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Budget Report 2016 – Clayton & Brewill
Welcome to the Clayton & Brewill Budget 2016 report, with an overview of the announcements and changes that may affect you and your business. As always, please do contact us if you would like to discuss in detail the impact of any of these changes.
- Small Business Rate Relief threshold rising to £12,000
- Corporation tax to reach 17% from April 2020
- New Lifetime ISA for the under-40s
- Stamp duty on commercial property reduced for lower bands
- Capital gains tax to be cut from 28% to 20%
- Income tax personal allowance rising to £11,500 from April 2017
- Class 2 NICs for the self-employed abolished from 2018
- ISA allowance to rise to £20,000
- New tax reliefs for ‘micro-entrepreneurs’
- No change to the ‘second-home’ stamp duty plans for residential properties
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Budget announcements for businesses
The Chancellor revealed a package of business tax measures, including the phased reduction of the 
headline rate of corporation tax to 17% for the tax year beginning in April 2020.
He also announced that in England the Small Business Rate Relief threshold will rise from £6,000 to £12,000, and the higher rate from £18,000 to £51,000, exempting 600,000 businesses. This will take effect in April 2017.
From April 2016 the annual Employment Allowance for employer NICs increases from £2,000 to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance.
The Chancellor stated that the government was expecting to raise £12 billion by 2020 from anti tax-avoidance and evasion measures, and also announced a crackdown on foreign firms selling products online in the UK without paying VAT.
Changes to Entrepreneurs’ Relief
Entrepreneurs Relief will be extended to include investors in unlisted trading companies. This new investors’ relief will apply a 10% rate of CGT to gains accruing on the disposal of ordinary shares in an unlisted trading company held by individuals, that were newly issued to the claimant and acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years starting from 6 April 2016. A person’s qualifying gains for this investors’ relief will be subject to a lifetime cap of £10 million.
Budget announcements for individuals
Meanwhile, for individuals, there is a new Lifetime ISA, which is intended to allow adults aged under 40 the opportunity to save up to £4,000 a year towards buying their first home (up to a limit of £450,000) or to save towards their retirement, and which the Government will top up by 25%.
Other key announcements on personal taxation included the next step in the Government’s drive to increase the income tax personal allowance, which will rise to £11,500 from April 2017.
Additionally, the threshold for higher rate tax rises to £43,000 for the forthcoming tax year, and to £45,000 from April 2017.
Capital gains tax rates will also be cut, with the headline rate falling from 28% to 20% and the basic rate from 18% to 10% with effect from 6 April 2016.
Class 2 National Insurance contributions will be abolished from 2018, giving a tax cut of more than £130 to three million self-employed workers.
As part of the transition to a digital tax system, the Budget also included details of an optional ‘pay as you go’ tax system for freelancers and contractors.
For micro-entrepreneurs there are two new tax reliefs. The £1,000 exemption from tax will apply to people who make up to £1,000 from occasional jobs such as selling goods they have made, and the first £1,000 of miscellaneous income from property, for example renting a driveway.
There were many who would have been hoping that the Chancellor might have softened his stance on stamp duty land tax for second homes and buy-to-let landlords. No such luck. However, for commercial properties the proposed new rates of stamp duty should mean that buyers of commercial property up to the value of £1.05 million will pay less tax. The new rates and tax bands will be 0% for the proportion of the transaction value up to £150,000; 2% between £150,001 and £250,000, and 5% above £250,000.
Measures for the East Midlands
To support local businesses and build on the area’s strengths in space science and research, a new Enterprise Zone will be created across Loughborough and Leicester, subject to business case approval.
The Budget also announced £16 million in R&D funding, matched by industry, to support aerospace firms in the East Midlands. This includes £7 million to help Rolls-Royce develop new high-temperature alloys in Derby. The Midlands will also receive over £15 million funding to support R&D into lowering vehicle emissions.
The government has agreed with LEPs in the Midlands and the British Business Bank to create a Midlands Engine Investment Fund of over £250 million to invest in smaller businesses in the Midlands, subject to final funding arrangements.