The Chancellor has made a raid on small family owned businesses!

The overall message of this budget is that the Government do not appreciate the part small companies’ pay in enhancing the economy and providing services at short notice for other businesses.

What has the Chancellor done?

  • There will be a 7.5% tax levied on dividend income over £5,000 in any tax year.  For family businesses that assess the results of their company’s periodically and then pay out dividends (rather than paying salaries each month) the extra tax could amount to £2,025 when paying a salary equal to the tax-free personal allowance and paying dividends to the proposed higher rate threshold in 2016-17.
  • No reduction in corporation tax until the year after i.e. 1 April 2017 and then the reduction is only 1%;
  • The employers allowance will stop for one-man companies with only the director on the payroll.  This will reduce the most tax efficient amount of salary to take and increase company tax.  For two plus man companies the employers allowance will increase to £3,000.
  • The living wage will increase the wages of the lowest paid but at £7.20 per hour will result in a weekly wage of £252 on which both employee’s and employer’s national insurance will be due.
  • The rules on disguised employment are to be reviewed creating possible problems for contractors.

The detail on the change to employers allowance had not been published as of going to press but it may be possible to take on a second family member as an employee at a nominal rate and therefore remain qualified for the allowance.

Tax planning to think about:

  • Valuing your business and creating a loan on the transfer of your business to a new company.  The loan could be interest bearing and so make use of the savings band of £2,000 announced in the March budget.
  • Making further pension contributions this year before the tapered annual allowance comes into effect on 6 April 2016.
  • If your pension input period does not coincide with the tax year you will have the chance to put £80,000 into pensions this year.

Clearways Accountants will be updating their calculators and issuing new calculators for 2016-17 in due course so that small businesses and contractors can see the impact of the budget changes on their own take home income.

If you would like to discuss and of the summer budget 2015 provisions then please call us on 01737 244298.

Image supplied by Vichaya Kaitying-Angsulee through