Budget predictions

 As we eagerly anticipate the budget on Wednesday, we thought it would be useful to highlight some of the key areas that we predict will dominate the headlines for small and medium companies.

We expect that the focus of this budget will again be on owner managed business with the government finalising a number of matters introduced by the Finance Bill 2016 and government consultations.

So what can we expect?

 

Landlords beware! - Higher rates of Stamp Duty Land Tax (SDLT) on additional homes

The government is likely to confirm its final policy on Wednesday on higher rates of SDLT on additional homes.  

The draft legislation states that if you buy a second house you will attract the additional 3% SDLT on top of the current rates. Even if you intend to sell your existing main residence, you will attract the higher rate of SDLT with a refund mechanism in place when you sell your old main residence, as long as it is sold within 18 months of the purchase of the new property.

It is worth noting that married couples and civil partners living together are classed as one unit, and therefore may only own one residence between them at any one time for the purposes of calculating higher rates. This also means that a property owned by either partner (or any minor children) will be relevant when determining if an additional property is being purchased or not.

 

‘The government believe it’s unfair’ – Transactions in Securities & Targeted Anti-Avoidance Rules

As you are most likely aware, from April 2016, the way in which dividends are to be taxed will be fundamentally changed. This is likely to result in any director/shareholder who has previously received dividends from their company paying more tax.

What you may not know is that the government believes that these changes will increase the incentive for owner managed businesses to try and convert profits accumulated in a company to be taxed as capital (potentially at 10%) rather than income (up to 45%) As such the government has decided that this is “unfair”…

As a result we expect final details on the amendments to the ‘Transaction in Securities’ and the introduction of a new ‘Targeted Anti-Avoidance Rule’. These changes will increase the ability of HMRC to re-classify gains as income on voluntary liquidations or on a certain corporate restructuring transactions (e.g. MBO’s).

 

Calling all Contractors & Personal Service Companies (PSC) - Changes to Intermediaries Legislation (IR35)

During last year’s Summer Budget the government announced that HMRC would open discussions regarding potential changes to IR35.

The government believes current legislation is not working as effectively as it should be, and also that non-compliance with the legislation is widespread so that two people doing the same job may pay different levels of tax depending on how they are engaged.

In a recent consultation the government suggested a plan to tackle the challenges in enforcing compliance. They proposed an option where the employing company would take on more of a role in ensuring that the right amount of employment taxes are paid.

Under such an arrangement, those who engage a worker through a Personal Service Company (PSC) would need to consider whether or not IR35 applies (in the same way as they would need to consider whether a worker should be self-employed or actually be an employee), and, if so, deduct the corresponding amounts of income tax and NICs as they would for direct employees. However, the government recognises that this would increase the burden and risk for engagers so we eagerly await to see if any new legislation is introduced or proposed on Wednesday.

 

Pension tax relief reform

With the recent introduction of auto enrolment to all employers it was likely that Mr Osborne was going to use his 2016 Budget to fundamentally change the current pension system. However, with the EU referendum fast approaching it is unlikely that he will want to upset a large proportion of voters.

Regardless the government have been consulting whether the current system encourages people on lower incomes to save for the future, as currently savers get a tax relief at the same income tax rates in which they pay. A number of ideas have been mentioned, from fundamental reforms to less radical changes such as retaining the current system and altering the lifetime and annual allowances. It will be interesting to see what, if any conclusions are drawn on this area.

Following on from this belief that low paid workers are not incentivised to save, this morning the government announced a new measure in line with other ‘Help to Save’ schemes such as the Help to Buy ISA. This new measure sees that employees on in-work benefits who put aside £50 a month would get a bonus of 50% after two years - worth up to a maximum of £600.

 

Other areas of potential reform 

  • Simplification of tax implication on termination payments

  • Provisional details on a reform of tax reliefs on travel and subsistence for employment intermediaries, such as recruitment agencies.

  • Further details on a Business Tax Roadmap, as announced in July 2015 and due by April 2016.

 

To keep up to date with all the reaction from the budget on Wednesday make sure you follow us on twitter (@bennettbrooks) and LinkedIn (Bennett Brooks and Company Ltd).

We will also be running a free 2016 Budget debrief on the following dates and locations;

  • 18 March 2016 – Mold (am)

  • 21 March 2016 – Northwich (am)

  • 21 March 2016  - Llandudno (pm)

  • 22 March 2016 – Macclesfield (am)

If you would like further information on our debrief sessions, or to book a place please email kenneth.roberts@bennettbrooks.co.uk.