With George Osborne preparing to give his 2016 Budget announcement tomorrow and the new tax year just around the corner, now is the perfect time to make sure your business is prepared for the key changes that April will bring.
Introduction of the National Living Wage.
The hourly rate for those aged 25 and over will increase to £7.20 from 1 April 2016 when the compulsory National Living Wage is introduced. According to research, large employers expect to pay an extra £1.6m in wages in 2016 and up to £11m more by 2020 as the National Living Wage gradually increases to £9 per hour. A recent government report warned that the majority of employers are under-prepared for the 11% increase, which will have a significant impact on the wage bill for many.
Dividends are changing
A major change to come out of last year’s Summer Budget was the announcement that the way dividend income is taxed will change. From 6 April the 10% tax credit will be abolished and instead each individual will have a flat rate dividend allowance of £5,000. Any dividend income received in excess of this will then be taxed according to three new dividend tax bands which will be introduced in line with the basic, higher and additional tax bands respectively.
The full impact of these changes will vary significantly depending on your personal situation. Individuals with predominantly dividend income who make Gift Aid donations should be aware that their tax position may change which could affect their donations.
Some directors/shareholders will also find themselves facing a higher tax bill next year and may need to reconsider the structure of their business to find a more tax efficient solution.
PAYE and benefits in kind
From 5 April 2016 PAYE legislation is changing and employers will be able to payroll benefits. Currently employers are required to complete a form P11D for each employee receiving expenses and benefits during the tax year. As of April 2016 they will have the option to process these through the payroll and collect any tax due via PAYE. Employers who intend to or are already payrolling benefits and expenses must register with HMRC using the new online Payrolling Benefits in Kind service.
Employer National Insurance Contributions (NICs) changed in April 2015 when NICs for employees under the age of 21 were reduced from 13.8% to 0%. From April this year, employers with apprentices under the age of 25 will also be able to claim exception from employer’s NICs, to encourage employment of younger workers and bridge the skills gap.
New Class 3A NICs will also be introduced from April 2016. These are a one-off opportunity for existing pensioners and those reaching State Pension age before 6 April 2016, to top up their additional State Pension through voluntary Class 3A NICs.
Register of people with significant control
Under the Small Business, Enterprise and Employment Act 2015, all companies must start maintaining a record of people who have ‘significant control’ over the company from April 2016. This information will need to be filed at Companies House from 30 June 2016 on a PSC register with a ‘confirmation statement’ which will replace the annual return. PSC registers will be available to the public and will contain information on individuals who ultimately own or control more than 20% of a company’s shares or voting rights, or who otherwise have control over the company and its management.
Alcohol wholesale scheme
Businesses who buy or sell wholesale alcohol must comply with the Alcohol Wholesaler Registration Scheme (AWRS), which was introduced on 1 January 2016 to tackle alcohol duty fraud. Alcohol wholesalers must register for the scheme and will undergo rigorous checks prior to approval. The deadline for applying is 31 March 2016, and any businesses intending to start wholesaling alcohol from 1 April 2016 onwards must apply 45 days prior to their intended start date.
Landlords wear and tear allowance and rent-a-room scheme
Landlords found themselves in the firing line with a number of measures introduced in the Summer Budget last year. One of the key changes was the abolition of the 10% wear and tear allowance, which will be replaced by a new ‘replacement furniture relief’ from 6 April this year.
A much welcomed rise in the rent-a-room allowance will also come into effect from April, allowing ‘lodger landlords’ to make up to £7,500 a year without paying tax.
New State Pension introduced
The new State Pension comes into effect from 6 April 2016. If you’ll reach State Pension age on or after that date you’ll get the new State Pension under the new rules. The additional state pension based on earnings will be replaced with a flat rate (or single-tier) system based on National Insurance records alone.
The new tax year will bring with it several key changes which will affect businesses and individual taxpayers. Some people will be facing higher costs next year as the tax on their dividend income changes or wage bills increase. Others may find that the changes put them in a better financial position.
Whatever your situation, if any of the above changes affect you it’s essential that you review your position to ensure that your affairs are as tax efficient as possible. Please contact us to arrange a free consultation with an expert member of our team.