Chancellor George Osborne has delivered his eighth budget which 'puts the next generation first'. A reduction in corporation tax, the introduction of a new lifetime ISA for those under 40 and an increase in the personal allowance threshold were among the key announcements of interest to businesses and their staff.
Pensions and savings
The ISA limit will be increased to £20,000 per year and a new lifetime ISA will be introduced for those under 40, enabling savers to put away up to £4,000 each year and receive an additional 25 per cent contribution from the government.
Tax and national insurance
Class 2 national insurance contributions will be abolished under the Chancellor's 2016 budget in a move hoped to encourage more people into self-employment. Currently, £2.80 per week is paid on earnings of more than £5,965 a year, but from April 2018, the new plans to abolish the national insurance contributions could benefit up to 3.4 million people, according to People Management magazine.
The personal allowance threshold - the amount to which an individual can earn without paying tax - will be increased during 2017-18 from £11,000 to £11,500. The move is intended to benefit those on national minimum wage.
For higher earners, the higher-rate tax threshold will increase from £42,385 to £45,000 in April 2017, meaning that individuals won't have to pay the higher rate of tax until they are earning £45,000 and over.
Corporation tax will be will be cut from 28 to 20 per cent, followed by 19 per cent in 2017 and 18 per cent in 2020. Small business rate relief will increase too, so from April 2017, over 600,000 small businesses will no longer need to pay business rates.
Osborne announced certain restrictions on workplace salary sacrifice schemes due to their rapid growth in recent years. The range of benefits which offer income tax and NICs advantages when provided as part of a salary sacrifice scheme will therefore be limited in the future.
Ultimately set to replace childcare vouchers, the tax-free childcare scheme (TFC) will be introduced from early 2017. Under the scheme, the government will contribute 20p for every 80p paid in, up to a maximum of £500 (£1,000 per disabled child) for each three month entitlement period. As childcare vouchers won't be closed to new entrants until April 2018, there will be a short transitional window whereby both schemes will be operating between 2017 and 2018.
Commenting on the budget, Paul Bloomfield, business development director at Aon Consulting Limited said: “Whilst the Chancellor, as anticipated, has not made further changes to pension tax relief, the introduction of the lifetime ISA will have a significant impact on pensions and broader workplace savings both in terms of what is made available to employees and how it's communicated.”