ANNUAL INVESTMENT ALLOWANCE SET AT A PERMANENT LEVEL OF £200,000

The annual investment allowance (AIA) was due to be reduced from the current temporary level of £500,000 to just £25,000 from 1 January 2016.

The Chancellor has bowed to pressure from industry to stop tinkering with this allowance for expenditure on plant and machinery and set it at a permanent level so that businesses can plan their capital expenditure. He has decided on £200,000 for the new limit and businesses should consider bringing forward expenditure to before 1 January 2016 to benefit from the current higher allowance.

Employing an apprentice is easy

Do you want young, enthusiastic talent that you can mould and develop for your business?  The answer is hire an apprentice.

A growing number of small businesses are doing so, with 96 per cent of those who have reporting benefits from their apprentices.

Employers who have not taken on an apprentice in the last year may be eligible to receive a £1,500 grant.

You can use an apprenticeship training agency to find an apprentice to work for you.  This means that you aren’t the apprentice’s employer, can stop employing the apprentice more easily if you need to, and you pay a fee to the agency for the apprentice to work for you.

Apprenticeship training agency fees are usually the minimum wage for the apprentice plus a management fee.

The agency supervises the apprentice’s learning, including their training and assessment.  If you end the apprenticeship early (eg. you can’t afford to carry on employing the apprentice) the agency will find them another work placement.

Contact the National Apprenticeship Service for more information on using an apprentice training agency.

The telephone number for the National Apprenticeship Service is 0800 015 06000.

BUY TO LET LANDLORDS – INTEREST RELIEF TO BE RESTRICTED TO BASIC RATE

The Chancellor announced that the amount of income tax relief landlords can get on residential property finance costs (such as mortgage interest) will be restricted to the basic rate of tax.

To give landlords time to adjust, the change will be phased in gradually over 4 years:

2017/18 – the deduction will be restricted to 75% of finance costs, with 25% being available as a basic rate tax reduction.

 2018/19 – 50% finance costs deduction and 50% given as a basic rate tax reduction

2019/20 – 25% finance costs deduction and 75% given as a basic rate tax reduction

From 2020/21 – all financing costs incurred by a landlord will be given as a basic rate tax reduction.

IMPACT OF CHANGES TO DIVIDEND TAXATION ON FAMILY COMPANIES

A common strategy that we often advise to family company director/shareholders is that they extract profits from their company by way of dividends instead of paying themselves a salary. This is because there are no national insurance contributions on dividend payments and where the dividend income falls within the basic rate band (up to £42,385 for 2015/16) there is currently no income tax on dividends.

Where both husband and wife are directors and shareholders they will be able to pay themselves a salary of £11,000 each and then dividends of £5,000 each tax free. However the next £27,000 of dividends up to the new £43,000 higher rate threshold would be taxed at 7 ½ % resulting in income tax of £2,025 each being payable for 2016/17. Under the current rules there would be no tax on such dividends up to £42,385.

This measure has been introduced to counter tax-motivated incorporation to level the playing field between trading via a company versus an unincorporated business.

Note that dividends received in excess of the £43,000 higher rate threshold will be taxed at 32.5 % but without a notional credit thus increasing the effective rate from the current 25% to 32.5%.