Budget Breakfast Briefing March 9th 2017
Speakers today are: Geoff Fraser Phil Sampson Paul McCarthy
Report on the 8 th March 2017 Budget Geoff Fraser – Head of Taxation
Income Tax - Rates and Allowances 2017/18 (2016/17) Increase Personal Allowance £11,500 (£11,000) £500 It is a stated intention to raise the personal allowances to £12,500 by the end of this parliament. * In addition the personal allowance is reduced by £1 for every £2 of income over £100,000 (£100,000). Effective tax rate between £100,000 and £123,000 (£122,000) of 60%.
Income Tax - Rates and Allowances cont’d Married Allowance £1,150 ( £1,100) Effectively 10% of an unused personal allowance can be transferred to their spouse or civil partner provided they are not liable to tax at the higher or additional rate. Married Couples Allowance For those born before 6 April 1935 £8,445 maximum £3,260 minimum with income limit abatement. Savings Income No deduction of tax at source on savings income from 6 April 2016 . New £1,000 tax free savings allowance for basic rate tax payers (£500 for higher rate and £0 for additional rate payers). In addition to £5,000 0% savings band for lower income individuals.
Income Tax - Rates and Allowances cont’d Basic Rate 20% on income up to £33,500 (£32,000) Higher Rate 40% on income up to £150,000 (£150,000) No change Additional Rate 45% on income over £150,000 (£150,000) No Change Rate of tax on dividends 7.5%/32.5%/38.1% (0%/25%/30.6%) New £5,000 0% band, however, the dividend 0% band will reduce to £2,000 from April 2008. Trust Rate 45% No Change Extraction of profits from a corporate entity by way of dividend continues to be the most tax efficient.
New Dividend Regime 2015/16 2016/17 SALARY 8,000 8,000 DIVIDEND 31,500 31,500 TAX CREDIT 3,500 - 43,000 39,500 11,000 @ 0% - 11,000 @ 0% - 32,000 @ 10% 3,200 5000@ 0% - 3,200 23,500 @ 7.5% 1,763 TAX CREDIT -3,200 TAX CREDIT - NIL £1,763 NET CASH £39,500 NET CASH £37,737
New Dividend Regime 2015/16 2016/17 SALARY 8,000 8,000 DIVIDEND 82,800 82,800 TAX CREDIT 9,200 - 100,000 90,800 11,000 @ 0% - 11,000 @ 0% - 32,000 @ 10% 3,200 5000@ 0% - 57,000 @ 32.5% 18,525 27,000 @ 7.5% 2,025 47,800 @ 32.5% 15,535 21,725 17,560 TAX CREDIT -8,900 TAX CREDIT - £12,825 £17,560 NET CASH £77,975 NET CASH £73,240
BONUS V DIVIDEND PROFITS 100,000 PROFITS 100,000 SALARY -8,060 SALARY -87,873 CORPORATION TAX -17,468 EMPLOYER NIC -12,127 DISTRIBUTION 74,472 - TAX TAX 11,500 @ 0% - 11,500 @ 0% - 5,000 @ 0% - 33,500 @ 20% 6,700 28,500 @ 7.5% 2,137 42,873 @ 40% 17,149 29,472 @ 32.5% 9,578 £11,715 £23,849 NIC - NIC £5,090 NET CASH £70,817 £58,934
National Insurance 2017/18 Basic Rates and Thresholds – Employment Income (2016/17 in brackets) Lower earnings limit (0% and no contribution below limit) £113 per week (£112) £490 per month / £5,880 per annum (£485 / £5,825) Primary threshold (0% but with contribution) £157 per week (£155) £680 per month / £8,165 per annum (£672 / £8,060) Upper earnings threshold 12% (12%) on income above primary threshold) £866 per week (£827) £3,584 per month / £45,000 per annum (£3,584 / £43,000) 2% (2%) on all income above upper earnings threshold New £1,000 exemption on property and trading income
National Insurance cont’d Employers Secondary earnings threshold 0% (0%) on earnings up to the secondary earnings threshold £157 per week (£156 per week) and 13.8% (13.8%) on earnings above the secondary earnings threshold Employment Allowance From 6 April 2017 an allowance of up to £3,000 (£3,000) can be claimed to offset the employers national insurance liability. Anti avoidance rules apply. Self Employed Class 4 9% (9%) on earnings between £43,000 (£42,385) and £8,060 (£8,060) and 2% (2%) on profits in excess of the upper limit. Class 2 £2.80 per week (and to be abolished from April 2018) However, from April 2018 the Class 4 rate will increase to 10%, 11% from April 2019.
Apprenticeship Levy • From 6 April 2017 • 0.5% of employer’s pay bill • Report liability each month if: • Annual wages in previous tax year was more than £3m • Employer believes wage bill in current tax year will be greater than £3m • Wages = all payments liable to Class 1 secondary NIC including earnings below threshold, employees under 21 and apprentices under 25
Rental Property Changes Rent a room relief Was increased to £7,500 from 6 April 2016 and remains unchanged Wear & Tear Allowance This was abolished from 6 April 2016 and new replacement basis has been introduced for all residential lettings including unfurnished Restriction of finance cost relief for individual landlords Relief for finance costs on residential properties to be reduced to basic rate only. Phased in from 6 April 2017, as below. Stamp Duty land Tax A higher rate of SDLT, 3% above current rates on purchases of additional residential property was introduced from 1 April 2016 ATED The threshold for the annual tax on enveloped dwelling was reduced to £500,000 from 1 April 2016.
Restriction of finance cost relief for individual landlords 2016/17 2017/18 2018/19 2019/20 2020/21 Rental Inc 10,000 10,000 10,000 10,000 10,000 Finance Costs (8,000) (6,000) (4,000) (2,000) (-) £2,000 £4,000 £6,000 £8,000 £10,000 Tax at 40% 800 1,600 2,400 3,200 4,000 BR Restriction - (400) (800) (1,200) (1,600) Tax Liability £800 £1,200 £1,600 £2,000 £2,400
Stamp Duty Land Tax on additional residential properties Threshold Existing Additional Property £0 -£125k 0% 3% £125k - £250k 2% 5% £250k - £925k 5% 8% £925k - £1,5m 10% 13% £1.5m + 12% 15%
Corporation Tax Reduction in rates of Corporation Tax from 1 April 2017 From 1 April 2017 19% (to 31 March 2020) From 1 April 2020 17% Increase in rate of tax on loans to participators from 25% to 32.5% For new loans made on or after 6 April 2016. Changes to loss relief rules on carried forward losses for losses arising on or after 1 April 2017
Research & Development Tax Credits R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology. The activities that directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D. An advance in science or technology means an advance in a overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). This includes the adaptation of knowledge or capability from another field of science or technology in order to make such an advance where this adaptation was not readily deducible.
Research & Development Tax Credits • What is the nature of R&D undertaken? • What is the scientific or technological advance? • What scientific or technological uncertainties were encountered? • How and when where the uncertainties overcome? • Why wasn’t the knowledge being sought readily deducible by a competent professional?
SME – R&D Reliefs Example Qualifying expenditure £10,000 Total deductible amount at 230% = £23,000 Relief at 20% = £4,600 (46%) or Tax Credit claim £23,000 * 14.5% = £3,335 (33.35%) We have successfully claimed relief on over £2m of additional expenditure ranging from software, engineering products, nutritional drinks to growing Chilli plants
Research & Development Tax Credits Advanced Assurance • Prior application => Certainty • If approved => Certainty for following three years • Will involve discussion with HMRC technical • Not open to companies with: • Turnover > £2m • More than 50 employees • Involved in tax avoidance • Previous claim
Capital Allowances Key Issues • Annual investment allowance remains at £200,000 from 1 January 2016, • Integral features and fixtures in commercial property, the purchase document MUST deal with capital allowances. • Writing down allowances are currently at 18% and 8% per annum. Talk to us about the purchases of commercial properties BEFORE exchange
Capital Allowances cont’d Purchase Cost £400,000 Qualifying Costs @ 15% = £60,000 Sale Proceeds £600,000 Corporation Tax Relief on capital allowances @ 19% = £11,400 Corporation Tax on chargeable gain @ 19% = £38,000 Gain made £200,000 and net tax paid £26,600 = 13.3%!!
Capital gains tax Rate of capital gains tax on non-business disposals 20%/10% (28%/18%)* * But the 28%/18% rates continue to apply for residential property Rate of capital gains tax – Entrepreneurs relief 10%** (10%) No change ** This rate applies to lifetime qualifying gains of £10m. Also now available to ‘long - term investors’ Annual capital gains tax allowance for individuals £11,300 (£11,100) for trusts £5,650 (£5,550) * Rates of capital gains tax are linked to marginal rate of income tax. Speak to us about advanced planning to ensure efficient use of tax rates and exemptions.
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