On Wednesday Chancellor of the Exchequer George Osborne delivered an emergency (summer) Budget, just four months after Budget 2015 was delivered on 18 March, ahead of the general election.
The Budget focused, for the first time in almost twenty years by a Conservative government, on a surprise rise in the minimum wage. Also looking at an increase in the Employment Allowance, a cut in Corporation Tax, and a host of welfare reforms, the key points for individuals and small business owners from this week’s emergency Budget are outlined below. For a more indepth summary, read our Summer Budget newsletter:
New National Living Wage
“Let me be clear: Britain deserves a pay rise and Britain is getting a pay rise.” Those were the words of George Osborne on Wednesday ahead of the introduction of the new National Living Wage.
Promising a minimum wage (for workers aged over twenty-five) of £7.20 an hour from April 2017, rising to £9.00 an hour by 2020 (with 6 percent a year average increases between these two dates), Mr. Osborne claimed that the new National Living Wage will increase the wages of 2.7 million workers across the United Kingdom.
Employment Allowance Increased to £3,000
From April 2016 the Employment Allowance will be increased to £3,000 from £2,000, allowing small business owners to cut a further £1,000 from their National Insurance bill. Combined with the new National Living Wage, from next year small business owners will be able to employ four members of staff, full time, while not paying any National Insurance.
Personal Allowance Increased to £11,000 in April 2016
We knew it was coming, yet on Wednesday the Chancellor confirmed that the tax-free Personal Allowance will increase to £11,000 for the 2016-17 tax year, with the higher rate tax threshold increasing to £43,000.
Corporation Tax Cut to 18% by 2020
Seen as an olive branch to businesses large and small that will, inevitably, be affected by the higher new National Living Wage, Mr. Osborne’s plan to cut Corporation Tax by 1 percent to 19 percent by 2017, and a further 1 percent to 18 percent by 2020, may help heal some open wounds.
Annual Investment Allowance
From January 2016 the annual investment allowance will be permanently increased to £200,000 (it was previously increased on a short-term basis), meaning business owners can reduce the full cost of a number of items (including machinery costs) up to £200,000 of their pre-tax profits per year.
If you use the Tax Agility app, we’ve already added this change in the ‘Main Capital and Other Allowances’ section.
Welfare Reforms
In the emergency Budget the Chancellor announced a number of reforms to the welfare system that will make it, in the Government’s words, “fairer for taxpayers who pay for it, while continuing to support the most vulnerable.”
These reforms included a four year freeze on working-age benefits (including tax credits and Local Housing Allowance) from 2016-17, and household benefit caps being reduced to £20,000, or £23,000 in London.
New £5,000 Tax-Free Dividend Allowance
The new £5,000 tax-free dividend allowance means only individuals who make over £5,000 dividend income per year from shares will have to pay tax on this income, though tax rates will be increased for those making over this amount.
Experienced Personal and Small Business Accountants
To speak with a professional to discuss how the emergency Budget may affect you personal finances, or those of your business, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.