George Osborne’s first budget since the election has certainly laid down some significant markers about how he intends to run the finances of the country in this coalition free government.
There has certainly been lots of speculation on what the budget may contain and this, in part, has been borne out when delving deeper into the budget text released at the same time the Chancellor spoke. Other areas, particularly significant to SME’s and contractors, have somewhat taken us by surprise however.
The key areas from the budget concerning SME’s and contractors are as follows:
Tax on Dividends
In a bid to recoup some of the deficit, Mr Osborne has confirmed a significant change in the way dividends are taxed beginning 6th April 2016.
From this date, tax credits will be abolished and a new £5,000 tax free allowance on dividend income will be introduced. Dividends paid in excess of this allowance will be taxed at 7.5% up to the basic rate tax threshold with a 32.5% tax rate thereafter.
Even though this may lead to an increase in the amount of personal tax that will be due, professional contractors and SME owners alike will still see working through a limited company as far more financially beneficial than working as an employee through payroll or an umbrella company.
Unsurprisingly IR35 got a mention in today’s budget also. Today, the government has asked HMRC to start a dialogue with business on how to improve the effectiveness of the existing IR35 legislation. It stated that…
The government wants to find a solution that protects the Exchequer and improves the fairness in the system.
It is believed that HMRC will start setting out a framework for discussion with major stakeholders shortly.
Travel and subsistence expense
Although not referred to in his hour long budget speech, the Government has today published a consultation document covering proposals to remove tax relief for the cost of travel from home to work for those that are employed through an umbrella company or for some directors of Personal Service Companies.
Although no actual proposal yet, the 12 week consultation will close at the end of Sept 15 and any changes implemented from the following April 16 onwards.
Other changes proposed were:
- The Employment Allowance will increase to £3,000 from April 2016
- Corporation Tax will be reduced to 19% in 2017 and 18% in 2020
- Reduction in the pension tax relief for earners above £150,000 by reducing the Annual Allowance to a minimum of £10,000 from April 2016.
- Personal Allowance will increase to £11,000 from April 2016
- Basic rate tax threshold increased to £43,000
- Annual Investment Allowance increased to £200,000 from January 2016.
- A “Living Wage” to be introduced for those over 25.
- Rent a Room Relief will increase to £7,500 from April 2016.
Some of the announcements Mr Osborne has proposed today are still being digested and we’ll provide further details on the actual consequences of these shortly. Others, surrounding IR35 or travel and subsistence changes will be further reported once we know more.