The Budget 2016 was full of soundbites: putting the next generation first; act now so we don’t have to pay later; helping working people keep more of the money they earn a key; fix our plans to fit the figures, not fix the figures to fit our plans.  While according to the Office for Budgetary Responsibility Britain will grow faster than any other major economy in the world, there were many caveats about the instability of the world economy and the impact should we exit the EU.  The Chancellor kept returning to the theme of the security of families and businesses depending on Britain living within its means.  The key announcements were as follows:

Budget 2016 for businesses

  • To provide an economy with a low tax regime to encourage foreign companies to invest here but also to make sure they pay their share
  • Corporation tax will reduce further from 18% previously announced to 17% by April 2020
  • To mirror the treatment of dividends, loans to participators (which affects loans made to directors by companies) rates increase from 25% to 32.5%.  These may be better known as overdrawn directors loan accounts
  • People who sell services online or rent out their homes will be eligible for two new tax free allowances worth £1,000 a year – the details are not yet clear but this should benefit IT freelancers working from home
  • To counter foreign based businesses selling from UK warehouse facilities and escaping VAT, the Chancellor announced moves to charge VAT on internet sales from overseas
  • Business rates will be further cut for the smallest businesses, so many will not pay at all

Budget 2016 for the next generation

  • The much debated sugar tax will be introduced in 2 years time on the highest sugar content drinks
  • This will give manufacturers time to amend recipes to reduce sugar levels
  • The £500m earned will be invested in school sport
  • LIBOR fines will be used to fund improvements in children’s health services
  • All schools are to become academies, one of the announcements leaked before the event
  • Teaching of maths will continue for all pupils to the age of 18, an interesting announcement for a financial Budget

Budget 2016 for individuals

The biggest surprise of the budget was the reduction in capital gains tax from 28% to 20% (higher rate taxpayers) and 18% to 10% (basic rate taxpayers) from 2016/17

  • The capital gains tax reduction does not count for second homes though – another level of complication left within the tax system
  • The tax free personal allowance will be £11,000 from 2016/17 as already announced but will increase to £11,500 from 2017/18
  • The higher rate threshold increases from just over £42k to £45k from 2017/18
  • Class 2 National Insurance is being abolished from 2018
  • ISA allowance increases from just over £15k pa to £20k from 2017/18
  • A new Lifetime ISA is being introduced for the under 40s “a flexible way for the next generation to save”
  • Insurance Premium Tax increases by 0.5% to 10% and the proceeds will be use for for flood relief
  • Fuel duty is being frozen for the 6th year in a row “the tax boost which keeps Britain on the move”
  • Beer, cider and whisky duties remain frozen, but all other alcohol duties will increase as forecast
  • There will be a continued increase to tobacco duty as forecast

Budget 2016 in the regions

  • With continued low oil prices Petroleum Revenue Tax is effectively being abolished, a welcome boost to the Scottish economy
  • Halved crossing charges for Severn Crossing (apparently this was known), but nothing for Dartford Crossing of particular interest in Kent
  • Lots of investments in the transport infrastructure for the Northern Powerhouse, including rail and road building and improvements
  • From the increase in IPT, there will be a £700m boost to flood defences including York, Leeds, and the Calder Valley

The biggest surprise was the reduction in capital gains tax although the impact of that will be limited to a small number of people.  Otherwise there were the usual sweeteners and headline grabbing announcements, but limited by the need to continue raising tax levels and reducing public expenditure.  The detail of the tax proposals will gradually be released and you should seek professional advice before taking any steps based on these contents. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”