The chancellor's emergency budget, the Conservatives' first without a coalition partner, included a reduction in corporation tax and an increase in minimum wage which will bring it in line with the living wage.We gathered the opinions of decision makers and businesses owners across the county.
Tax on dividends – There’s no easy way to put this but if you receive dividends your tax bills will be going up from next April. That said I’ve checked the numbers and the strategy of low salary and dividends is still better for tax than paying a higher salary.Annual investment allowance – This is the amount you can spend on equipment, commercial vehicles, etc and get tax relief on in the first year. It was due to reduce to £25,000 in December from the current level of £500,000, now it will only reduce to £200,000 which is great news for those who need to invest in these types of item.
Interest relief on property rental income – If you pay tax on profits on rental income from property the rate of tax relief you get for loan interest is being restricted from April 2017The employer allowance for national insurance is increasing from £2,000 to £3,000 from April 2016.
Corporation tax rates – These are decreasing from 20 per cent to 19 per cent in 2017 and then to 18 per cent in 2020.Inheritance tax – There is a new allowance for the family home if this is left to children or grandchildren of £125,000 on top of the basic allowance of £325,000 each, so for a married couple there is now an effective inheritance tax starting point of £1,000,000.
Taxes on dividends (beyond an initial £5,000 allowance) increase by 7.5 per cent. Whether an entrepreneur decides to take a dividend from his company in preference to a salary may well now be a more complex question. Quite how this fits in with the promised “tax lock” undertaking not to increase income tax (or national insurance or VAT) is difficult to comprehend until you see that the cap is to apply to tax on earnings and savings, and dividends are technically neither.Private landlords face an illogical bar on tax relief at more than the basic rate for mortgage interest, to be phased in over four years. This will discourage investment in buy to let properties or may encourage investment using a limited company (but there are many other traps in doing that).
Higher earners are discouraged from pension saving by further reducing the cap on contributions once income is £110,000. It is perhaps with some justification that investors will wonder what precisely the Government’s pension strategy is.There is some good news. Corporation tax rates are set to fall to 19 per cent from 2017 and 18 per cent the year after. Those with a home worth over £650,000 might benefit from inheritance tax savings on up to £350,000 for a couple, but this relief will be phased out for estates valued at over £2m.
Mike Hartley, managing director, Praetura Asset Finance It really was a budget for business, with the chancellor giving a nod to the enormous contributions make by UK SMEs in helping get the country out of the red and into the black.
Ensuring continued investment, particularly amongst manufacturing and agriculture sectors, is crucial to helping firms get on and grow and confirmation that the Annual Investment Allowance (AIA) be set to £200,000, rather than reverting to £25,000, which would have been simply unsustainable, is a major step in the right direction.AIA has changed four times since 2008, but has fast become a major incentive in encouraging firms to utilise asset finance to purchase new equipment and take advantage of the 100 per cent tax relief. And the fact that alternative lending has risen fivefold in the last decade, is testament to SMEs increased appetite for growth.
Gill Molloy, group tax director, Champion Accountants The budget had a clear focus on supporting business, from start-up to scale-up, enabling those that are the backbone of our economy to achieve their full potential.
Following the uncertainty of the Scottish Referendum, General Election and now the UK’s forthcoming membership of the European Union, there was a risk that businesses would hit the pause button on spending. The chancellor has ensured this won’t happen, with the new rate of the Annual Investment Allowance (AIA) being set at £200,000 as well as reducing Corporation Tax to 18 per cent in 2020.The monopoly of incentives to boost investment and productivity will ensure businesses can plan long-term and kick-start the pathways needed to grow.
Richard Evans, senior partner, KPMG in Preston Once again we have seen the Northern Powerhouse being a key plank to the Chancellor’s Budget announcement. We have always maintained that for the Northern Powerhouse to succeed, all parts of the region need to be brought on board, so it was encouraging to hear that following the lead set by Manchester, devolution deals are in the pipeline for the likes of Leeds, Liverpool and Sheffield.
However, it was incredibly disappointing that no further announcements were made regarding investments in our regional transport infrastructure. While the introduction of an Oyster card system across the North is a nice gesture in principal, it will do absolutely nothing to alleviate the lack of capacity and very little to improve the connectivity on our region’s ever-crumbling rail network.Businesses across the North are becoming increasingly impatient, and are chomping at the bit to play their part. But their role must be underpinned by dramatic improvements to the transport infrastructure across the region to ensure our businesses, people and resources are better connected. Without this, the Northern Powerhouse will not take off.
Brian Berry, chief executive, Federation of Master Builders The construction industry is at a loss as to why the government is ignoring the need to improve our current housing stock. By refusing to acknowledge the importance of these improvements, the government is exacerbating problems such as high household fuel bills, carbon emissions and the national housing shortage.
First and foremost, the government has a legally binding target to reduce the UK’s carbon emissions by 80 per cent by 2050 and our existing homes account for 27 per cent of our current emissions. Simple logic suggests that if they do not address 27 per cent of the issue, that target will not be met. Without tackling the energy inefficiency of our housing stock, the government is not taking cutting carbon emissions seriously. This is rather surprising when you consider that not long ago; the prime minister wanted his Conservative-led coalition to be the “greenest government ever.”
Jane Parry, lead tax partner, PM+M The chancellor has put a lock on income tax, NIC and VAT rates for the length of this parliament, which sounds great in terms of creating certainty for tax payers. But it is important to note that the lock only applies to the rates. It doesn’t cover the thresholds at which various rates apply or the exemptions applying to those taxes. Accordingly, there is still plenty of scope for the chancellor to tinker with those taxes. He also has full freedom to amend capital gains tax, inheritance tax, corporation tax and stamp taxes rates if he chooses.The Chancellor’s £1m inheritance tax allowance for married couples has been much talked about and was a key selling point in the Conservative election manifesto. In theory, it’s a great idea and will mean that the vast majority of estates will escape inheritance tax. The freeze on the inheritance tax nil rate band at £325,000, that has been in place since 2009, is set to last until 2019. That, combined with house price inflation, has meant that more and more estates have fallen into the inheritance tax net. In 2010, only 2.6% of estates paid inheritance tax. In 2014/15, that rose to 6.5% and estimates suggest that the figure will be 11.6% by 2019.
In terms of the details, there won’t be a £500,000 nil rate band; instead each individual will keep their £325,000 nil rate band and from April 2017 will have a separate “family home allowance” on top of that of £175,000. There will be restrictions on how it can be used – basically to ensure it is only available against the value of family homes passed down the family. We will be paying close attention to the details of the new legislation as they emerge to see how they will affect people who downsize or who perhaps have chosen to keep their home but release equity from it.In all of the publicity surrounding these changes it is perhaps worth reminding ourselves that inheritance tax is only a tiny part of the overall tax take. Compared to £165bn raised from income tax last year, only £3.8bn was raised from inheritance tax. Therefore, these changes won’t make a massive difference to national finances - although they will be welcomed by many families.
Noam Handler, corporate tax partner at EY The chancellor resembled Michelangelo as he re-sculpted the UK tax system, taxing dividends, proposing changes to pensions, adding a new tax on banks, cutting corporate tax rates and restricting interest relief on buy-to-let investments. The chancellor went well beyond what many expected, spanning the whole tax regime, from non-domiciles to Vehicle Excise Duty. He may not have listened to Lord Lawson's argument on abolishing the 45 per cent income tax rate, but he clearly wanted to emulate his reputation as a man of principle and principled reform.
Businesses were left with mixed messages. The promise of cuts in corporation tax rate from 2017/18 was tempered by large business being the biggest funder of the chancellors' budget through the requirement to pay taxes three months earlier. This measure alone gave the chancellor almost £4.5bn in 2017-18 and echoes the change that Gordon Brown introduced in his first Budget, back in 1997.On a positive note, this cash flow raid also allowed the chancellor to fund the rise in the Annual Investment Allowance to £200,000.
John Cridland, CBI director-general This is a double edged budget for business. The further reduction in corporation tax is a welcome surprise but tax reductions for employers don’t appear to match the businesses most affected by a rise to £7.20 in the National Minimum Wage next April – a 7 per cent increase.
The CBI supports a higher skilled, higher wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6 per cent.Firms want to play their part in training up more apprentices but an apprentice levy is a blunt tool. A volunteer army is always better than conscription but the CBI will work with the Government to make the best effect of this measure.