A Budget for small businesses?

By Shaun Millican, Johnston Carmichael

“We’re going to act now to save later”; “a Budget for the next generation”; “we’re not afraid to put the next generation first”. There was no mistaking Osborne’s intentions, but with stalling growth and a tense political picture across the UK and Europe, he couldn’t afford to be bashful.

Mixed bag? Yes, but among the widespread tax changes presented by the Chancellor, by and large, business owners had a number of reasons to be cheerful…

Personal allowances

With an increase to the tax free personal allowance by £500 to £11,500 from 6 April 2017, more income will be lifted out of the tax net. Positively, at the same time the threshold at which higher rate tax applies will increase to £45,000 due to the increase in the personal allowance and extension of the basic rate tax band. This is £2,000 higher than the level of £43,000 that applies from 6 April this year.

Business rates

The Chancellor announced a new £15,000 threshold for small business rate relief, more than double the previous level of £6,000. He also increased the higher rate from £18,000 to £51,000. These changes ensure 600,000 small firms will pay no business rates at all.

Corporation tax

For business and enterprise, corporation tax will be reduced to 17 per cent by 2020 – benefitting over a million companies, large and small. As well as encouraging more investment in the UK, for growing businesses, this leaves extra room to invest in other areas such as skills, new technology or marketing.

Also of particular interest to SMEs was an unexpected announcement that, from 1 April 2017, there will be changes to the corporation tax loss relief rules. On first sight, this should be good news for small companies as it indicates greater flexibility for the use of carried-forward losses. The proposed 50% restriction on the use of losses will only impact companies or groups with profits exceeding £5m.

New measures were also brought in to tax profits being made in the UK but shifted overseas, as well as goods stored in the UK but sold internationally via online retailers.

Capital Gains Tax (CGT)

Significant changes occurred to CGT with rates reducing from 6 April 2016. The rates will move from 18% to 10% (for gains within the basic rate) and from 28% to 20% (for gains in excess of the basic rate). If disposing of a residential property (other than your main residence) then the existing rates of 18% and 28% will apply. This is to incentivise individuals to invest in assets other than residential property.

For individuals thinking about selling assets at this time, if you are realising gains in excess of the annual exemption, it may be more tax efficient to consider deferring some or all of the disposals until 6 April when CGT rates will decrease.

Prior to the Budget, there was much talk about possibly reducing Entrepreneurs’ Relief (ER), a benefit which gives individuals a 10% tax rate on qualifying disposals when chargeable gains arise in a lifetime of up to £10 million. However, in a surprise move the relief has actually been extended. Going forward, long term investors who subscribe to shares from 17 March 2016 in unlisted trading companies, and hold those shares for at least three years starting from 6 April 2016, will be able to avail of 10% ER. This measure is designed to increase support for entrepreneurs and drive forward the economy.

Lifetime ISA

Finally, the younger generation (those under 40 apparently!), had their moment in the spotlight in the form of the Lifetime ISA. From 6 April 2017, under 40’s can contribute to the Lifetime ISA up to £4,000 per annum and receive a ‘top up’ from the Government of 25% on the annual funds invested up to a maximum of £1,000. The funds can be used to acquire a first home up to a value of £450,000. Otherwise the funds can be withdrawn without restriction and free of tax from the age of 60 onwards.
All in all, the changes add up to an attractive tax environment for businesses, especially SMEs, while creating a credible method of increasing the tax take from larger companies.
If you have any questions about what the Budget 2016 means for you or your business, please don’t hesitate to get in touch.

Shaun Millican | Johnston Carmichael
0131 220 2203 | Shaun.millican@jcca.co.uk

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