Budget 2016 Overview

Budget 2016 Overview

When the Chancellor of the Exchequer George Osborne stood outside Number 11, red box in hand,
ready to deliver his Budget to Parliament on Wednesday the 16th of March 2016, many of us were
wondering just how it would impact our lives, our business, and the wider economy.

There came a pledge to guide the country to a surplus by 2019‐20, an increase to sports funding by
imposing a levy on those fizzy drinks we all love, and, perhaps most importantly, a change to the
personal allowance.

It’s therefore fair to say that there’s plenty to discuss and dissect in this latest budget. And that is
exactly what we are going to do. Here we take a brief look at how the budget is likely to impact you
and your business.

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Personal Tax Allowance

First up is the part of the budget most of us were keeping an eye out for; the tax‐free personal
allowance. This has been set at £11,000 (an increase of £400) for 2016‐17, and is set to rise to
£11,500 for 2017‐18.

It is the intention of the Government to increase the personal allowance to £12,500 by the end of the
current Parliament in 2020.

The personal allowance has been set at the same level of taxpayers of all ages, however if you are
earning over £100,000 you will see your allowance reduced by £1.00 for every £2.00 you exceed that
threshold.

The Sharing Economy

You may be one of the millions of people in the UK now earning money by leveraging the so‐called
“sharing economy.” Whether you are using something like AirBnB to rent out rooms in your home, or
Uber to pick up passengers (and some extra cash), you will be glad to hear that there will be two new
allowances being introduced with this booming economy in mind.

From the 6th of April 2017, these allowances, worth £1,000, will cover small trading profits and income
from letting out property, respectively.

The idea behind these allowances is to allow you to earn relatively small amounts of money for
undertaking occasional jobs or by letting property, all without having to worry about submitting a tax
return or being liable for tax on that income.

Note: It is not yet clear how these allowances will impact the rent‐a‐room relief, which provides a
£7,500 allowance in 2016‐17 for income earned from letting out part of your own home as residential
accommodation.

Business Rates

If you are a small business owner currently occupying a property with a rateable value of £12,000 or
less, then you will be delighted to hear that from April 2017 you will no longer have to pay any business
rates.

As it stands, this 100% relief is only available to businesses that occupy properties with a value of
£6,000 or less.

This will mean around 600,000 businesses will no longer have to pay business rates.

Tax Implications

It seems that when you read or hear the word “tax” then the word “complicated” is sure to follow at
some point, and that remains the case with the changes to Income Tax and Dividends.

Income Tax

Income tax rates are set to become even more complicated (we warned you), with various rates
payable on different types of income. In 2016‐17, earnings from employment, pensions, or trading are
taxed at 20% (the basic rate) up to £32,000, after your personal allowance has been deducted.

Taxable earnings above £32,000 and below £150,000 are taxed at 40% (the higher rate), and anything in
excess of £150,000 will be taxed at 45% (the additional rate). The higher rate threshold is set to rise to
£45,000 in 2017‐18.

Dividends

The first £5,000 of dividends you receive in 2016‐17 will be taxed at a zero rate. Anything received
thereafter will be taxed as follows:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate taxpayers
  • 38.1% for additional rate taxpayers

The landscape for personal tax has changed so dramatically that we strongly advise you speak with a professional regarding your likely tax liabilities.

Has the Budget left you scratching your head? Set up a call with Philip Caplan today.