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Business and Corporation Tax – Budget 2016

Today’s 2016 Budget speech provided us with a number of announcements to get excited about when it comes to businesses and Corporation Tax.  The new announcements, and the tweaks made to previous changes, are as follows:

The main rate of Corporation Tax

Recent Budgets have seen significant announcements regarding the reduction in the main rate of Corporation Tax with a view to making the UK more competitive.

The main rate of Corporation Tax is currently 20%; from 1 April 2017 this will reduce to 19% and eventually reduce even further to 17% from 1 April 2020.

Small business rate relief

Announcements were made today stating that from April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates.

Currently, this 100% relief is only available if you are a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less, so the jump up to £12,000 will be a welcome break for many business owners!

There will also be a tapered rate of relief on properties whose rateable value is between £12,000 and £15,000.

Class 2 National Insurance Contributions (NIC)

Currently, self-employed people have to pay Class 2 NICs at the rate of £2.80 per week if they make a profit of £5,965 or over per year.  They also pay Class 4 NICs if their profits are over £8,060 per year.

From April 2018, they will only need to pay one type of National Insurance on their profits – Class 4 NICs.  This move will not only save £145.60 per year but will also reduce the administrative burden placed on the self-employed.

Paying Class 2 NICs currently enables self-employed people to build up entitlement to the State Pension and other contributory benefits.

After April 2018, Class 4 NICs will also be reformed to ensure that self-employed people can continue to build benefit entitlements.

Making sure large companies can’t artificially shift profits out of the UK

Some large companies use excessive interest payments to reduce the tax they pay on their profits in the UK.  Relief on interest payments will now be capped at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.

Over the next 5 years, the government will raise nearly £8 billion from large companies and multinationals through changes to the rules on interest and other measures, including:

  • introducing rules to prevent multinational companies avoiding paying tax in any of the countries they do business in, a technique called hybrid mismatches
  • taxing outbound royalty payments better – these are fees for using intellectual property like patents and copyrights – meaning multinationals pay more tax in the UK
  • making sure offshore property developers are taxed on their UK profits

Rate of tax for the loans to participators charge

The Chancellor announced in today’s Budget that there will be an increase in the tax rate from 25% to 32.5% where a company makes a loan to one of its participators.

This is to ensure that the rate of tax chargeable under the loans to participator rules continues to mirror the new dividend tax rates which come into play in April 2016.

This change will ensure that individuals do not gain an unfair tax advantage by taking loans from their companies rather than salary or dividends.

If you have any questions on business or Corporation Tax our specialists are on hand to help, give them a call on 01228 711888.