The Chancellor recently presented the new government’s first Budget to Parliament. The first Conservative budget in 19 years, the emphasis was very much on deficit reduction and streamlining of the welfare system. Here, we look at some of the main points raised and how these may affect you and your business:
Importantly for many low-paid workers, the Chancellor has made the ‘living’ wage compulsory from April 2016, starting at £7.20 per hour for over 25s and rising to over £9 per hour by 2020.
3 million new apprenticeships are to be created by 2020 and firms who commit to the training of apprentices will be incentivised through the tax system.
Public sector pay is to increase by 1% per year for four years from 2016-17.
- Personal & Business Taxation
Currently at £10,600, the Personal Allowance (the amount it is possible to earn before a person starts to pay Income Tax) will rise to £11,000 in 2016-17. The government’s intention is to increase the Personal Allowance to £12,500 by 2020, at which point legislation will be introduced to the effect that no Income Tax will be payable at all by anyone working 30 hours per week on the National Minimum Wage.
The 40% Income Tax band threshold is to increase from £42,385 to £43,000 in 2016.
Dividend Tax Credit, reducing the amount of tax paid on income from shares, is to be replaced by a £5,000 tax-free dividend allowance from April 2016. Tax rates on dividend income will then be increased, meaning that only those with significant dividend income should face a higher tax bill.
The main rate of Corporation Tax is to fall from 20% to 19% in 2017 and further to 18% in 2020. The Treasury estimates that over a million businesses should benefit from the reduction. In addition, the annual investment allowance, currently set temporarily at £200,000, will be made permanent at this level from January 2016. The annual investment allowance allows businesses to plan cash flow and spending on long-term investments, giving full tax relief in the year items are purchased.
The Employment Allowance will rise to £3,000 from April 2016, reducing employer National Insurance payments by £1,000. The Chancellor commented that this should allow businesses from next year to employ four people full-time on the National Living Wage and pay no National Insurance at all.
From April 2017, individuals will be able to pass their home onto their children or grandchildren on death free of tax under a new ‘family home allowance’. Under the existing system, Inheritance Tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Unused allowances can be passed between spouses and civil partners; the family home allowance is to be added to this £325,000 threshold, resulting in a total tax-free allowance of up to £1million for surviving partners in 2020-21.
Large estates worth more than £2million will see the allowance gradually withdrawn.
Free childcare provision is to increase from September 2017; currently, working families with 3 and 4 year olds receive 15 hours’ care each week but this will rise to 30 hours.
The 2016-17 academic year will see the introduction of ‘maintenance loan support’, replacing student grants. The amount available will increase to £8,200 and loans are to be repaid once the graduate earns more than £21,000 per annum.
The Chancellor introduced a package of measures intended to make significant reductions to the country’s welfare bill. Amongst the steps announced included:
- Tax credits, Local Housing Allowance and other ‘working-age’ benefits are to be frozen for four years from 2016-17, although this will not include statutory Maternity Allowance, maternity and paternity pay and sick pay;
- The total amount a household can receive in benefits is to be capped at £20,000, and £23,000 in London;
- Child Tax Credit will be capped at two children from April 2017. Therefore families with three or more children born after April 2017 will only receive credits for the first two children;
- Universal Credit recipients aged 18-21 must apply for an apprenticeship, gain vocational on-the-job skills or go on a work placement six months after the start of their claim to continue to receive it;
- Social housing rents are to be reduced by 1% per year for four years. Tenants on higher incomes will be required to pay rents which reflect open market values.
Defence spending is to increase, with the Ministry of Defence budget rising by 0.5% above inflation each year to 2020-21. An additional £1.5bn per year should be available by 2020-21, allowing increased spending on military and intelligence.
The standard rate of Insurance Premium Tax is to increase to 9.5%; consumers may notice that the cost of household insurances such as home, contents and car increase accordingly.
Road tax will be reformed, introducing a flat rate of £140 for most new cars from 2017, save in their first year when tax remains linked to CO2 emissions. Electric cars pay no tax and more will be payable for more expensive vehicles. New cars and motorcycles will face their first MOT after four years rather than three.
More powers are to be devolved to Greater Manchester, including responsibility for fire services, land commission and collaboration on children’s services. Transport for the North is to be supported by £30m over three years and will receive more responsibility for policy.
How will you be affected by the Budget? We are interested to hear your views; connect with us on Twitter (@MBHSolicitors), Facebook or LinkedIn.
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