How will the new tax year impact you and your business - 2016/17

There have been a lot of changes to tax that will impact small businesses and their owners as of 6th April 2016. Some are good but there is one which is bad.

Dividend allowance (the bad one)

The old method of taxing divided has been scrapped and the new regime is in place which will mean more tax for directors taking dividend income. The first £5,000 dividend received is tax free but above that there is a basic rate of 7.5%, higher rate of 32.5% and additional rate of 38.1%. What that means is a director of a small company with a £30k dividend payment will typically pay about £1.5k more in tax. The higher the dividend the more this extra tax payment increases. Prior to this change there was a tax credit allocated to dividends which lowered the tax paid on the gross dividend, now you will be taxed on your net dividends.

Employment Allowance

The employment allowance has increased by £1,000 to £3,000 which means that if your businesses has employees you will not need to pay the first £3,000 of the Employer NI for the tax year 2016/17. This is some recompense for the dividend change if you have employees.

Personal Allowance

The tax free personal allowance has increased £400 to £11,000. This is the amount of money that an individual can earn before paying income tax. The allowance diminishes when income exceeds £100k and there will be no personal allowance if your income exceeds £122k.

Marriage Allowance

Married couples and civil partners can transfer £1,100 of personal allowance from the lower-earning partner to the higher earner which would save up to £220 in tax. This cannot be used by higher rate tax payers.

Capital Gains tax

The rate for capital gains tax has been dropped to 10% for basic rate taxpayers and 20% for higher rate taxpayers. This is the tax on profits made on the sales of assets and possessions. But for residential property the 18% rate still remains unchanged for basic rate taxpayers and 28% for higher rate taxpayers. The £11,000 capital gains allowance remains unchanged.

Stamp Duty

Landlords and second-home owners will now have to pay an extra 3% in stamp duty on second properties bought which is on top of the normal rate. This is an attempt to stop first time buyers being priced out of the market by buy to-let-landlords. It will be interesting to see how the property market is impacted by this as there are predictions of prices going down.

If you have any queries on any tax matters, please do contact us.