Our Tax Associate, Chris Hodgson shares his thoughts on the tax changes announced in yesterday’s Budget…
In the first majority Conservative Budget since November 1996, George Osborne set out his stall on the direction of travel for taxation and welfare over this Parliament. There are a large number of changes, many of which are inter-related.
The Tax Lock will mean that in addition to VAT, rates of Income Tax and National Insurance will not change during this Parliament. However, the amount of income that you have to earn before paying 40% tax is to increase by about £600 for 2016/17. On the other hand, the amount of NIC payable will increase and so the net effect is a saving of about £5 per month.
The introduction of the National Living Wage and the increase in personal allowance will increase the net pay for a low income family, but the reduction in tax credits will offset against that extra income.
This places a greater financial burden on employers who will be paying the National Living Wage. To try to help those companies the Employment Allowance, which subsidies the cost of employer’s NIC, is to increase by £1,000 per annum. In addition, the rate of corporation tax is to fall from 20% to 18% by the end of this Parliament.
The Chancellor mentioned several times that this is to be a One Nation government and there was further evidence of those with the broadest shoulders being asked to bear a large proportion of the financial pain. Pension tax relief for 45% of taxpayers is to be restricted, loan interest relief for buy to let landlords is to be limited and the additional nil rate band for Inheritance Tax will not benefit those with estates worth more than £2.7 million.
Families receiving tax credits who are already paid more than the proposed National Living Wage will also suffer from this Budget, as the loss of tax credits is likely to exceed any benefit from the increase in personal allowance.
Overall, this is a more balanced Budget than might have been expected and it gives an indication that the government may be trying to benefit the whole nation.
For further advice regarding the tax announcements in yesterday’s Budget, please contact Chris Hodgson on 0191 285 0321 or email firstname.lastname@example.org