Now that Spring is upon us, for many a new tax year is beginning. A number of changes have been announced by Government and these will take effect on 6th April 2016. These will have an impact on small businesses, therefore it is important that they are aware of the changes.
1. Tax Dividend Changes
The way dividend income is taxed will change significantly and this is set to affect hundreds of thousands of small businesses owners across the UK. From April 2016, every individual will receive an annual £5,000 tax-free limit for dividend income. Dividend income of over £5,000 (and after using up any remaining personal allowance) will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for those on the highest incomes who pay additional rate income tax.
How will this affect me? Many small companies and their owners will pay more tax and NIC (dependent on the salary and dividend amounts they decide on) as a result of these changes. Existing limited companies have a until midnight on 5th April to pay a dividend which will be “free of tax”.
2. Banks Referring to Alternative Finance Platforms
Businesses that have been refused credit by a bank will be offered a choice to either be referred to the bank’s partner finance provider or to be referred to a new Government approved finance platform. Businesses that opt for the latter will be offered a range of alternative forms of finance, such as commercial mortgages, working capital, and peer-to-peer lending.
How will this affect me? If your business has been refused finance from a bank, you will be able to reach other forms of finance and benefit from a generally quicker application through an alternative finance platform once the changes are introduced in Q3 2016.
3. Pensions Auto-Enrolment
While workplace pensions have been around for years, there has been a big shift in their structure. Now, workers have to opt out as opposed to in. If businesses don’t comply, they could risk a penalty notice of anything from £400 to £50,000, depending on the issue and the size of the company. While this scheme has been rolled out to bigger businesses, this is now filtering down to SMEs. All businesses will need to be compliant by their “staging date”, which for many will be in 2016-2017.
How will this affect me? As an employer, it is imperative that you provide a workplace pensions scheme for your employees.
4. Small Business Rates Relief
The Government has doubled Small Business Rate Relief for the past 2 years, which has resulted in 385,000 SMEs not being required to pay business rates since 2014. The Budget 2016 announcement revealed that, from April 2017, 600,000 small businesses will be taken out of business rates and 250,000 firms will pay less in businesses rates. However, George Osborne pulled plans to give Britain’s struggling factories an allowance for plant and machinery against business rates from the Budget at the last minute.
How will this affect me? The 600,000 small businesses relieved of paying business rates from next April (2017) could see an annual saving of nearly £6,000, which is good news given that SMEs account for approximately 50% of private sector value added in the economy. Although this won’t come into effect immediately, it’s something to keep on your radar.
5. New Tax Allowances for Shared Economy Earnings
Two new tax-free £1,000 allowances will be introduced from April 2017; one for selling goods or services and one relating to income received from property owned. People who earn up to £1,000 from occasional jobs – such as sharing power tools and selling goods they have made – will no longer have to pay tax on that income. Additionally, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.
How will this affect me? Although this will not come into effect immediately, it is something that will provide relief for small businesses and people who benefit from a small, additional income.
6. Fuel Duty
Fuel Duty has been frozen for the sixth year in a row. The figure has remained at 57.95p per litre since the March 2011 Budget when it was cut by a penny.
How will this affect me? Businesses that use cars and vans will benefit from savings. For example, the Fuel Duty freeze will save SMEs with a van in the region of £270 a year according to LeasePlan UK.
7. Stamp Duty
Commercial Stamp Duty will have a zero rate band on purchases up to £150,000; a 2% rate on the next £100,000; and a 5% top rate above £250,000.
How will this affect me? This is a big tax cut for small firms. These reforms should raise £500 million a year. While 9% will pay more, over 90% will see their tax bills cut or stay the same.
8. Corporation Tax
Corporation Tax will be cut to 17% by 2020 to help create a modern tax code that better reflects the reality of the global economy. This, George Osborne says, will be funded by chasing tax from multinational companies as part of plans to help the “millions of firms who pay their fair tax”.
How will this affect me? Further details will emerge in the Finance Bill, as it is difficult to know exactly who will directly benefit from this.
9. Business Tax Roadmap
This was published following the Budget announcement in an attempt to make Britain’s business tax system fit for the future. All reforms outlined in the roadmap, which include combating tax avoidance, will together raise £9 billion in extra revenue for the Exchequer. This money will be used to help millions of firms who pay their fair share of tax.
How will this affect me? By presenting a clear path of where various taxes, reliefs and business rates are headed, the roadmap aims to give small businesses confidence in not being ambushed by surprise reforms further down the line.
ICAEW Head of Enterprise, Clive Lewis, said of the changes,
“It’s important that small businesses are aware of the changes this coming tax year and beyond. A number of changes have contributed to an added burden for SMEs, including pensions auto enrolment and tax dividend changes, so it’s encouraging to see that George Osborne’s Budget provides some much-needed relief for small businesses.”
Help for businesses can be obtained from ICAEW’s Business Advice Service. This is a free straightforward discussion with an ICAEW Chartered Accountant. Further information can be found at www.businessadviceservice.com