So, the Conservative party have issued their first budget for 20 years and it was packed with changes. Like most budgets, each piece of legislation is good for some bad for others but now we’ve had some time to think it over, here are our highlights.
INCOME TAX THRESHOLDS
From April 2016:
icon-arrow-circle-right The Personal Allowance is to increase to £11,000.
Higher rate tax threshold will increase to £43,000.
Personal Allowance up to £11,000 from 2016/17, higher rate threshold up to £43,000. Small business owners, start planning! #budget2015
— Raedan (@raedanCA) July 8, 2015
This has both been retained and increased to £3,000. For companies with employees this should help with annual costs and may encourage new employment. For a Director only company, you should look to take the full £11,000 Personal Allowance as your wage next year. You won’t pay Employers NI and the Employee’s NI you do pay will be outweighed by the overall Corporation Tax saving.
The Corporation Tax Rate will decrease to 19% from 2017 and 18% from 2020.
DIVIDEND TAX SYSTEM
This may be the biggest change for business owners, the dividend tax credit will be abolished and in it’s place a tax free allowance of £5,000. Any dividends over this amount will then be taxed as follows:
It’s suggested this is to deter tax-motivated incorporation but for owner managers with basic tax affairs, using the ‘small wage plus dividends’ approach to remuneration, whose combined remuneration is under the Higher Rate threshold, you may be better off, even having paid more tax.
How does this work?
With the Dividend Tax Credit system, to keep your remuneration below the Higher Rate threshold, your dividends were limited by the Gross Dividend (including the Tax Credit) but you only received the Net. Now that’s gone, the amount of dividend you receive will be the same as the Gross i.e. 10% higher. So even after paying 7.5% tax you’ll have more in your personal bank account.
This is of course based on various assumptions and you should always discuss your personal tax position with your advisor.
This one didn’t get much attention at first but from 6 April, peer-to-peer loans could be held in ‘Innovative Finance ISAs’ to shield the interest received from tax and encourage investment.
The Government is consulting on which crowdfunding platforms could be included in the scheme. This could be great news for startups as it should encourage further investment through peer-to-peer lending.
It’s one of the more ‘interesting’ budgets for some time, plenty to think about for owner managed businesses but for a lot of small companies it would seem that the good outweighs the bad.
MORE BLOG POSTS FROM RAEDAN
As a funnel for so much of our traffic we knew our homepage had to be more concise in explaining who we are. A little over a year ago we built a shiny new website and we were immensely proud of what we had pulled together. However, at the time we launched our new...
In June a report by the Creative Industries Foundation and Creative England stated that creative industries generated 2 millions jobs yet only 38% had a business plan or forecast. Trying to make decisions without knowing the outcome is difficult at best. You could say...
With speculation over recent weeks suggesting bad news for small businesses, it was pleasing to see that, unlike Apple’s September events, the leaks weren’t very accurate! Whilst there was very little specifically for creatives there was a lot for small businesses...