Now that the dust is settling the one thing we can be sure about is that the Summer Budget blew holes through tax planning for small companies.

The second Finance Bill 2015 plus explanatory notes were released on 15 July but as MPs will not debate the bill until September, after the summer recess, it is not expected to be passed until October 2015.  

The following are the points in the Finance Bill most likely to be of interest to entrepreneurs, small businesses and individuals:

Dividend tax

The increase in tax on dividends by 7.5% was the biggest surprise in the Summer Budget. It is supposed to reduce tax-driven incorporations, but the new law is not in the Finance Bill.

The £5,000 personal dividend allowance is also absent so we are still in the dark about exactly how that tax-free allowance for dividend income will interact with the personal allowance, although it is due to come into effect from 6 April 2016.    

Annual Investment Allowance

The AIA is to reduce from £500,000 to £200,000 for expenditure incurred on and after 1 January 2016. The Chancellor promised the AIA would be fixed at this level, but that promise is not written into the bill.

Personal allowances

The personal allowance for 2016/17 is fixed at £11,000 and at £11,200 for 2017/18. The basic rate threshold (above which 40% tax applies) is also fixed at £32,000 for 2016/17 and £32,400 for 2017/18.

Let properties 

The restriction of tax relief for financing let property has sent landlords into a spin. Although the reforms don’t start to bite until April 2017 the alterations to restrict tax relief are in the Bill at clause 24.

An individual can’t avoid the interest relief restriction by forming a partnership to hold the let property, and borrowing to invest in the partnership. The interest relief on the loan to invest in that partnership will be restricted in the same fashion as for directly investment in properties.  

The abolition of wear and tear allowance and replacement with statutory renewals basis is subject to consultation and will take effect from April 2016. The law will be amended by Finance Act 2016. 

Direct recovery of debts

From Royal Assent of the bill (likely to be 20 October 2015) HMRC will have the power to collect tax debts directly from taxpayers’ bank accounts.    

Client notification

Tax advisers will be required to notify their customers about the Common Reporting Standard, the penalties for tax evasion and the opportunities to disclose offshore evasion to HMRC. The information will have to be sent in a manner and form to be specified by regulations.This could be a significant administration burden for all tax advisers, and has the potential to damage the relationship between adviser and client. There is no indication of when this requirement will come into effect. We will keep you informed.

Corporation tax

The rate of corporation tax is set at 19% for the financial years starting 1 April 2017 to 2019, and will reduced to 18% from 1 April 2020. Orchestra relief will be introduced from April 2016, but will be included in the 2016 Finance Bill. 

Tax locks

George Osborne promised a “tax lock” on income tax, VAT and national insurance for the duration of the parliament before the election. The main income tax rates have been fixed at 20%, 40% and 45% for the parliament, but income tax on dividends will increase by 7.5%, so no effective lock there.

The standard and lower rates of VAT have been fixed at no more than 20% and 5% respectively, in this bill, but re-interpretation of law by HMRC can move items out of the list of VAT exempt into the chargeable list quite easily. 

The tax lock on national insurance will have to be legislated in a separate NIC bill, but we know is won’t apply to NI for the self-employed, as we are expecting a consultation on the merger of class 2 and class 4 NIC later in 2015.    

The bill also contains provisions concerning; taxation of lump sum pension benefits and reduction of annual allowance for additional rate taxpayers, changing conditions for EIS and VCT investments, IHT on trusts and CGT on carried interest payments.

​Noel Guilford