How will the budget affect small businesses?
15th July 2015
George Osborne has delivered his seventh Budget as chancellor, the first for a majority Conservative government since November 1996. Corporation Tax and the new National Living Wage were the main talking points for businesses from this July budget.
The rate of Corporation Tax is to fall from the current rate of 20% to 19% in 2017, and then further by 2020 to 18%, the lowest in the G20. The new cuts are unlikely to have large impacts on start-ups and smaller firms only generating marginal profits.
National Living Wage
Perhaps the most widely discussed topic was the introduction of a new National Living Wage set to be put in place in April 2016. This will see the minimum wage that employers must pay rise from the current £6.51 for over 21’s to £7.20 next spring. This will then rise again to £9.00 in 2020. The National Living Wage will, however, only be applicable if you’re aged 25 and over. The changes are reportedly going to affect 6 million people and have a ”fractional” effect on employment costing 60,000 jobs.
In order to help smaller businesses the Government has introduced a 50% increase to the National Insurance Employment Allowance taking it from £2,000 to £3,000. Mr Osborne said “That means a firm will be able to employ four people full time on the new National Living Wage and pay no National Insurance at all.” The Employment Allowance will also allow employers (who are currently paying minimum wage) to offset the cost of the Living Wage increases up to 2,000 hours.
Annual Investment Allowance
The Annual Investment Allowance, which allows firms to make tax-deductible investments in capital equipment, is also set to change to a fixed allowance of £200,000 for the next five years. This is a significant difference as it was due to reduce in January 2016 to just £25,000 and will have a major affect on the Corporation Tax payments for small-to-medium-sized firms. This allowance has been put in place to encourage businesses to invest in future productivity and growth, potentially adding £1bn to GDP (gross domestic product) by 2020.
Small business organisations have been calling for an increase to the £500,000 allowance, so the £200,000 will be a disappointing figure to many, however, response from Earl Yardley, director at Industrial Vision Systems, has been more pragmatic.
“By establishing a long term rate, this is sure to boost productivity and help leverage the UK at the forefront of the global manufacturing sector.”
The Chancellor has announced plans to scrap the old dividend system in favour of a new policy, which could affect the amount of cash entrepreneurs take home.
From April 2016, the Government will remove the Dividend Tax Credit and replace it with a new tax-free Dividend Allowance of £5,000 a year for all taxpayers. Some business owners may pay less tax as a result, but top-rate tax payers, who currently have the option of growing their business and paying themselves a dividend income at a 30.6% tax rate will find themselves worse off as the top rate of tax on dividend income will rise to 38.1%.
If you’d like to find out any more information on how this new budget may affect you please contact us.
Further information can be found on the Telegraph
Picture from the Daily Mail