Spring Budget 2016 – Richard’s blog

Richard Ellis March 22nd, 2016

So here we are; springtime. Lambs in the fields, daffodils poking their weary little heads into daylight and even some brief but welcome sunshine. But, as is the custom, the Chancellor wants to spoil that. Austerity, cuts, tax increases; it’s fair to say the language surrounding recent budgets has been pretty negative. And so with this in mind myself and our Tax Manager, Denise, sat down to watch the Budget last Wednesday. Rather surprisingly I came away from the Budget less depressed than I expected.

Now, I should make it clear that my analysis of the Budget here is purely from the perspective of small businesses (our clients). It is not my intention to get involved in issues like disability benefit cuts – I’ll leave that to Ian Duncan Smith. No, my eye is firmly placed on the impact it will have on small businesses.

Many of you will know that I have had a bee in my bonnet for some time about the apparent disparity between the way that small business and big multinational business are treated from a tax perspective. The playing field hasn’t been level for a long time and in recent months the Chancellor has started to come under real pressure to do something about this (congratulations to the business people of Crickhowell). Well, it appears that he has started to realise that he needs, at the very least, to appear to be redressing the balance.

And this was the main theme that pervaded the Budget from a business perspective. Announcements included:

>Corporation tax reduced to 17% – Designed to disincentivise big companies from avoiding tax. Also a nice bonus for small businesses (provided he doesn’t increase the dividend tax to compensate).

>More anti avoidance legislation designed to stop multinationals artificially reducing their profits.

>Reduction in small business rates – the small business sector has been lobbying for this for some time. This measure applies to England so it will be interesting to see if the Welsh Assembly follows suit.

>SDLT on non-residential property – brought in line with the new residential property regime with a banding rather than slab system.

>Abolition of Class 2 NIC – a stupid historical anomaly that should have been removed years ago.

>More flexibility in the use of carried forward losses for small companies.

>Tax on loans to participators to be increased from 25% to 32.5% – Basically, company directors who take interest free or low interest loans from their companies are going to face an increased tax bill.

>Capital Gains Tax rules tweaked to encourage investment.

On the whole, most of these measures are to be applauded from a small business perspective. More work is still to be done to make big business pay its fair share of tax but this budget is at least a start in redressing the balance.

>Other announcements included:

>Personal allowance and basic rate band increased taking more people out of tax and higher rate tax.

>ISA limit increased to £20,000 from April 2017.

>Lifetime ISA – Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Could be a test run for pensions of the future.

>Property and trading income allowance. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income.

>Pension reform – consultation continues on this.

>Employer provided tax free pension advice.

>Various alterations to the employment benefit regime.

>Capital Gains tax rates reduced from 28% and 18% to 20% and 10%. This was a headline grabber but when examined in detail appears to be nowhere near the giveaway it appears. Firstly, it doesn’t apply to gains on residential properties (the most common capital gain people encounter). Secondly, the other most likely gain people will encounter is on stock and shares, all of which, for most people, should already be tucked away in a tax free ISA or pension. This is, effectively, a tax cut for the wealthy holding substantial investment portfolios, as far as I can see. Quite devious, really.

>Insurance Premium Tax – increased from 9.5% to 10%.

>Sugar tax on soft drinks.

On the whole, another budget with some surprises and a few stings in the tail. As is always the way, some of the implications of this budget won’t become apparent for some time. Rest assured we’ll be keeping an eye on this for our clients here at Ellis Lloyd Jones.

You can read our full budget guide HERE.