How will the Finance Bill 2016 impact on your tax arrangements?

The annual publication of the Draft Finance Bill is amongst the most important dates on a tax analyst’s calendar. With a whole raft of proposed changes ready to be signed off in April, the implications for small business owners, freelancers and landlords could be significant. Here’s what we know so far:

Dividends taxation

The new rules on dividends taxation state that only £5,000pa of dividend income will remain exempted from tax, while tax on dividend income and capital gains will be set at a top rate of 30.6% and 28% respectively. Analysts have predicted that the total cost to small business owners will be in the region of £6.8bn and is likely to lead to many selling up altogether.

Employee benefits and expenses

Part of the Finance Bill contains confirmation of tax exemptions for benefit-in-kind payments with a value of less than £50 (provided it is not given as cash, a voucher or part of the salary sacrifice scheme). There is no limit to the number of such payments that can be issued each year, however if the employer is offering the incentive to an in-house officer or relative, then annual payments will be capped at £300pa. This should help to simplify the process of incentivising employees within small businesses.

Tax relief limitation for travel and subsistence

George Osborne is set to limit travel and related expenses for workers employed through an agency or other intermediary. This will impact on the amount that intermediaries are able to pay individuals hired out to clients for travel, and prevent personal service company owners from claiming tax-free travel for projects liable to IR35 taxation.

Reduced lifetime allowance for pension contributions

The majority of freelancers and small business owners were eligible for a lifetime allowance for pension contributions of £1.25m, which is set to be reduced to £1m from April 2016. While this change would have impacted on only 55,000 pensions claimants in 2015/16, it is likely to disproportionately affect small business owners and require employers to review their pension scheme contributions.

Removal of wear-and-tear landlords’ allowance

The ‘wear and tear allowance’ is set to be replaced with a renewals-based system for the furnishing of all let residential properties. This will prevent landlords from claiming tax reductions without incurring costs, but will also prevent them from deducting up to 10% of their rental income from taxed profits.

Personal savings allowance

The Finance Bill’s personal savings allowance should be a boon to many freelancers and small business owners, enabling them to rack up £1,000 of interest on savings without paying tax. The allowance works on a sliding scale, with higher rate taxpayers receiving a £500 allowance while additional rate taxpayers are ineligible. However, analysts predict that this measure will help up to 95% of account holders to save money.

Taxation penalties

The government is continuing its reduction of tax avoidance: HMRC will have new powers to implement penalties for falling foul of the General Anti-Abuse Rule (GAAR). All cases successfully lodged under GAAR will be subject to a levy of 60% of the amount of tax due. This is likely to help level the playing field for small business owners who operate within these requirements, however not a single tax avoider has been tried under GAAR to date.

If you’re on the lookout for more expert accountancy advance, or tax assistance for your business, why not contact our friendly team today?