Every April the government rolls out new taxation changes and this year was no different. So what changes came into effect in April 2016? Our Practice Manager, Alan McCappin highlights the main points to be aware of in the new tax year.
- A new dividend tax regime begins
- Personal allowance
- Stamp duty increase for buyers of second properties
- Introduction of personal savings allowance
- New National Living Wage
- Increase in the high rate of income threshold
- Tax on overdrawn director’s loan account
- Lifetime ISAs
- National Insurance contributions (NICs) employment allowance
- Innovative finance’ ISA launched
- Reduction in capital gains tax (CGT)
- VAT threshold
- Wear and tear allowance for landlords
- Employer's NI contributions for apprentices
April sees the start of a new system for taxing dividends. Everyone will be able to earn £5000 of dividend income without paying any tax, but there will be increased rates of dividend tax after that. We have covered the changes in detail here.
From April 6 your personal allowance is increasing from £10,600 to £11,000. In the 2016 Budget the chancellor said it will further rise to £11,500 in April 2017. This is the threshold at which you start paying tax.
There will be a 3% increase in Stamp Duty for buy-to-let properties and second homes, from next year. The Chancellor in the 2016 Budget stated that this will raise almost £1 billion by 2020.
From April 2016, a new personal savings allowance of £1000 has been introduced. What this means is from April 6 this year, all basic-rate taxpayers who earn less than £42,700 a year will be able to earn up to £1,000 a year interest on savings tax free. It will result in 95% of savers having no tax to pay on interest they earn on their savings.
From higher-rate taxpayers that earn between £42,701 and £150,000 a year the allowance is £500, while additional tax payers i.e. those earning over £150,000 a year won’t receive any allowance. More details can be found here.
The government has made it mandatory for employers to pay a new National Living Wage (NLW) of £7.20/hr to all workers aged 25 and over. There are repercussions for non-compliance with the new law. All the important facts and figures for SMEs and workers can be seen here on our blog. Please don’t confuse NLW with the living wage of £8.25 recommend by the Living Wage Foundation.
Though not applicable to the 2015/2016 tax year, the higher rate of income tax (40%) threshold will increase from £43,000 (2016/17 rate) to £45,000 in April 2017 and £50,000 by 2020.
If a director’s loan is left outstanding for more than 9 months after the company’s accounting year-end, the company is liable to a 32.5% penalty from April 2016.
In the 2016 Budget, the Chancellor announced the introduction of a new Lifetime ISA (LISA) for those aged between 18 and 40. You will be able to save up to £4,000 annually, plus get a 25% boost on the savings from the government. More details about LISA can be found on our blog summarising the 2016 Budget.
From April 2016, the maximum amount savers can put into their pension pots over their lifetime has been slashed from £1.25 million to £1 million. Any savings above these limits will be subject to a 55% tax rate when it is eventually withdrawn. This change is expected to hit thousands of middle-class savers. Speak to your accountant to ensure you are not caught.
This is great news for those who employ staff. Before 6 April 2016, employers could reduce their National Insurance Contributions bill by £2,000 by claiming the Employment Allowance. From this year, the government has increased the allowance to £3,000 a year. According to HMRC estimates, 90,000 employers will see their employer NICs liability reduced to zero. If you are not sure whether you qualify, check out the guidance from gov.uk on excluded companies.
A brand new type of ISA has been launched for the 2016-17 tax year. Dubbed as the “innovative finance” ISA, it will allow tax-free investment in peer-to-peer loans i.e. loans made by private individuals to borrowers arranged through an accredited online platform. Savers can deposit up to £15,240 a year, or transfer money from old Isas.
The basic rate of CGT has fallen from 18% to 10%, and the higher rate has reduced from 28% to 20%. However, these cuts are not across the board, as gains made on residential property is not eligible for these new rates. In fact, an 8% surcharge has been introduced to maintain the higher rates for gains on property.
From 1 April 2016, the VAT registration threshold changed from £82,000 to £83,000, and the de-registration threshold changed from £80,000 to £81,000.
There have been changes to the wear and tear allowance and the renewals allowance. Wear and tear for furnished properties has been done away with, however expenses can be claimed for replacing certain items.
If your apprentices are under 25 years of age and earn less than £43,000 a year, you will no longer need to pay employer’s National Insurance contributions on their earnings from 6 April 2016. However, a new National Insurance category letter, H, has been created for these purpose. You will now need to update the NI details of any eligible employees in your payroll software and select ‘H’ as the category letter.
- Starting April 2016, benefits worth £50 or less, paid for by the employer, won’t trigger a tax and national insurance bill for the staff.
- From April 2016, any benefits in kind that are under £50 won’t have to be reported in your P11d.
- Business owners without any other sources of income can continue to pay themselves the same salary each month i.e. £671 in 2016/17.
As you can see there are quite a few tax changes that came into force in April 2016. If you are not sure what it means for your business or personal tax, speak to your accountant.