Voting works! UK small businesses, pensioners and parents vote whereas large international companies can’t. With an eye on attracting these votes, as long as you’re a saver, the Chancellor aims to deliver a package to attract you!

Small businesses

Corporation tax rate reduction from 20% to 17% in 2020/21

This helps restore the balance from the new dividend tax although you’d need to earn £57k more of taxable profit to recover the additional £1,700 annual dividend tax many are paying from this April.

It might make other low tax jurisdictions look less attractive, such as Ireland, and encourage international companies to have more valuable taxable activity in the UK.

Increased higher rate tax threshold to £45k from April 2017

This has other implications such as on capital gains tax and the dividend tax rate, so is another way to offset the higher dividend tax you’re paying from April 2016.

Increased tax if you borrow from your company from 25% to 32.5% from April 2016

It may be worth considering whether you should take more dividends from your company before 6 April 2016 to clear any loans from your company. Paying 25% tax may be preferable to suffering 32.5% later until you do repay the loan. This is an area which has seen many recent changes and is a source of constant irritation to HMRC. With more tax at stake, it makes it more worthwhile for an Inspector to look into this area.

IR35

If you’re a service provider on longer term contracts with few clients, such as an IT contractor, the plan is to ask public sector clients to decide if you’re an employee in disguise. If they do, you might decide you prefer to work for the private sector. Surely this runs the risk of encouraging good suppliers to no longer work for the public sector.

Abolition of Class 2 national insurance from April 2018

However, no mention of Class 4 national insurance, the real cost of being a sole trader or partner, so we’ll wait and see whether that needs to increase from 9%.

Business rates and commercial SDLT reduction  

This helps small retailers compete with the internet, although more so in the Northern and Midlands ‘power houses’ than in the South East.

Encouraging investment from external investors

An extension to entrepreneurs relief where new money is invested from tomorrow in an unquoted company and the shares are owned for at least 3 years from 6 April 2016, capital gains tax of only 10% will be due, as it is for many officers and employees.

Pensioners

Reduced capital gains tax to 20% and 10% from April 2016

This may be the group most likely to benefit from the reduced capital gains tax. if you own shares in quoted companies or unquoted companies where you’re ineligible for entrepreneurs relief, you may now wish to consider selling these investments from this April.

Parents

Sugar tax

When children are mentioned Chancellors can get away with a lot but increased prices do also affect adults on low incomes. Introducing a sugar tax on drinks and keeping duty on beer the same may have the unintended consequence of making alcoholic drinks look relatively more attractive!

Lifetime ISAs

A possible alternative or complement to normal pension savings. Together with pensions auto enrolment, ‘putting the next generation first’ may turn out to be true.

For those on low incomes benefiting more proportionately from tax free personal allowances, combined with saving (possibly with parents’ cash) in a lifetime ISA which receives a 25% uplift from the government, may be a very welcome mix of valuable government subsidy.

This trend of appealing to the many rather than the few, may turn out to be a successful strategy for the Chancellor. It may also help grow the economy as long as the new dividend tax doesn’t increase any further.

Paula Tomlinson FCA CTA

Managing Director

On The Spot Accountants

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