How Will the 2016 Budget Affect UK Businesses?
During his Budget speech to Parliament last week, Chancellor of the Exchequer, George Osborne, unveiled a major shake-up of corporate taxes including lowering the main rate companies pay to less than half the rate levied on firms in the United States.
Among a slate of measures mixing stricter public spending targets, tax changes and popular policies – such as freezing fuel duties for the sixth year in a row and cash perks for schools – Mr. Osborne said he intends to lower the main rate of Corporation Tax in the U.K. to 17% by 2020, making the UK’s corporate tax rate the lowest in the G20. In the U.S., the federal government taxes corporate profits at 35%, with additional state taxes taking the effective rate closer to 40%.
Wednesday’s Budget speech comes ahead of a referendum on June 23 on whether the UK should remain in the European Union. Mr. Osborne and Prime Minister David Cameron want to see Britain continue its membership, saying that the trade, investment and jobs that flow from being part of the EU are critical to the UK economy.
With this in mind Mr. Osbourne also announced a tax break for the digital age, unveiling two new £1,000 allowances for ‘micro-entrepreneurs’ who use sites such as Airbnb to rent out rooms in their homes and eBay to sell items. He said at least 500,000 people would benefit and there would be no tax return forms to fill in.
Business rates will also be reformed from April 2017, meaning 600,000 small businesses will fall below the threshold. Half of all British companies will see rates fall or be abolished altogether, with Mr. Osborne claiming “a typical newsagents in Nuneaton will pay no business rates at all.”
Also included in the Budget is the lowering of Capital Gains Tax (CGT). CGT is charged on the annual profit made from the sale of assets – such as a business, a second home or shares – if that total profit is greater than an individual’s current CGT allowance. That allowance currently stands at £11,100, and the tax as a whole brought in £5.6 billion to the government in the 2014-15 tax year. The new changes announced by the Chancellor will see the higher rate fall from 28% to 20% and the lower rate for basic taxpayers from 18% to 10%.
The 2016 Budget has entrepreneurs and business owners firmly in mind and some of the announcements made will, no doubt, be of particular interest to those considering an exit or growth strategy in the near future.
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