In addition to the normal up-rating of tax allowances and thresholds for the new tax year there are a number of other key tax changes which are coming into effect during 2016/17.
Below is a summary covering all of the main tax changes being implemented from 6 April 2016 (unless otherwise stated):
- The personal tax allowance is increased to £11,000, up by £400 on the previous tax year. It has already been announced that this is due to increase to £11,500 from April 2017.
- The personal allowance is reduced by £1 for every £2 of income above £100,000 until a zero personal allowance is reached at £122,000.
- The max transferable ‘married couples allowance’ has been increased to £1,100.
- The basic rate band is increased to £32,000 giving a higher rate total income threshold for 2016/17 of £43,000.
- The additional tax rate threshold is unchanged at £150,000.
Taxation of Dividends
- A new system of taxing dividends comes into effect from 6 April 2016.
- The tax credit has been abolished so the actual amount of dividend received is now the amount taxable. Dividends continue to be taxed as the top slice of income.
- New rates apply of 7.5% (within basic rate band), 32.5% (at higher rate) and 38.1% (additional higher rate where taxed above £150,000).
- The first £5,000 of dividends is taxed at 0% regardless of tax status.
A detailed article on the new dividend tax rules can be found on our website at:
Taxation of Savings Income
- Savings income up to £1,000 per year will now be exempt from income tax (£500 for a higher rate taxpayer).
- Interest on savings accounts is paid ‘gross’ without deduction of income tax from 2016-17.
Payroll & Benefits
- The £8,500 threshold for reporting purposes is removed from 6 April 2016. Note that from this date all employees will need to be considered when evaluating the end of year P11D submissions.
- From 6 April 2016 a P11D dispensation in respect of reimbursed business expenses and professional subscriptions to employees will no longer be necessary.
- From 6 April 2016, HMRC will give employers the option to process certain benefits-in-kind through their payroll. Providing the relevant tax and national insurance is collected through the payroll, there will be no need to complete P11Ds for the following benefits: company cars, fuel benefit, private medical insurance and taxable subscriptions.
- From 2016/17 benefits in kind which are valued at under £50 will no longer need to be reported on a P11D.
- The minimum wage for over 25’s has been increased to £7.20 per hour from 6 April 2016 and has been renamed ‘The National Living Wage’.
Directors Loan Accounts
- Director’s loans not repaid within 9 months of a company’s year-end will now be subject to a charge of 32.5% (previously 25%).
- The first £3,000 per business of Employer Class 1 NIC is exempt for 2016/17, an increase of £1,000 from the previous year.
- Note however the Employment Allowance is no longer available to companies where the director is the sole employee.
Individual Savings Accounts
- Savers can now withdraw money from their ISA and replace it later in the tax year without it counting towards the £15,240 annual ISA limit.
- The tax exempt ‘rent-a-room’ allowance is increased to £7,500 pa from 1 April 2016 (up from £4,250).
- From 1 April 2016 the furnished lets 10% ‘wear and tear’ allowance is abolished so that in future landlords will only be able to claim the actual cost of replacing furniture and fittings etc. This change does not apply to the owners of qualifying furnished holiday properties whereby they continue to claim capital allowances in the same way as a business.
National Insurance (NIC)
- Employers are no longer required to pay employer Class 1 National Insurance contributions for employees aged under 25 who earn less than £43,000 per year.
- From 6 April 2016, individuals will no longer be able to contract out of the additional state pension (also known as SERPs). This will result in the ending of the 1.4% reduction on Class 1 NIC.
Capital Gains Tax
- The tax rates applicable to most capital gains arising on non-business asset disposals are reduced to 10% from 18% (for basic rate taxpayers) and 20% from 28% (for higher rate taxpayers).
- The previous rates of 18% and 28% however continue to apply to residential property disposals.
- The annual CGT exemption is unchanged at £11,100.
- For second homes and buy-to-let properties the rate of stamp duty for each of the bands is increased by 3% from 1 April 2016.
Value Added Tax
- The turnover registration threshold is increased to £83,000 from 1 April 2016.
Insurance premium tax
- Insurance premium tax is increasing by 0.5 percentage points to 10 per cent from 1 October 2016.