Following our blog post on today’s ‘Emergency Budget’ we’re interested in how the budget will affect small business owners like you.
Back in March, there were promises of a ‘revolutionary simplification’ of tax collection.
By 2020 freelancers, small business owners and the self employed will no longer have to stress about their end of year tax return. Instead, information the HMRC needs will be automatically uploaded into new digital tax accounts; reportedly slashing time spent on this task from 40 to ten minutes.
Over 4.5 million people in the UK run their own businesses and most share a loathing of self-assessment forms. People don’t always understand what they need to do or they miss deadlines, resulting in thousands of fines every year. This simplified tax collection should help put an end to this.
The other major things to come out of the March budget were a change in Corporation Tax for businesses making profit in excess of £300,000; reduced to 20%, bringing it in alignment with companies that make less profit. And no more Class 2 National Insurance contributions for the self-employed.
In today’s budget we had our eye on the following areas:
- Inheritance tax
- Personal allowance
- Corporation Tax
- Dividend Tax credits
So now he’s delivered his verdict; what does the chancellor of the exchequer have in store for us?
He began by promising
“A Budget that sets out a plan for Britain for the next five years to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create.”
He then went on to sing praise for the UK’s economy, saying
“The British economy … is fundamentally stronger than it was five years ago. We’re growing faster than any other major advanced economy. Our businesses have created two million more jobs.”
Here’s a look at those five areas we’re interested in, in more detail:
Currently, most people can contribute up to £40,000 a year to their pension tax-free.
From April 2016, the amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced.
The inheritance tax (IHT) threshold was increased from £325,000 per person to £500,000. This means that a married couple will be able to pass on assets worth up to £1m, including a family home, without paying any IHT at all.
Property website Zoopla says nearly one million properties in England, Scotland and Wales could benefit and it would raise the total number of homes completely exempt from the tax by almost one million to 27.28 million.
Rates of income tax remain unchanged but the thresholds do not. The personal allowance goes up to £11,000 from next year.
The threshold at which the higher rate of 40% kicks in will increase from £42,385 in 2015-16 to £43,000 in 2016-17.
According to George Osborne, 29m people will pay less tax.
There are changes afoot for Corporation tax again where it’s already been cut from 28% in 2010 to 20%.
It’s set to fall again to 19% in 2017 and 18% in 2020, benefiting over a million businesses.
From the graph below we can see that has been a trend since 2010.
This means businesses can deduct the full value of equipment and machinery, up to a total value of £200,000, from their profits before tax.
Dividend Tax Credits
If you’re a small limited company, extracting money using dividends, you’ll be interested in the following.
From April 2016 the dividend tax credit is being scrapped in favour of a new £5,000 tax-free dividend allowance.
For those with a modest income from shares you’ll see either a tax cut or no change. Only those with significant dividend income will pay more tax.
According to the Financial Times, over 1million people will enjoy a tax cut with this new overhaul.
You’ll find the full document, speech, supporting documents & key announcements about the budget on the Government website.
If you need accounting advice for your small business after today’s budget, email us or call us now on: 01242 517889