Budget 2016 will be delivered this Wednesday (16th March). Contractors will be in the firing line once again, with pre-announced major changes to the way dividends and travel expenses are taxed. So what else can we expect on Budget Day?
Ten things to expect from Budget 2016
- Dividend Tax Hike – From April 6th, a new dividend tax regime will be implemented. The current system of tax credits will be abolished and replaced with a new set of dividend tax rates. The result? Almost all limited company taxpayers will be significantly worse off. If your turnover is around the £100,000 mark, this measure could cost you £4,000 or more. Find out more here.
- Travel / Subsistence Expenses – From April 6th, contractors who are under the supervision, direction or control (SDC) of their end-clients will no longer be eligible for tax relief when reimbursed. This is likely to affect umbrella companies significantly, although non-IR35 limited company contractors are unlikely to be affected.
- Employment Allowance – From April 6th, the Employment Allowance will be restricted. This measure repays up to £3,000 in Employers’ National Insurance for eligible businesses. IR35-caught contractors are already excluded from this incentive, but from the next tax year, you will no longer benefit if you are the director of your company, and also the sole employee.
- An IR35-free Budget? – The draft Finance Bill 2016 contained no mention of IR35, which indicates that no changes to the Intermediaries Legislation will take place during the next tax year. However, given the Government’s obsession with ‘tax-motivated incorporation’, the Chancellor may be tempted to meddle once again. The Daily Mail and other major newspapers have suggested that there may be a further crackdown on the use of so-called ‘personal service companies’ in the public sector during the Budget. There may also be an announcement on a new and improved ‘Employment Indicator Tool’. It may be an idea to check the fine print following next Wednesday’s speech.
- Stamp Duty hike on second homes – From April 6th, contractors fortunate enough to be able to splash out on a second home will have to pay a 3% Stamp Duty ‘surcharge’ for the privilege. You can view more details on the GOV.UK site.
- Income Tax threshold changes? – The ‘personal allowance’ is set to rise to £11,000. The higher rate income tax threshold is likely to rise towards the Government’s long-term £50,000 target. The threshold is currently £42,385 and is due to rise to £43,000 from April 6th. Of course, the Chancellor will need to pay for these concessions somewhere else. Furthermore, ‘fiscal drag’ (the effects of inflation on the real value of money) will reduce the real value of any higher rate threshold increases.
- Additional Rate changes? – Will the Chancellor be tempted to reduce the additional income tax rate band from 45p back to the old 40p limit? On 1st March, Osborne told the Commons that the 50p to 45p cut had raised an extra £8bn for the Treasury. Why make such a claim a mere two weeks before Budget day unless this was under consideration?
- Pension backtrack? – Major changes to the system of pensions tax relief have been mooted by most of the mainstream media. However, according to the BBC, proposals to remove some of the £21bn in benefits currently enjoyed by savers have now been shelved, as this is not a good time to further reform the pension system, both politically and economically.
- Growth forecasts – The smart money is likely to back both a downgrading of GDP growth over the next few years and the forecast for Government borrowing. The latter seems to be a feature of all recent Budgets.
- Tax Avoidance – a key theme of recent Budgets, and one which seems highly likely to continue. Contractors, and others who have used offshore tax avoidance schemes in the past have been targeted with controversial Accelerated Payment demands, which force scheme members to pay disputed backtaxes upfront, even before such cases have been decided in court. HMRC expects to have issued 64,000 such notices by the end of this year.
Some informative predictions from the mainstream press:
- Predictions on pension savings and investments from The Telegraph
- Also read this article in The Guardian which discusses this pensions ‘u-turn’
The Budget itself will take place on Wednesday 16th March from 12.30pm. The all-important accompanying documentation will be released straight after the Chancellor’s speech.