What does the July 2015 budget mean for small business owners?
Taxation of Dividends
Fundamental changes will be made to the way dividends are taxed from April 2016, which will affect many business owners who draw their income by way of dividend rather than salary. The first £5,000 of dividends will be tax free, but thereafter, basic rate tax payers will pay income tax at 7.5%.
The announcement means that many business owners will need to rethink their strategy for saving for tax from April 2016 onwards to ensure that they have sufficient funds to afford this additional charge. It may also be an opportunity to revisit your income options and move to an alternative strategy, ie payment of interest on Directors Loan Accounts.
Reduction of Corporation Tax
The rate of corporation tax will be reduced from 20% to 19% from 1 April 2017 and 18% from 1 April 2020. This will go some way to combat the effect of the above for many small business owners.
Increase in Employment Allowance
The Employment Allowance will be increased from £2,000 to £3,000, with effect from April 2016. However, the allowance will not be available to companies where the director is the sole employee.
Changes to P11D’s
Changes are also being made to the system for benefits in kind and business expenses, from April 2016. The £8,500 threshold for P11Ds will be removed, and a statutory system will be introduced to replace the old P11D dispensations for business expenses. These will include scale rates for subsistence allowances.
Increasing the National Living Wage
A proposal to increase the National Living Wage, starting at £7.20 and rising to £9 an hour by 2020, replaces the £6.50 minimum wage.
This will no doubt hit small business hard over the coming years, especially in service sectors such as hospitality, leisure and care. This announcement is in addition to enhanced costs of employment that many employers are finding as they reach their staging dates for Auto Enrolment in the next 3 years.
Employers should begin to plan for this increase in their costs by revisiting their business model, their pricing and striving for efficiencies.
The Moore and Smalley team are currently assessing the impact of the changes on their clients and will be discussing the relevant issues, and options, with them in the coming months. Should you have any questions, please do not hesitate to contact Adam Parton.