Lymington business should benefit from 2016 Budget

Lymington business should benefit from 2016 Budgetbudget red box

The first Spring Budget of this Parliament was presented on Wednesday 15 March by the Chancellor of the Exchequer.


In his speech, George Osborne stated that this Budget is 'for the long term’, putting ‘the next generation first’ and ‘a huge boost for small business and enterprise.’

 

Certainly small businesses in Lymington, the New Forest and surrounding areas have welcomed what they said were long overdue reforms to tax policy, particularly with regards to the changes to business rates. The Chancellor does seem to have listened to business lobbies, recognising the support of small business is crucial to the Government, ahead of a European referendum.

 

Mike Cherry, policy director at the Federation of Small Businesses (FSB), claimed victory. “FSB members have campaigned hard to make small business rates relief permanent and expand it – and the chancellor has heeded our calls, taking many small firms out of the system altogether.” 

 

It does appear that the Government has taken action to reduce the burden of business rates, and has sharpened incentives for entrepreneurship and investment. A summary of the tax changes affecting small- to medium-sized businesses is featured below.

 

Business rates reductions

entrepreneur reliefBusiness rates have been devolved to Scotland, Northern Ireland and Wales. The Chancellor has announced cuts on business rates for half of all properties in England from April 2017. Currently a 100% relief is available if a business occupies a property with a rateable value of £6,000 or less. The government proposes to:

  • Permanently double Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a property with a rateable value of £12,000 and below will receive 100% relief.Taper relief will apply for properties valued between £12,000 and £15,000.
  • Increase the threshold for the standard business rates multiplier to a rateable value of £51,000 (from £18,000), taking 250,000 smaller properties out of the higher rate.
  • It is estimated that this will mean 600,000 small businesses will no longer pay business rates, while 250,000 will pay lower rates. Business lobbies have claimed victory at this ‘business rates roadmap’ which the Chancellor claims will create “a level playing field for businesses”.

Two new tax allowances

The Chancellor has introduced two new tax allowances for micro-business owners. The £1,000 exemption from tax will apply to:

  1. People who make up to £1,000 from occasional jobs such as selling goods they have made, and
  2. The first £1,000 of miscellaneous income from property, for example renting a driveway.

Corporation tax rate

tax returnThe main rate of Corporation Tax from 1 April 2016 remains at 20%.

  • From April 2017 the rate is set to reduce to 19%
  • From April 2020 to 17%.

Corporate tax loss relief

The government will introduce two reforms to corporate tax losses from April 2017. First, losses arising on or after 1 April 2017 will be useable, when carried forward, against profits from other income streams or other companies within a group. Second, from 1 April 2017, companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.

Corporation tax payment dates

At the Summer Budget 2015, the government announced it would bring forward corporation tax payment dates for companies with taxable profits over £20 million. This measure has been deferred by two years and will now apply to accounting periods starting on or after 1 April 2019.

New stamp duty rates for commercial property acquisitions

property lettingFrom 17 March 2016, the way in which stamp duty is calculated on commercial property acquisitions will be changed. Instead of higher rates being applied to the total cost on a slab basis, the following rates will apply on a graduated basis.
The rates are:

  • Up to £150,000 no stamp duty is due
  • From £150,001 to £250,000 the rate is 2%
  • Above £250,000 the rate is 5%

Buyers of commercial property worth up to £1.05m will pay less stamp duty as a result of this change.

Incorporated property businesses to pay increased stamp duty

In an attempt to create a level playing field, the Chancellor has clarified, by amending legislation, that individuals are subject to the 3% SDLT supplement if they purchase more than one property, and companies on all residential property purchases even the first such purchase. Here’s what the Budget notes say on this issue:

  • “If, at the end of the day of the transaction, an individual owns 2 or more properties and has not replaced their main residence, the higher rates will apply. Purchasers will have 36 months to either claim a refund from the higher rates, or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence. Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property. Properties purchased for under £40,000, caravans, mobile homes and houseboats will be excluded from the higher rates. Furthermore, small shares in recently inherited properties will not be considered when determining if the higher rates apply.”

VAT: overseas businesses and online marketplaces

Changes will be made to the existing rules which allow HMRC to direct an overseas business to appoint a VAT representative with joint and several liability. A new provision will then enable HMRC to hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas business that sells goods in the UK via that online marketplace. The measure will have effect from Royal Assent to Finance Bill 2016.

 


The objective of this measure is to give HMRC strengthened operational powers to tackle the non-compliance from some overseas businesses that avoid paying UK VAT on sales of goods made to UK consumers via online marketplaces. It is directed at getting overseas businesses, that are or should be VAT registered in the UK, paying VAT due either directly or through a VAT representative.

VAT registration and de-registration limitswork at home

From 1 April 2016:

  • Registration threshold increased to £83,000
  • De-registration threshold increased to £81,000

Non-monetary transactions are taxable

From 16 March 2016, any trading or property income received in non-monetary form have to be included as income for tax purposes. This confirms previous tax cases on this issue.

Insurance premiums to rise?

The standard rate of Insurance Premium Tax is being increased from 9.5% to 10% from 1 October 2016. This will likely result in increased premiums. The increase in the tax will be used to fund new flood defences.

Class 2 National Insurance Contributions (NIC) to be abolished

employeesThe Class 2 NIC charge is to be abolished from April 2018. The self-employed will continue to pay the existing Class 4 contributions from this date. Class 4 contributions will be reformed such that the self-employed can continue to build entitlement to the State pension and other contributory benefits.

Employer’s NIC on termination payments

From April 2018, certain employee payoffs, for example termination payments in excess of the tax free £30,000 where Income Tax is also due, will be subject to an employers’ National Insurance charge.

For employees, payments up to £30,000 will remain tax free and they will not suffer an additional National Insurance charge.

Capital allowances on business cars

The current 100% first year allowance (FYA) on businesses purchasing low emission cars will be extended to April 2021. A low emission car is one where the CO2 emissions do not exceed 75 gm/km and this threshold will fall to 50 gm/km from April 2018. In addition, the CO2 emission threshold for the main rate of capital allowances for business cars will reduce from 130 gm/km to 110 gm/km from April 2018.

Zero-emission vans benefit change deferred

business carsExisting legislation, that applies the level of the van benefit charge for zero-emissions vans at 20% of the charge for conventionally fuelled vans, has been extended to the tax years 2016-17 and 2017-18. This defers the planned increase to 40% of the van benefit charge for conventionally-fuelled vans to 2018-19.

The van benefit charge for zero-emission vans will be 60% of the van benefit charge for conventionally fuelled vans in 2019-20, 80% in 2020-21 and 90% in 2021-22.
From 2022-23, the van benefit charge for zero-emission vans is 100% of the van benefit charge for conventionally-fuelled vans.

Diesel fuelled company cars: 3% supplement retained

The 3% supplement that is added to the benefit-in-kind calculation for drivers of diesel-fuelled company cars was due to expire 5 April 2016. The Finance Bill 2016 will now include a provision that retains this supplement indefinitely.

Trivial benefits-in-kind

Where the cost of providing a qualifying, “trivial benefit” for an employee is less than £50, it will no longer be required to disclose this as a benefit in kind from 6 April 2016. There is an annual cap of £300 if the payments are made to directors or other office holders of a small company, or their employees who are relatives or members of their household.

Travel expense claims

From 6 April 2016, it will no longer be possible for workers engaged through an employment intermediary to claim for home to work travel expenses. This regularises the established principal in the UK tax system that such regular commute costs between home and work cannot be claimed for tax purposes.

Use of home for business purposes by partners

trustThe simplified expenses regime has been fully extended to include partnerships from April 2016. Where more than one property is used by partnerships for business and as a home then any claim for the simplified expense deduction for all such properties will be allowed.

Loans to participators

The 25% rate of tax charged on loans to participators and other arrangements by close companies will increase to 32.5%. This applies to loans made and benefits conferred on or after 6 April 2016. This increased rate mirrors the dividend upper rate. The government has noted that this will prevent individuals gaining a tax advantage by taking loans or making other arrangements to extract value from their company rather than remuneration or dividends.

EIS, SEIS and VCTs: exclusion of energy generation

Investments in companies that engage in energy generation activities will be excluded from the tax advantaged Enterprise Investment Schemes, Seed Enterprise Scheme and Venture Capital Trusts. This will affect shares or holdings issued on or after 6 April 2016.

Enterprise Zones - enhanced capital allowances

This measure extends the period in which businesses investing in new plant and machinery in ECA sites in Enterprise Zones can qualify for 100% capital allowances to eight years.

replacing toolsRemoval of statutory renewals allowance

The government will withdraw the statutory renewals allowance, which provides businesses with tax relief for the cost of replacing tools. The changes ensure that tax relief for expenditure incurred on the replacement of tools will be obtained under the same rules as those which apply to other capital equipment. Businesses will be able to claim tax relief under the normal capital allowance regime or, in the case of residential landlords, for the cost of replacing domestic items such as furnishings and appliances. The withdrawal will come into effect for expenditure on or after 6 April 2016 for income tax purposes and from 1 April 2016 for corporation tax.

Company distributions

Legislation will be introduced with effect from 6 April 2016 to:

  • amend the Transactions in Securities legislation, which is designed to prevent tax advantages in certain circumstances. The amendments, for example, include liquidations as potentially coming within the scope of the legislation
  • introduce a new Targeted Anti-Avoidance Rule, which would prevent some distributions in a liquidation being taxed as capital, where certain conditions are met and there is an intention to gain a tax advantage.

making tax digitalMaking tax digital

From 2018 businesses, self-employed people and landlords who are keeping records digitally and providing regular digital updates to HMRC will be able to adopt pay-as-you-go tax payments. This will enable them to choose payment patterns that suit them and better manage their cash flow.

Closing tax avoidance loopholes

In response to increasing demands from a number of directions the Chancellor has endeavoured to close a number of loopholes used by multinationals to avoid paying tax in the UK, on profits earned in the UK. They include:

  • Rules to prevent multinationals avoid paying tax in any of the countries they do business, an avoidance technique called hybrid mismatches.
  • Introducing rules to increase the tax take when companies make outbound royalty payments. Generally, these are fees paid for using intellectual property such as patents and copyrights.
  • Ensuring that offshore property developers are taxed on their UK profits.

Entrepreneurs’ relief extended to include investors

Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. This new investors’ relief will apply a 10% rate of CGT to gains accruing on the disposal of 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 a period of at least three years starting from 6 April 2016. A person’s qualifying gains for this investors’ relief will be subject to a lifetime cap of £10 million.

Entrepreneurs’ relief on disposal of goodwill relaxed

Legislation will be introduced in Finance Bill 2016 to allow ER to be claimed in respect of gains on goodwill where the claimant holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company. This ‘holding condition’ will replace a previous requirement that the claimant must not be a ‘related party’ in relation to the company.

Relief will also be due where the claimant holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.

 


This summary outlines the headlines of the changes, for more information and to discuss how the changes will affect your particular circumstances, please do get in touch to organise your free initial consultation.

 

Peter Lashmar

© Lashmars Tax Accountants 2016.
This communication is intended to provide general guidance on matters of interest and you should not act or refrain from acting upon any information contained in it without seeking appropriate professional advice.

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