Budget 2016: What YOU need to know as a small businesses.
BUDGET SUMMARY AND IMPACT ON SMES
The 2016 Budget was released on the 16th March by the Chancellor of the Exchequer and it was packed with measures and ambitious targets to back and boost growth for small businesses.
The government’s long term aim is to modernise and simplify the administration of taxes and business rates and take the thousands of micro tax payers out of the system thus easing the burden on HMRC and creating space to monitor the activities of larger organisations.
Though there are a number of good initiatives possibly with good intentions it remains to be seen if the benefits will materialise in practice. With the Brexit vote expected in June the coming year may be less predictable.
Some quotes from notable experts on the budget are
Ben Wright from Daily Telegraph @_BenWright_ SMEs (who tend to be more pro-Brexit) are getting an awful lot of tax breaks from Osborne (but I’m sure he hasn’t thought of it like that) 1:08 PM – 16 Mar 2016
Emma Jones (founder Enterprise Nation) ‘Incredible moves for small business – reduced corporate tax, tax relief for sharing economy and no business rates for 600k small businesses ‘.
“This is a huge step in the right direction for small businesses.’ Sandra Joseph BTC
What about your views of the 2016 budget. Now that you have had time to digest it all, let us know what you think. As we are about to start the new tax year (on Wednesday), what changes would you have liked to see? Share your views on the budget and not only will we publish them we will make sure George Osborne sees them!
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Here are some of the key highlights
From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates.
Currently, this 100% relief is available if you’re a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less.
There will be a tapered rate of relief on properties worth up to £15,000. This means that 600,000 businesses will pay no rates.
The government is also planning to modernise the administration of business rates.
**NEW** Sharing economy and online trading allowance
From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one income from property you own.
People who make up to £1,000 from occasional jobs – such as sharing power tools, providing a lift share or selling goods they have made, selling on ebay – will no longer need to pay tax on that income.
In the same way, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.
Corporation and Capital Gains Tax will be cut from April 2016
Capital Gains Tax is a tax on the gain you make when you sell something (an ‘asset’) that has gone up in value. It is paid at a basic or higher rate depending on the rate of Income Tax you pay.
From April 2016, the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate from 18% to 10%.
There will be an additional 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).
Capital Gains Tax on residential property does not apply to your main home, only to additional properties (for example a flat that you let out).
The government will cut corporation tax to 17% by 2020 benefitting over 1 million businesses.
Currently, self-employed people have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay Class 4 NICs if their profits are over £8,060 per year.
From April 2018, they will only need to pay one type of National Insurance on their profits, Class 4 NICs.
Paying Class 2 NICs currently enables self-employed people to build entitlement to the State Pension and other contributory benefits.
After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.
Fuel duty will be frozen for the sixth year in row.
Freezing beer duty to help pubs
Duty rates on beer, spirits and most ciders will be frozen this year
Help to Grow
The government’s pilot Help to Grow initiative for growth businesses has been expanded up to £200m.
Small business funding referral scheme
The government has previously announced the setting up of a referral scheme for business owners rejected for traditional high street bank lending. Banks that turn down loan applicants will be required to direct business owners to alternative providers. Budget 2016 confirmed that the three platforms taking part will be Bizfitech, Funding, Xchange and Funding Options. Around 100,000 small businesses are rejected for bank lending every year.
Enterprise Finance Guarantee scheme
The Enterprise Finance Guarantee, will be extended to at least March 2018 to support over £250m of lending per year. The programme helps small businesses that might not get the loan they need because of a lack of sufficient collateral or a track record.
New Enterprise Zones are being created in Brierley Hill in Dudley, Loughborough, Leicester and Cornwall, as well as an extension of the Sheffield City Region Enterprise Zone.
Personal service companies
Public sector companies need to ensure employees pay the correct tax rather than allowing an advantage to those paid through personal service companies, a method used by many independent freelancers and contractors.
The government will be introducing a levy on drinks with added sugar to combat obesity. This will impact the drinks industry. The levey comes into force in two years time to give them time to change their receipes.
Working Tax Credits and the New Enterprise Allowance
Mentoring support offered for participants in the New Enterprise Allowance, a scheme that helps unemployed people start a business, will be extended to self-employed Universal Credit claimants. Face-to-face support from Jobcentre advisors for self-employed Working Tax Credit claimants will also be trialled, with a view to national roll out if successful.
Tax free savings – Lifetime ISA
Adults aged under the age of 40 will be able to save using a new lifetime ISA from April 2017. They will be able to contribute up to £4,000 per year, and receive a 25% top up bonus from the government. “For the self employed, the lifetime ISA is the kind of benefit they just can’t get from pension industry,” Osborne said.
Tax reform for larger companies: Making sure large companies can’t artificially shift profits out of the UK
Some large companies use excessive interest payments to reduce the tax they pay on their profits in the UK. Relief on interest payments will now be capped at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.
Over the next 5 years, the government will raise nearly £8 billion from large companies and multinationals through changes to the rules on interest and other measures, including:
- introducing rules to prevent multinational companies avoid paying tax in any of the countries they do business in, a technique called hybrid mismatches
- taxing outbound royalty payments better – these are fees for using intellectual property like patents and copyrights – meaning multinationals pay more tax in the UK
- making sure offshore property developers are taxed on their UK profits
New stamp duty rates for commercial property from 17 March 2016
The way stamp duty on freehold commercial property and leasehold premium transactions is calculated will change. Currently, these rates apply to the whole transaction value. From 17 March 2016 the rates will apply to the value of the property over each tax band.
The new rates and tax bands will be 0% for the portion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.
Buyers of commercial property worth up to £1.05 million will pay less in stamp duty.
Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.
More information can be found on the governments website: