On 16 March 16 the government delivered the 2016 Budget:
Changes in tax rates and allowances
The following changes were announced:
- Corporation tax, which is currently 20%, will be reduced to 17% by 2020.
- The personal allowance which for 2016/7 is £11,000 will for 2017/8 increase to £11,500. Similarly, the higher rate income tax threshold which for 2016/7 is £43,000 will for 2017/8 increase to £45,000.
- From 1 April 16 the VAT registration threshold will rise from £82,000 to £83,000.
Loans to participators
From April 16, the rate of tax on loans made by close companies to participators (shareholders) which remain unpaid within 9 months of the end of the company’s accounting year end will increase from 25% to 32.5%.
Class 2 National Insurance
From 2018, Class 2 NI for the self employed will be abolished. Additionally, Class 4 NI is due to be reformed such that it will give entitlement to state pension and other benefits in the same way as Class 2 NI currently does.
Capital gains tax
From April 16, the CGT basic rate will reduce from 18% to 10% and the CGT higher rate will reduce from 28% to 20%. Further details are expected to be issued, including that these rate reductions will not apply to residential buy to let properties which will continue to be taxed at the current rates.
The general ISA limit will from April 17 increase from £15,240 to £20,000.
There will also from April 17 be a new Lifetime ISA which will allow those under the age of 40 to save up to £4,000 per tax year and receive a 25% top up from the government. More details on the Lifetime ISA can be found here.
Public sector contractors and IR35
From April 17, if a contractor who operates through their own limited company is hired by a public sector body then that body (or recruiting agency) will become responsible for determining if IR35 applies. If that body believes the contractor to be an employee in all but name then they will operate PAYE and NI accordingly. The government is also committed to consulting on a simpler set of tests and online rules that will provide a clear answer as to whether IR35 applies.