... what you need to know
Personal Tax Free Allowance
From April 1st your new personal tax free allowance will increase to from £10,600 to £11,000. The threshold for higher rate tax payers is also increasing from £42,385 to £43,000.
If you are paying Class I National Insurance you will have an increased Employment Allowance of £3,000 which will save you £3,000 of employer’s contribution. A new rule will also be introduced which will exclude you from claiming the Allowance if you as a Director are the only employee.
Annual Investment Allowance
Also, the Annual Investment Allowance is dropping right back down from the temporary level of £500K to £200K of qualifying investment in “plant & machinery” (e.g. cars, computers) made on or after 1st January 2016. This change is expected to be permanent to allow capital expenditure to be better planned.
If you are a company shareholder, what will changes to dividend taxes mean to you?
For many Company Directors taking part of their salaries as share dividends has been the most tax efficient way to take money out of their business. Under the changes coming into play this April this means they will be worse off. So if your income now consists of a PAYE salary of £7,500 and £35,000 dividends you can expect to pay tax of about £1,100. With the planned changes you’ll be paying around £2,250.
We’ve looked at whether increasing your PAYE salary will help reduce the amount of tax you will owe. However it doesn’t appear so. We would suggest that if you have employees you take a salary of £11K to maximise your full personal allowance (even though it will incur a small National Insurance contribution) and take the remainder as dividends. However if you are a sole Director you will be better off taking only £8,060 as a salary with the remainder as dividends, as you will no longer be able to claim the Employment Allowance (as explained above).
Under the new system the tax rates on dividends that will then kick in after the first £5k (which is tax free) is 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate payers, all up from last year.
You are an entrepreneur, will you still benefit from tax relief?
As far as we can see there are no planned changes to entrepreneur’s relief or R&D tax credits. Good news but we’ll be keeping a close eye on this.
You are worried about your pension
Luckily for most, the next stage of planned changes to tax relief on pensions have just been put on hold. However planned reductions to the lifetime allowance (the amount you can hold in a pension without facing penalties) and the annual allowance on pension contributions are still on the table, so watch this space.
You own an investment property or second home
It’s not looking great for landlords and second home owners. They are facing an additional 3% increase on stamp duty, a reduction in allowances expenses (which will be based on actual costs rather than a broad deduction of 10% of their rental income for wear and tear) and they will no longer be able to deduct mortgage interest before calculating tax, pushing many into the higher tax brackets.
What to watch? We’ll be keeping a close eye on the budget as it unfolds – in particular to see if there are increases to fuel duty (bad) and income tax thresholds to ease the burden on middle-income families (good).
Free Budget Breakdown Breakfast
If you miss events on the day but want the detail of how it will impact you then don’t miss our breakdown of the budget at the Medway Innovation Centre on Thursday March 17th 9.30am to 11.00am to find out how it will impact your business. Our team will be on hand to answer any questions particular to your own set of circumstances
To book on please click here now to grab yourself a seat.