by Nick Robinson | Jul 10, 2015 | Business, Taxation
A number of changes are planned for the tax system, and while all have been well-reported in their own right the average small business owner could be forgiven for losing track of just what is going to happen and when.
Timing Unknown: Self-Employed National Insurance Overhaul
The timings are still to be determined, but the way that sole traders pay national insurance is due to be reformed. Class 2 National Insurance Contributions (NICs), charged at a flat rate of £2.80 a week are being dropped altogether because they are reportedly not very profitable for the government and a pain to administer. While this has been widely touted as a boost for the nation’s self-employed, this may not be the case depending on your earnings. Class 4 NICs are going to be overhauled to compensate for the abolition of their Class 2 counterparts, and it has been suggested that those on lower incomes will probably be left better off but self-employed people as a group may end up paying more.
April 2016: Personal Savings Allowance
This is a tax change aimed at individuals rather than businesses, but business owners are of course included and many self-employed individuals find that the line between their personal and business tax seems very blurred. From April next year, there will be a tax-free allowance on interest from savings just as there is for income earned through work. For basic rate taxpayers, this allowance will be £1,000 and for higher rate taxpayers it will be £500.
April 2016-April 2017: Tax Band Changes
In April 2017, the tax-free personal allowance on income will rise to £11,000. This will actually be achieved through a two-stage increase, with the personal allowance set to begin rising in April of next year. For the 2016-2017 tax year, you will not be taxed on the first £10,800 of your income. Currently, the personal allowance stands at £10,600.
The government will also be changing the level at which higher-earning individuals move into higher tax bands in an effort to provide similarly worthwhile benefits to those who earn more. The level at which 40% tax becomes payable will increase by £315 next year and by £600 the year after, taking it to a total of £43,300 by April 2017.
By 2020: No More Tax Return
It’s not strictly true that there will be no more annual tax return by 2020, as this will still remain an option for those who prefer to report their income once a year. However, the plan is for the tax return to no longer be the primary method of reporting accounting information by this date. Instead, real-time reporting of income and expenditure, linked to bank accounts and to major accounting software packages, will be rolled out over the next few years with the aim of allowing tax issues to be calculated in an up-to-date and ongoing way with the help of good and regular bookkeeping.