The 8 things you need to know about the budget
Author: Russell SmithMarch 23, 2015
By now, you have probably already heard and seen lots of headlines and comment about the budget.
There are some very good things in the budget for both small limited companies and self-employed individuals.
Here are the 8 things you need to know….
1. Tax returns RIP
It gives me great sadness to tell you that tax returns may no longer be necessary in five years’ time!!!
The chances are, I love tax returns more than you do but the government will provide an integrated digital account accessed on-line from which to view, file, update and pay tax. I don’t really know what that is (and maybe neither do they) but it sounds good.
My worry on this one is not so much what am I going to do in January but more that this may be a wheeze to collect tax from self-employed businesses and limited company directors quicker than now. Much like the Real Time Information for payroll. It’s possible that rather than have 10 months to pay tax, you may have to pay tax monthly.
Watch this space but it may not look as good as it sounds.
2. The personal allowance has gone up.
The two big changes to income tax are the personal allowance and the higher rate bracket. The personal allowance (the amount that everybody receives tax free) is going up to £10,600 from 6 April 2015. If you are a limited company this means that your monthly director payroll amount will change to £883.33 per month.
However, do check with your client manager since this may be lower depending on other income.
3. The higher rate bracket has gone up
In recent years, whilst the lower bracket (the personal allowance) has gone up, the higher rate was frozen. This resulted in millions of people ending up as higher rate payers. Now, the higher rate is going up. This is important for limited companies since it affects how much you can take out of your company income-tax free. I will confirm how much in a blog post that I will alert you to.
4. Entrepreneur’s Relief is largely unchanged
The best way to save lots of tax is to grow a business, don’t take out more than £40k out of it every year (pay no income tax). Sell the business and pay 10% tax on everything. We thought that this may be tinkered with but it is still very much a great way to save tax.
5. The research and development tax credit
This is still one of the largest under-claimed tax credits. We’ve seen clients save thousands of pounds on this one! Remember – research and development isn’t just lab coats and science labs
6. Class 2 National Insurance abolished
If you are self-employed, you have to pay £2.75 per week Class 2 National Insurance. Soon, you won’t have to!
ISAs are to be made more flexible – from later this year, individuals will be able to withdraw and replace money in their cash ISAs without it impacting their annual limit. Remember, ISAs = no tax on interest = good thing!
8. Pension tax-free amount on lifetime allowance reduced
Bit of a shame this! The amount you can contribute tax free will reduce from £1.25 million to £1 million as of 6 April 2016.