Patricia Grant Bcom CA
Stephen Grant Bcom CA
Marita Scott BA(Hons) CA
A fairly neutral Budget for business if you ignore the previously announced introduction of “dividend tax”.
Most of the good news related to the rates of corporation tax. The rate stays at 20% for 2016 but will drop to 19% from 2017 and will drop further to 17% from 2020.
The first of the bad news related to loans to participators. In the past where companies made advances or loans to participators, which were not repaid within 9 months of the year-end, tax was due equivalent to 25% of the amount advanced. This charge has now been increased to 32.5%. This increase reflects the increased rate due by higher rate taxpayers under the new dividend tax regime.
We knew it was coming and now it has arrived. As expected the first £5,000 of dividends received are tax free thereafter 7.5% tax is due for a basic rate taxpayer, 32.5% for a higher rate taxpayer and 38.1% for additional rate. This new tax will have an impact on tax planning for many of our clients.
The employment allowance which reduces the amount of employer national insurance due in a year has increased from £2,000 to £3,000. This is most welcome. However, the allowance will not now be available to businesses where the sole employee on whom employer contributions are due is a director. This measure is primarily aimed at one person consultancy businesses probably close to the IR35 regime but it will impact much more widely. This is another area which we will be discussing with clients in the coming months.