Budget 2016 - the essentials | DMA

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Budget 2016 - the essentials

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George Osborne's eighth budget contains some significant changes for businesses

In a gloomy assessment of the UK economy, the Chancellor's budget included details of further austerity of public services, with an additional £3.5 billion in cuts but investment in infrastructure, including 5G mobile networks.

Growth forecasts have dropped from 2.4% to the 2%, and GDP growth is predicted to slow from 2.4% for 2017 and 2.5% for 2018, predicted in November's Autumn Statement, down to 2.2% and 2.1% respectively. Inflation is forecast to rise from 0.7% this year to 1.6% in 2017.

Overall the global economy is "materially weaker" than predicted in November, he said, and the UK will not be immune.

Business tax reform

"Today the Financial Secretary and I are publishing a roadmap to make Britain’s business tax system fit for the future.

"It will deliver a low tax regime that will attract the multinational businesses we want to see in Britain, but ensure that they pay taxes here too. And it will level the playing field, which has been tilted against our small firms," he said.

Multinationals and tax avoidance

"First, some multinationals deliberately over-borrow in the UK to fund activities abroad, and then deduct the interest bills against their UK profits. So from April next year we will restrict interest deductibility for the largest companies at 30% of UK earnings, while making sure firms whose activities justify higher borrowing are protected with a group ratio rule.

"Next, we’re setting new hybrid mismatch rules to stop the complex structures that allow some multinationals to avoid paying any tax anywhere, or to deduct the same expenses in more than one country.

"Then, we’re going to strengthen our withholding tax on the royalty payments that allow some firms to shift money to tax havens. And lastly we’re going to modernise the way we treat losses. We’re going to allow firms to use losses more flexibly in a way that will help over 70,000 mostly British companies.

"But with these new flexibilities in place, we’ll do what other countries do and restrict the maximum amount of profits that can be offset using past losses to 50%. This will only apply to the less than "1% of firms making profits over £5m – and the existing rules for historic losses in the banking sector will be tightened to 25%," he said.

These changes will come into effect in April 2019 he said, estimating they will raise £9 billion for the Exchequer.

Corporation tax

"I can confirm today we’re going to reduce the rate of Corporation Tax even further. That’s the rate Britain’s profit-making companies – large and small – have to pay.

"Corporation Tax was 28% at the start of the last Parliament and we reduced it so that it’s 20% at the start of this one. Last summer I set out a plan to cut it to 18% in coming years.

Today I am going further. By April 2020 it will fall to 17%," he said.

VAT on online sales

"Sites like Ebay and Amazon have provided an incredible platform for many new small British start-ups to reach large numbers of customers.

"But there’s been a big rise in overseas suppliers storing goods in Britain and selling them online without paying VAT.

"That unfairly undercuts British businesses both on the internet and on the high street, and today I can announce that we are taking action to stop it," he said.

Micro-entrepreneurs

"We’re going to help the new world of micro-entrepreneurs who sell services online or rent out their homes through the internet. Our tax system should be helping these people so I’m introducing two new tax-free allowances each worth £1,000 a year, for both trading and property income.

"There will be no forms to fill in, no tax to pay – it’s a tax break for the digital age and at least half a million people will benefit," he said.

Business rates

"Business rates are the fixed cost that weigh down on many small enterprises. At present small business rate relief is only permanently available to firms with a rateable value of less than £6,000.

In the past I’ve been able to double it for one year only. Today I am more than doubling it, and I’m more than doubling it permanently. The new threshold for small business rate relief will raise from £6,000 to a maximum threshold of £15,000. I’m also going to raise the threshold for the higher rate from £18,000 to £51,000.

"From April next year, 600,000 small businesses will pay no business rates at all. That’s an annual saving for them of up to nearly £6,000 – forever. A further quarter of a million businesses will see their rates cut," he said.

Tax for SMEs

"I’ve asked Angela Knight and John Whiting at the Office of Tax Simplification to look at what more we can do to make the tax system work better for small firms. And I’m funding a dramatic improvement in the service that HMRC offers.

"Many retailers have complained bitterly to me about the complexity of the Carbon Reduction Commitment. It’s not a commitment; it’s a tax... I have decided to abolish it altogether.

"And to make good the lost revenue – the Climate Change Levy will rise from 2019," he said.

Fuel and alcohol

"I am today cutting in half the Supplementary Charge on oil and gas from 20% to 10%. And I’m effectively abolishing Petroleum Revenue Tax too.

"I can announce that fuel duty will be frozen for the sixth year in a row.

"Today I back our pubs again. I am freezing beer duty and cider duty too. Scotch Whisky accounts for a fifth of all of the UK’s food and drink exports. So we back Scotland and back that vital industry too, with a freeze on whisky and other spirits duty this year," he said.

Sugar tax for fizzy drinks

"There will be two bands – one for total sugar content above 5 grams per 100 millilitres; a second, higher band for the most sugary drinks with more than 8 grams per 100 millilitres," he said - this will be a great victory for TV chef Jamie Oliver who has campaigned on this issue.

5G

"Today we’re setting out measures to speed up our planning system, zone housing development and prepare the country for the arrival of 5G technology," which will launch in 2017 he said.

Capital Gains Tax

"Our Capital Gains Tax is now one of the highest in the developed world, when we want our taxes to be among the lowest. The headline rate of Capital Gains Tax currently stands at 28%

"Today I am cutting it to 20%. And I am cutting the Capital Gains Tax paid by basic rate taxpayers from 18% to just 10%. The rates will come into effect in three weeks’ time. The old rates will be kept in place for gains on residential property and carried interest.

"I am also introducing a brand new 10% rate on long term external investment in unlisted companies, up to a separate maximum of £10 million of lifetime gains," he said.

Personal tax

"When I became Chancellor, the tax-free personal allowance was less than £6,500. In two weeks’ time it will rise to £11,000.

"From April next year, I am raising the tax-free personal allowance to £11,500.

"We made another commitment in our manifesto and that was to increase the threshold at which people pay the higher rate of tax. That threshold stands at £42,385.

"I can tell the House that from April next year I’m going to increase the Higher Rate threshold to £45,000," he said.

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