Summer Budget 2015: An attack on small business?

9th July 2015

I think its fair to say that yesterday’s budget contained some shocks for small business owners. We’ve calmed down enough to read it all through so here are the key points:

The good news

A reduction in Corporation Tax is always welcome the plan is to reduce the rate to 19% (18% from 2020), but this will not kick in until 2017.

The personal allowance will be increased to £11,000 and the higher rate tax band to £43,000 from April next year.

The Employment Allowance, which reduces a business’s National Insurance bill, will be increased from £2,000 to £3,000 from April 2016.

The bad news

The Employment Allowance of £3,000 will not be available when the only employee of a business is the director/shareholder.

The big announcement that has sent shockwaves through the small business community is the change to the taxation of dividends. Currently dividends taken within the basic rate tax band are effectively tax free, the change means that these dividends will be taxed at 7.5%.

Dividends taken in the higher rate band will be taxed at 32.5% compared to the current 25%.

There will be a new £5,000 tax free dividend allowance to lessen the pain but overall the result will be higher personal tax bills for owner managers who take a salary/dividend mix. It looks like this is an attempt to remove the benefit of taking dividends over salary, or indeed to discourage small businesses from incorporation.

We are still awaiting clarification of these rules and will give you further information of the impact of this when we have all the details.

Other news

There will be a new National Living Wage of £7.20 (for staff over 25) from April 2016, which could significantly impact some small business owners wage bills.

Watch this space as we will be blogging more as further details emerge on the effects of the budget for small businesses.

If you have any questions conatct us on 01273 737307 or send us an email.