The Budget – Business Tax Changes

This was a relatively meaty budget, with plenty of interest across many areas of business whether you are self employed, a company, micro-business, or commercial property investor.

Business Rates

Many small businesses will benefit from being taken out of business rates.  From April 2017 those that occupy property with a rateable value of £12,000 or less (i.e. increased from £6,000); and a tapered rate of relief on properties worth up to £15,000.

Corporation Tax Reductions

Corporation tax will fall to 17% from April 2020. It was already scheduled to drop to 19% in 2017 and 18% in 2020, and this represents a further 1% cut in 2020

Corporate Tax Loss Relief

For losses incurred on or after 1 April 2017, companies will be able to use brought forward losses against profits from their other income streams such as rental profits, or share with other group companies. Currently only same-year losses can be used in that way.

In a restriction to bigger businesses though, where a company has brought forward losses it will only be able to get immediate relief against the first £5m of its next profits, and then 50% on the excess. There seems to be no hint that such restricted losses become extinct, and so they will still be valid to carry forward indefinitely against future profits.   Currently, brought forward losses are automatically used against future profits irrespective of the amount.

Micro-Business Allowance

New tax allowances for money earned from the digital and sharing economy;

The rapid growth of the digital and sharing economy means it is becoming easier for more and more people to become ‘micro-entrepreneurs’. From April 2017, two new tax-free £1,000 allowances will be introduced to help those making only small amounts of money:

The first is for people who make up to £1,000 from occasional jobs (examples given by HMRC include sharing power tools, providing a lift share or selling goods they have made).

The second allowance is the first £1,000 of income from property will be tax free – examples given by HMRC include income from renting a driveway or loft storage.

Those with relevant incomes above £1,000 can choose to simply deduct the allowance instead of calculating their exact expenses. We await further details as to what qualifies as “relevant income”.

Multinational profit shifting

The continuing effort to hit what is felt to be excessive multinational tax avoidance brings further changes to that sector:

  • Tax relief on interest will be capped at 30% of UK earnings
  • Offshore property developers taxed on UK profits.
  • Deduction of tax at source from royalties paid to non-residents where advantage has been taken of the UK network of Double Tax Treaties.
Overdrawn Directors Loan Accounts

The rate of tax on so-called Loans to Participators (most often affecting directors) increases from 25% to 32.5%. The tax is charged on the company if the participator is overdrawn at the year end, though it is repayable to the company in due course when the loan is eventually repaid.  Where the accounting period straddles 6 April then the old and new rates will be applied depending on the date of the loan.

The change matches the new increased rates of tax on dividends which apply from 6 April 2016.

Stamp Duty Land Tax for Commercial Property

SDLT on commercial property changes on 17 March 2016. It will move to a band system rather than the current cliff edge (residential property changed this way in December 214), and will have new rates.  The government says that buyers of commercial property worth up to £1.05 million will pay less in stamp duty.  Where contracts have been exchanged but transactions have not completed before 17 March 2016 purchasers will have a choice of whether the old or new basis applies.

New SDLT rates for Commercial Property
0 – 150,000 0%
150,001 – 250,000 2%
+ 250,000 5%

 

For leases an additional rate of 2% will be applied when the Net Present Value of the rent is above £5 million.

For further information on about any of the topics covered, please get in touch with Rob Durrant-Walker or enquiry@garbutt-elliott.co.uk