24.07.2015 by Keith
The Chancellor George Osborne presented the Summer Budget to the House of Commons on 8th July 2015 and there was a lot of good news the UK was the fastest growing G7 economy in 2014, employment has reached record levels, and wages are rising above inflation.
The bad news for small businesses was…
Most small business owners currently take most of their income in dividends as its more tax efficient than salary. From April 2016 the way that dividends are taxed will change and more tax will be payable, the first £5,000 will be tax free, then basic rate tax payers will pay 7.5%, higher rate tax payers will pay 32.5% and additional rate tax payer will pay 38.1%.
While these rates remain below the main rates of income tax, those who receive significant dividend income – for example due to very large shareholdings (typically more than £140,000) or as a result of receiving significant dividends through a closed company – will pay more.
These changes will also start to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. This will reduce the cost to the Exchequer of future tax motivated incorporation (TMI) by £500 million a year from 2019-20.
From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020. That compares to the current £6.50 an hour minimum wage for over 21s.
Some 60,000 people are predicted to lose their jobs as a result of the changes.
The prediction from the Office of Budget Responsibility comes as many business groups are already warning that the changes will badly affect them.
The recently introduced Employment Allowance that enables employers to reduce their annual NIC bill by £2,000 is to increase
to £3,000 from April of next year. However, for companies where the director is the sole employee, they will not be able to claim the allowance as from April 2016.
And now for some good news…
The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, in order to boost UK competitiveness. It will now fall further, from 20% to 19% in 2017, and then to 18% in 2020, benefiting over a million businesses.
The annual investment allowance, which has previously been increased temporarily to £500,000 and was to be reduced to £25,000, will be set permanently at £200,000 from January 2016.
How can you maximise Sales revenue?
What counts as a Pool Car
Companies House Reports are Free!
Could your staff work from home?
Download your copy of our July 2015 Newsletter here.