New Tax Measures to Consider
A number of key changes to tax legislation have come into effect, following the start of the new tax year. Here we outline some of the measures affecting businesses and individuals.
Business
National insurance for apprentices
6 April 2016 saw reforms to the rules on national insurance, with employers no longer required to pay Class 1 secondary (employer) national insurance contributions (NICs) on earnings paid to qualifying apprentices under the age of 25. This is effected through the new ‘zero rate’ for ‘relevant’ apprentices on weekly earnings up to the Upper Secondary Threshold (UST), which is set at £827 for 2016/17.
The exemption has been largely welcomed by the business community. Dr Adam Marshall, British Chambers of Commerce (BCC) Acting Director General, stated: ‘Abolishing employer contributions will encourage more businesses to hire young apprentices, at a time when the UK is faced with a growing skills shortage’.
Employment Allowance
Additionally, the Employment Allowance for employer NICs has increased from £2,000 to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance. The Government hopes the higher allowance will help businesses with the increased costs associated with the National Living Wage (NLW), which came into force on 1 April for workers aged 25 or over and has been set at a rate of £7.20 an hour.
Individuals
The new tax year also heralds a number of additional changes affecting individuals, with significant reforms to savings, pensions and dividends now in effect.
Personal Savings Allowance
From the 2016/17 tax year onwards an estimated 95% of savers will no longer pay tax on their savings income, following the introduction of the new Personal Savings Allowance (PSA). The PSA allows basic rate taxpayers to earn up to £1,000 each year in tax-free savings income (such as interest), while higher rate taxpayers can receive up to £500 before paying tax on their savings income. The PSA does not apply to additional rate taxpayers.
ISAs
Those saving into an Individual Savings Account (ISA) can now benefit from increased flexibility. Under new rules, from 6 April 2016 savers can replace cash they have withdrawn from their ISA account earlier in a tax year without this replacement counting towards the annual ISA subscription limit.
New State Pension
The much-anticipated new ‘flat rate’, or ‘single tier’ State Pension has also now come into effect. The rate of payment has initially been set at £155.65 per week – however, this may vary in accordance with an individual’s national insurance record.
Annual allowance
Meanwhile, from 6 April those with adjusted annual incomes over £150,000 will have their pensions annual allowance reduced by £1 for every £2, down to a minimum of £10,000. In addition, the lifetime allowance has fallen from £1.25 million to £1 million.
Changes to dividends
Other significant changes include the introduction of new rules on the taxation of dividends. The 10% dividend tax credit has been abolished from the 2016/17 tax year onwards, and a new Dividend Tax Allowance of £5,000 a year has been introduced. Dividend tax headline rates have also been reformed: the new rates of tax on dividend income exceeding the allowance will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.