Corporation Tax – the Chancellor announced a reduction in Corporation Tax to 17% by 2020. This is obviously welcome to anyone paying Corporation Tax and interestingly moves the goalposts once again regarding tax when considering trading through a Ltd Co or unincorporated business (see our recent blog).
Since self employed trading income is taxed at 20% for Basic Rate, a tax gain potentially opens up again for trading through a Ltd Co. It is a confusing picture because the Office of Tax Simplification is clearly recommending a convergence of tax rates for micro businesses and of course we do not know whether Dividend Tax will be increased in future years.
That said the Chancellor has said he is committed to providing clarity to future tax rates with his tax roadmap. So far there has been no mention of increases to Dividends Tax.
Business Rates - The Chancellor has said he will be doubling business rate relief, providing 100% relief of business rates for properties with rateable values up to £12,000, double the previous £6,000 threshold. Relief will then taper to 0% with rateable values up to £15,000.
This will be enormously welcome to any business with premises costs under £15,000 rateable value.
Entrepreneur’s Relief - Entrerpreneur’s Relief will now be available to newly issued shares in unlisted companies with the 10% rate of Capital Gains Tax applicable to shares sold three years after their issue.
The change enables investors to benefit from Entrepreneur’s Relief and provides an alternative to SEIS and EIS.
National Insurance – The Chancellor announced the abolition of Class 2 National Insurance from April 2018.
Personal Allowance – the Allowance which currently stands at £10.600 will rise to £11,500 and pencilled in a further £1,000 by 2020.
The Higher Rate threshold will rise to £45k in 2017/18 tax year.
Capital Gains Tax – in one of the most eye-catching moves, the Chancellor has slashed CGT from 18% to 10% basic rate and 28% to 20% higher rate, effective from 6th Apr.
Lifetime ISA – From Apr 2017 anyone under 40 years old will be able to open a Lifetime ISA, save £4k per year to be matched by £1 for each £4 saved from the government.
Micro-entrepreneurs – aimed at anyone dabbling in the sharing economy of Airbnb etc, there is now a £1,000 tax free allowance with anyone earning above this allowance being able to deduct it from taxable income of this type.
THE WIDER PICTURE
Tax Evasion - the Chancellor re-iterated his intention to crack down on tax evasion and aggressive tax avoidance. Critics have questioned the resources being put at HMRC’s disposal but at Crunchers we have long argued that these measures are important in creating a level playing field between big and small business. (See blog).
Economy – sadly the economic outlook has been downgraded from a predicted 2.4% growth in 2016 to 2.0%. It is also clear the Chancellor will have more difficulty in reducing the deficit raising the prospect of further cuts or tax rises.