Corporation Tax rate
The CT rate will be cut to 19% in 2017 & 18% in 2020.
This is great news for Limited Companies as this will be the lowest rate in the G20.
The Government have estimated that this will lower the tax bills of 1.1 million businesses and that the cuts in the Corporation Tax rate since 2010 could increase GDP by £18 billion. We suspect that this increase in GDP is partly due to a reduction in the incentive for companies to try and avoid paying tax and partly due to companies being able to reinvest the money saved.
Annual Investment Allowance (AIA)
Further good news for our business clients was the announcement to permanently increase AIA to £200,000 p.a. (it was scheduled to be £25,000 from January 2016).
This allows clients to obtain tax relief on investment in plant & equipment throughout this parliament.
We think the sectors that will benefit most are those with intensive use of capital assets, such as manufacturing, wholesale and retail and agriculture.
NIC Employment Allowance
More good news for our business clients is that the annual National Insurance Employment Allowance will be increasing to £3,000 from April 2016.
This means that businesses will be able to employ 4 people full time on the new National Living Wage (see Other – National Living Wage) and pay no Employers National Insurance at all.
However, the sting in the tail here is that companies where the director is the sole employee will no longer be able to claim the allowance.
At present landlords can deduct mortgage interest when arriving at taxable profits from rental properties. The Government believe this is putting landlords at an advantage over ordinary home owners and the Bank of England has noted that the rapid growth of buy to let mortgages could pose a risk to the UK’s financial stability.
As a result higher rate relief will be restricted on mortgage interest by 2020.
This means that clients with mortgaged investment properties could see significant increases in their tax liability.
In addition the wear and tear allowance for furnished properties will replaced with a new system from April 2016 – we’ll have to wait and see exactly what this new system will be as very little information has been released.