Income Tax and National Insurance (NIC) 2011/12
The personal tax allowance for the 2011/2012 tax year will be £7,475. This is an increase of £1,000, meaning that basic rate taxpayers will pay £200 less tax. Higher rate taxpayers will not feel this benefit, because they will start to pay 40% tax on earnings above £35,000 (previously £37,400).
Employers’ and employees’ national insurance (NI) contributions are increasing by 1%. However the level at which you start to pay NI (primary rate threshold) is increasing as well. This means that an employed taxpayer on £20,000 per year will be £38 better off, while a higher rate taxpayer on £45,000 will pay £71.44 more, and someone on £60,000 will pay £221 more.
Self-employed individuals
Self-employed people will pay £2.50 per week in Class 2 NIC, an increase of 50p per week. The level at which the self-employed start to pay Class 4 NICs will rise from £5,715 to £7,225, but the rate also increases from 8% to 9%.
A self-employed person earning £20,000 will pay £12 per year more in NICs, earning £45,000 will pay £164 more, and earning £60,000 will pay £314 more.
Owner/Directors of small limited companies
If your limited company is your only source of income, continuing to pay a personal allowance salary and dividends appears to be good for the immediate future, although I always worry how long this will last. In fact with the rise in the personal allowance to £7,475 and the rise in the primary NI threshold to £139 per week ( £7,225 pa), there is room for paying up to £7,225 in salary (that’s give or take £600 per month) without incurring income tax or NICs but still preserving your basic state pension rights!
BUDGET 2011
This is a very brief summary of key announcements in the Budget on 23rd March 2011, concentrating on aspects relevant to owners of small businesses.
The full budget can be found at: www.hm-treasury.gov.uk/2011budget_document.htm.
Income Tax
The personal allowance for those under 65 will be £8,105 in 2012/13. Higher rate tax (40%) will be payable on income over £34,370. No changes to rates of income tax and class 1 national insurance have been announced.
Mileage Rates
Mileage allowance for the first 10,000 miles per year will increase from 40p to 45p per mile from 6th April 2011.
Capital Gains Tax
The annual exempt amount for capital gains tax will be £10,600 from 6th April 2011.
Business Rates
The small business rate relief scheme was due to end on 30th September 2011, but has been extended for another year.
Companies
As promised in 2010, the small companies corporation tax rate will be 20% from 1st April 2011. The widely reported 2% decrease applies only to corporation tax payable by large companies (those with a taxable profit of £1.5 million).
Over the next three years there will be no new UK regulations for companies with fewer than 10 employees, micro-businesses and start-ups.
There will be an increase in R&D tax credit to 200% from April 2011, and 225% from April 2012.
VAT
The VAT registration threshold increases from £70,000 to £73,000 from 1st April 2011.