The 2016 budget emerged off the back of the previous two budgets that had major changes to the way that small business is taxed. The most significant development was the new dividend tax – this was a big negative, increasing tax on small businesses.
So, with that, here’s a rundown of George’s latest announcements this…
1. Corporation tax to drop to 17% by 2020.
If you are a limited company, you will be paying corporation tax of 20% on your profits. This was scheduled to drop to 19% in 2017 and then 18% in 2020. This was in itself a surprise when announced last year, so it was a pretty big deal when George announced that rather than dropping to 18% in 2020, it would go as low as 17%!
What this means is that if you have a profit of say £50,000, you will effectively be saving £1,500 a year (3% of £50,000) in 2020. If you earn £100,000 profit, that will be a cool £3,000. And so on.
The only gripe is that the 17% is for all businesses both very small and very large so it’s a shame that there aren’t two rates (it wasn’t too long ago that the rates were 28% for larger businesses and 20% for small businesses). However, this will still give owners of limited companies a decent tax saving.
2. Capital gains tax is being cut.
This was unexpected news. Capital gains tax is to be cut from 28% to 18% for higher rate tax payers, and from 18% to 10% for basic rate tax payers. This will mostly apply to people who are selling shares since crucially it does not apply to people with residential property.
Phew, this blog post is getting rather long, so stay tuned next week where I will talk about the final 3 things you need to know about the 2016 budget!
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