Blog Post


April 2016

As we have now started the new tax year, we want to try to summarise some of the key changes in the worlds of personal and company taxation.
The March budget showed that George Osbourne is still not focussed on simplification of the tax system. He continues to make a lot of incremental changes: some of them good, some less so.
While the focus on the day of the March Budget was on the Sugar Tax on soft drinks, there is a lot more that taxpayers need to be aware of.
As noted, some of the tax changes are beneficial: for example getting bank interest paid gross; some are less so, especially if you own several properties, and a lot of it is difficult to explain.
But we are here to try to explain what is happening.
We'll start with setting out the good news, and there is some.
The tax free personal allowance has risen to £11,000 from April 2016, an exceptionally high level when compared to other western economies. The band on which you pay basic rate tax of 20% is between £11,000 and £43,000; above that tax is charged at 40%. In April 2017, the Personal Allowance and basic rate upper band will be £11,500 and £45,000.
From April 6th 2016, most people earning interest from their bank or building society will be better off, as interest will no longer be taxed at source under the terms of the new Personal Savings Allowance. Basic Rate tax payers can receive up to £1,000 interest tax-free, and Higher Rate tax payers up to £500.
If you are an employer, the Employment Allowance on Employers National Insurance has risen, meaning that the first £3,000 of National Insurance for a company is tax free.
From April 6th 2016, the Rent-a-Room Relief has increased from £4,250 to £7,500, meaning that the first £7,500 you receive for renting a room out in your house is tax free.
If you have money to invest and have confidence in the stock market you can invest £15,240 in an ISA and your income from that will be tax free. From April 2017, the annual ISA allowance will increase to £20,000. For investors under 40, a new Lifetime ISA is to be introduced in 2017, which enables savers to put £4,000 into an ISA, and the ISA will be topped up by one quarter if the ISA is untouched before the investor reaches 60 – it presents an interesting alternative to a personal pension.
The first £11,100 of any Capital Gains you make in the tax year also remains tax free. However, the rates of tax on gains above £11,100 are being reduced to 20% higher rate and 10% lower rate, except for property sales. This will present interesting changes to investing decisions, especially when considered alongside the higher dividend rates.
In a year's time, the new Residence Nil Rate Band Allowance will increase the Inheritance Tax-free threshold on estates including a main residence by £100,000.
Another tax cut being introduced in April 2017 is for Corporation Tax, which will fall from 20% to 19% for financial years ending after 31 March 2018 and that rate will fall again from 19% to 17% two years later. Again, this is a very favourable rate in contrast to other European countries.
While the list of tax cuts and benefits is reasonably long, there are some tax rises and additional administrative effort coming in from April 2016.
If you receive more than £5,000 in Dividend income, either from shares or from the company you work for, you will probably pay more tax. The Dividend Nil Rate Band allows the first £5,000 of dividends to be free of tax. Above that Dividends will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for highest rate taxpayers. Owner-Managers of companies taking income in the form of a small salary plus dividends will still generally be better off incorporating but the tax advantages will be reduced.
If you are putting money aside in a personal pension, the maximum tax-deductible lifetime allowance has fallen from £1.25m to £1m. The amount you can set aside in a single year to offset higher rate tax remains at £40,000, although you can use that £40,000 for three prior years.
If you are an employer at a small company the administrative burden and extra cost of auto-enrolment looms ever closer. For companies with eligible employees electing to join a Workplace Pension, the company will pay 5% of the employee's salary into the pension; the employee contributes 3% from his or her salary.
If you want to invest in a second home, you are going to pay 3% more in Stamp Duty - and if you sell that home after a few years, you will have to pay any Capital Gains tax owing on that sale pretty sharpish. If you have taken out a mortgage to purchase that second home, and you are a higher rate taxpayer, you will be constrained in how much mortgage interest you can claim as a tax deduction – you will not be able to deduct more than basic rate on interest, rather than the whole interest amount. Finally, if your rented house if furnished, you are losing your 10% Wear and Tear allowance from April 2016.
Behind the auto-enrolment initiative comes 'Making Tax Digital'. If you haven't heard of Making Tax Digital, but you have heard about the 'Pay Tax Every 3 Months' plan, it is the same thing, albeit with different headline writers.
Making Tax Digital is going to be a large initiative, affecting huge numbers of people as many small businesses will need to store data digitally for the first time. It is scheduled for roll-out from 2018 to 2020, and as it will be tax-generating for the Government and the expected revenue boost has been included within George Osborne's revenue forecasts, it is unlikely to be delayed.
However Making Tax Digital does have its merits: if the Government computer systems are able to source data like Employment and Pensions Income, Bank interest and even investment income without you having to re-input it on your tax return, that is a good thing.
Even the plans to prioritise quarterly financial reporting for small businesses in a digital format could be beneficial if businesses can invest time and resources in producing more useful financial reports.

Key Tax Rates for 2015/16 and 2016/17 In these tables we are publishing some key tax rates for both 2015/16 and 2016/17. The 2015/16 rates will be relevant for the next Self-Assessment Tax Returns due for submission by 31 January 2017. The 2016/17 will be relevant for any income and expense you have from next week.

INCOME TAX 2015/16 2016/17 Notes
Personal Allowance £10,600 £11,000 £11,500 from 2016/17
20% Basic Rate Upper Limit £42,385 £43,000 £45,000 from 2016/17
Dividend Tax Rates 'Notional' Tax Credit of 10%, then:
Higher Rate 32.5%
Highest Rate 37.5%
First £5,000 0%
Basic Rate 7.5%
Higher Rate 32.5%
Highest Rate 38.1%
Tax Credit is not taxed, just an accounting adjustment
Rent-Room £4,250 £7,500 Deduction from rental income
Employment Allowance on Employers National Insurance (per Company) £2,000 £3,000
Employment Allowance on Employers National Insurance (per Company) £2,000 £3,000
NI thresholds: - Class 1 Employee - Class 1 Employer 12% - {between £672 & 13.8% { £3,352 per month 12% - {between £676 & 13.8% { £3,583 per month
National Minimum Wage £7.20 per hour if 25 or over
Corporation Tax 20% 20% 19% from 2017/18
Annual Allowance £11,100 (£5,550 for Trusts) £11,100 (£5,550 for Trusts)
CGT Rates 28% higher rate
18% basic rate
20% higher rate**
10% basic rate
** not for property sales
IHT Rate 40% 40%
Nil Rate Band £325,000 £325,000
Residence Nil Rate Band nil nil £100,000 from April 2017