ‘partnership purchase arrangements’ and ‘share purchase arrangements’ for entrepreneurs’ relief purposes by excluding the material disposal itself and arrangements which predated both the material disposal and an associated disposal and are independent of the material disposal.
The legislation will be backdated and will apply to associated disposals made on or after 18 March 2015.
The requirement that the material disposal of business assets is 5% or more of the claimant’s share in the company or partnership does not apply where the claimant disposes of the whole of the interest and has previously held a larger stake.
The government will increase the VAT registration threshold in line with inflation from £82,000 to £83,000 from 1 April 2016. The government says this will save around 2,000 small businesses from having to register for VAT by the end of the 2016-17 financial year.
Insurance premium tax
Will increase from 9.5% to 10% from 1 October 2016.
Access to finance
Support for SME access to finance, setting out a £1 billion package to support SMEs through the British Business Bank. It will support the first loans under its Help to Grow programme from spring 2016, supporting at least £200 million of lending.
The Enterprise Finance Guarantee programme, which supports firms that lack a sufficient track record or collateral to access the finance that they need, will be extended until at least 2018.
Small firms that are rejected for finance by high-street banks will be able to access new options as the Budget announced that Bizfitech, Funding Options and Funding Xchange will be designated as finance platforms to help match borrowers and alternative lenders. And on 1 April 2016 the government will designate the banks and Credit Reference Agencies (CRAs) that are within scope of the SME credit data regulations. This will ensure CRAs will receive SME credit information from high street banks and provide equal access to this information to all finance providers.
Capital allowances for business cars
The 100% first year allowance for businesses purchasing low emission cars will be extended for a further three years until April 2021.
From April 2018, the carbon dioxide emission threshold below which cars are eligible for the first year allowance will decrease to 50 g/km from the current threshold of 75 g/km. Similarly, the carbon dioxide emission threshold for the main rate of capital allowances for business cars will reduce from the current rate of 130 g/km to 110 g/km.
Main rate on fuel has been kept frozen for both petrol and diesel at 57.95 pence per litre.
Vehicle excise duties
This will increase in line with the RPI, as has been the case since 2010. The next increase is on 1 April 2016.