2016 Budget

With the exception of the new tax on sugary drinks, the 2016 budget will be remembered more for the political fall-out rather than any major new announcements.

However there are some significant developments that will affect the owners of small businesses. Last year the Chancellor announced major changes to how dividends were to be taxed and also the removal of the NIC employment allowance for director only companies. Both these changes came into force this April.

There is some good news in this budget even though some of the changes will not be introduced for several years.

  • It was previously announced that corporation tax would be reduced to 19% from April 2017. This will be further reduced to 17% from April 2020.
  • Income tax personal allowances are being increased to £11,00 from April 20165 and to £11,500 from April 2017. The higher rate tax threshold will therefore increase to £45,000 from April 2017.
  • The national insurance employment allowance is increased to £3,000 pa from April 2016.
  • The rate of tax charged on overdrawn director’s loan accounts is increased from 25% to 32.5%.
  • Capital gains tax rates are to be reduced from April 2016 on gains other than those relating to residential property. The new basic rate will be 10% and the higher rate 20%.
  • The 10% capital gains tax entrepreneur’s relief has previously been restricted to shareholders working in the business. This is to be extended to external investors making it more attractive to invest in small businesses.
  • From April 2017 the small business rates relief is extended to all properties with a rateable value of under £12,000. There will also be tapered relief on properties with rateable values up to £15,000.
  • The weekly Class 2 national insurance contributions are to be abolished from April 2018.

The Chancellor also announced an intention to further clamp down on the use of personal service companies. This will be introduced in 2017.

More information can be found on our Tax Data page