Budget 2016 in brief
Chancellor George Osborne delivered his fourth Budget statement in the last 12 months on Wednesday and there were some important announcements for contractors and small business owners.
We have summarised the most important changes below.
Increase in the tax-free allowances
The government will increase the tax-free personal allowance threshold from £11,000 to £11,500. The higher rate threshold will also increase from £43,000 to £45,000. Both changes will take effect from April 2017. This is a positive move for basic rate taxpayers who will be taking home an extra £56 each year. The government believes that 1.3 million lower earners will not be taxed at all.
IR35 changes for public sector workers
A significant change for some contractors will see many for off-payroll public sector workers caught out by the IR35 ‘disguised employment’ tax rules. The government will change the way these rules are applied in April 2017 so that it is the public sector employer who decides if an off-payroll worker is compliant with IR35 restrictions. Previously it was up to the employees themselves to decide whether IR35 applied. For more detail on this change, see the HMRC overview.
Business rate relief and corporation tax
Changes to business rates are relevant for small business owners that work from a non-domestic property. In what the Chancellor called his “Budget for small business,” George Osborne doubled business rate relief, meaning that 600,000 small firms will not have to pay business rates and 250,000 will pay a lower rate. Corporation tax will also fall to 17 per cent in April 2020.
Class 2 National Insurance abolished
In a move that will affect self-employed workers, the Chancellor announced that Class 2 National Insurance contributions will be scrapped from April 2018. Abolishing the contributions, which apply to people making more that £5,965 in profit each year, will mean that most self-employed workers will enjoy a £130 tax cut.
Capital Gains Tax cut
Investors will welcome a cut in both the lower and the higher rate of Capital Gains Tax. The higher rate will be cut from 28 per cent to 20 per cent and the basic rate will be cut from 18 per cent to 10 per cent. Both changes will come in the new tax year in April. It is worth noting that the higher 28 per cent rate will still apply on the sale of second homes and buy-to-let properties.
Lifetime ISA for people under 40
While not specifically for contractors or small business owners, a new lifetime ISA will offer everyone under 40 the equivalent of a £1 bonus for every £4 they manage to save up to a maximum of £4,000 per year. Also introduced in April 2017, this new savings scheme will, the government hopes, give younger generations more chance of getting on the property ladder and saving for retirement.
Higher prices on certain vices
Again, higher prices on some ‘vice items’ will not only affect contractors or business owners, but they could increase the costs of everyday life. One of the big headline grabbers from this Budget was the new tax on sugary drinks which could add about 8 pence onto the price of a can of coke. The price of cigarettes will also increase by about 2 pence plus inflation.
Fuel duty frozen again
Encouraging news for contractors and small business owners who travel frequently by car, fuel duty has been frozen again at 57.95 pence per litre for the sixth year in a row.
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