Although the latest budget contained some bad news for businesses with a forecast of lower growth and difficult times ahead, this was offset by help for small businesses.
Overall, the budget is likely to be beneficial for small businesses once the changes come into effect. However, they aren’t happening quickly and will be phased in.
- Corporation Tax is being reduced from 20% to 17% by April 2020. This is expected to benefit one million companies.
- Business Rates affect those with business premises, small business rate relief doubling from £6,000 to £12,000 while tapered rate relief will apply on values to £15,000 and higher rate relief goes from £18,000 to £51,000. From April 2017, 600,000 small firms will no longer pay business rates, saving £6,000 annually, while a further 250,000 will pay lower rates.
- National Insurance Class 2 contributions are being abolished from April 2018. Self-employed people will pay only Class 4 on annual profits over £5,965.
- Personal Allowances increase from £10,600 in 2015-16 to £11,500 by 2017-18, removing 1.3 million people from paying tax. The higher band, above which the 40% tax rate applies, is increasing from £42,385 to £45,000 over the same period.
- Capital Gains Tax that applies to the sale of equity in business will have the higher rate decrease from 28% to 20% while the basic rate drops from 18% to 10%, both by April 2016.
- Stamp Duty on business property will be brought into line with the residential tiered rates system. With immediate effect, no stamp duty is payable on commercial property up to £150,000, with 2% payable on £150,000-250,000 and a top rate of 5%.
- Lifetime ISAs are being introduced to encourage saving for pensions. Payments up to £4,000 a year will receive a government bonus of £1 for every £4 paid in and will not be taxed when taken as retirement income.
- Tax-Free Allowances up to £1,000 annually are being introduced for ‘micro-entrepreneurs’. These are available for services such as car sharing, renting rooms and eBay selling.
Now the Bad News
No budget is all good news and there’s usually a price to pay. For small businesses operating as limited companies, the benefit from the reduction in corporation tax is offset by the change to dividend taxation announced in the Autumn Statement.
Much of the rest of the cost is being paid by larger businesses through a capping of debt interest and a crack-down on tax avoidance by multinational companies, expected to raise almost £8 billion. There’s also pressure being put on public service organisations to ensure contractors pay the ‘correct rate of tax’ and the payment of employers’ NI on redundancy payments previously tax free up to £30,000. This will have far reaching implications for anyone using an umbrella arrangement that routinely made use of this ‘loophole’.
It can be a complex business to balance benefits against negative elements and choose the best course of action. Contact Phoenix Cloud Accounting for a complete assessment of how the changes will affect you and ensure you make the right decision.