2015 Budget Bite Size

Tax free Personal Allowance to Increase

The tax-free Personal Allowance is the amount that people can earn before they start paying tax. Currently this is £10,600 but this will increase to £11,000. In 2010 it was just £6475, and this means that typical taxpayers will now be over £900 per year better off in 2016/17 and it is hoped that it won’t stop there. By 2020, the government hopes to increase the Personal Allowance by 2020 to £12,500, introducing a law at this time to ensure that people on the National Minimum Wage working 30 hours per week will not have to pay Income Tax.

Rental Tax Allowance for Mortgage Interest Relief Restricted

2016 will see the end of dividend tax credits (which lessens tax paid on share income) changing in favour of a much simpler system based on a tax-free dividend allowance of £5000 that will see only those who have substantial dividend income pay more tax. For dividend income above this £5000 allowance, the tax rates will be as follows:

●Basic-rate taxpayers: 7.5%
●Higher-rate taxpayers: 32.5%
●Additional rate taxpayers: 38.1%

Dividend Changes

The current system sees buy-to-let landlords have an advantage over other homebuyers because they can deduct their costs, such as mortgage interest, from their profits before they pay tax. The richer the landlord, the more advantage they get, with wealthier landlords being able to receive tax relief at 40% and 45%. George Osborne has sought to end this imbalance and by April 2020, this form of tax relief will be restricted to 20%.

Corporation Tax to be cut once again

In 2010 the rate of Corporation tax was 28%, falling through the years to 20% in an attempt to boost the competitiveness of UK business. This will now fall to 19% in 2017 and 18% in 2020, which will have a wide-ranging effect on over one million businesses.

Minimum Wage to increase to £7.20, increasing to £9 by 2020

Although the rate of Corporation Tax being cut was good news for business, there will be some concern amongst many companies about the changes to the National Minimum Wage. A new National Living Wage will be introduced in April 2016 for over 25s at a rate of £7.20 per hour, increasing to £9 per hour by 2020.

Employment Allowance to increase to £3000

The Employment Allowance gives businesses a cut in the amount of National Insurance Contributions that they pay. April 2016 will see it increase to £3000, which will see business’s National Insurance bills cut by £1000. What this means in practice is that firms will be able to employ four full-time staff on the National Minimum Wage and not have to pay National Insurance at all.