Autumn Statement 2022 Small Business Summary

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The Autumn Statement 2022 contained a number of tax increases for small business, landlords and employees. Below is a summary of relevant changes.

National Living and Minimum Wage

The national and living wage will increase from April 2023

Age range Current hourly rate From April 2023
23 and over £9.50 £10.42
21 – 22 £9.18 £10.18
18 – 20 £6.83 £7.49
16 – 17 £4.81 £5.28

 

Tax on dividends

From April 2023 the current 0% tax dividend allowance will be halved to £1,000. This will result in additional income tax of £88 for a basic rate taxpayer, £338 more for a higher rate taxpayer and £394 more for an additional rate taxpayer.

In April 2024 it will be reduced again to £500.

Business owners with the flexibility of paying a salary/dividend mix may want to re-assess whether their strategy is still the optimum remuneration method for them.

Income Tax and NIC thresholds

The personal tax allowance has been frozen at £12,570 until April 2028. The higher rate tax threshold will remain at £50,270. Usually these thresholds increase to keep pace with inflation. Freezing the thresholds will mean most people paying more tax over the next few years. Assuming inflation of 2% per year, someone with a salary of £25K will pay around £580 more in 2027/28, while someone earning £62K will pay about £2,940 more.

The additional rate of tax, 45%, will be payable on income above £125,140 from April 2023. The threshold is currently £150K.

National Insurance

The employer’s threshold will remain at £9,100. Employer’s (secondary) NI contributions will be due at £13.8% of employee’s earnings above that level.  However, the employer’s allowance remains in place, so many employers will not need to pay the first £5,000 of secondary contributions.

Class 2 NIC, paid by self-employed people, will increase to £3.45 per week.

Capital Allowance Reduction

The tax-free capital allowance will reduce from £12,300 to £6,000 in April 2023, then become £3,000 in April 2024. This is significant for property owners planning to sell properties that are not their main residence.  It will increase tax liabilities by up to £1,764 in 2023/24 and £2,604 in 2024/25.

Corporation tax

Corporation tax will remain at 19% for companies with taxable profits below £50K.  Those with profits between £50K and £250K will pay 25%, with marginal rate relief.  Marginal rate relief provides a gradual increase in the rate of corporation tax as profits increase from £50K until the main rate of 25% is payable once profits reach £250K.

R&D tax relief

The small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%.  This is quite a significant change and means considerably less tax relief will be available for small companies.

Business rate relief

For the smallest businesses affected by reductions or changes in eligibility to small business rate relief or rural rate relief, the increase to their bills will be capped at £600 per year from 1st April 2023.

More information…

You can read the full Autumn Statement on the Treasury website.

Revising your forecasts and business plans for April 2023 would be a good idea. If you would like any assistance please get in touch.

Summer Budget 2015 – Small business essentials

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The Summer Budget 2015 will have an impact on all UK businesses, and many individuals.  Changes are being introduced from April 2016.  What follows is a summary, with extracts, from the Summer Budget 2015 Policy Paper, published 8th July 2015.

Income Tax and Individual Taxpayers

The personal allowance will increase to £11,000 in 2016-17 (it is currently £10,600). The higher rate threshold will increase from £42,385 to £43,000.

The effective inheritance tax threshold will be £1 million, where a main residence is passed to descendants. This will be paid for by the introduction of a taper to the annual allowance for pensions tax relief for people whose total income is above £150,000 per annum.

Insurance premium tax will increase from 6% to 9.5%

Businesses

Corporation tax will be cut from the current 20% to 19% in 2017, and 18% in 2020.

The Annual Investment Allowance will be £200,000 from January 2016. This allowance means businesses can claim capital allowances on tangible fixed assets of up to £200,000 in the year of purchase, rather than spreading the tax relief over several years.

From April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance (the £2,000 reduction in employer’s national insurance contributions).

In the March Budget 2015, the government announced it would transform tax administration for individuals and small businesses over this Parliament, leading to the end of the tax return. Small businesses will be able to manage their tax through a digital account linked to business software. HMRC will begin discussions with businesses and software providers about how best to integrate tax reporting and payment with everyday business activity, to inform a roadmap the government will publish by the end of 2015 setting out the policy and administrative changes needed.

Sunday trading – The government will consult on devolving powers on Sunday trading to city mayors and Local Authorities. This will look at allowing mayors or councils to extend Sunday trading for additional hours within parameters that they would determine.

Enterprise Zones – The government will hold a bidding round for a new programme of Enterprise Zones for this Parliament.

Tax lock – The government will legislate to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and employer and employee (Class 1) NICs rates, ensuring that they cannot rise above their current (2015-16) levels. The tax lock will also ensure that the NICs Upper Earnings Limit cannot rise above the income tax higher rate threshold; and will prevent the relevant statutory provisions being used to remove any items from the zero rate of VAT and reduced rate of VAT for the duration of this Parliament. (Summer Finance Bill 2015)

Business tax roadmap – The government will publish a Business tax roadmap by April 2016, setting out its plans for business taxes over the rest of the Parliament.

Self-employed National Insurance contributions – The government will consult in autumn 2015 on abolishing Class 2 National Insurance contributions (NICs) and reforming Class 4 NICs for the self-employed

Simplified expenses: legislative amendments – The government will amend the simplified expenses regime introduced in Finance Act 2013 to ensure that partnerships can fully access the provisions in respect of the use of a home and where business premises are also a home. (Finance Bill 2016)

Business skills, infrastructure and regional development

To support innovation throughout the country, the government will invest £23m in 6 Next Generation Digital Economy Centres over 6 sites (London, Swansea, Newcastle, Nottingham, York and Bath), leveraging £22 million of additional funding, and partnering with LEPs, regional councils, and local SMEs. These centres will exploit opportunities across sectors of the digital economy including the creative industries, finance, healthcare and education.

The so-called Northern Powerhouse seems to fail to recognise that the UK doesn’t end at Leeds. Although there is mention of upgrading the final stretch of the M1/A1 route between Newcastle and London to motorway. The government will look into the case for renaming the A1(M) north of Leeds as the M1. The A1 will be dualled north of Newcastle as far as Ellingham,

Employers

The Employment Allowance will rise from £2,000 per year to £3,000 from April 2016. This reduces the cost of Employer’s National Insurance contributions. Most small businesses will be eligible, but as mentioned above, the allowance will no longer be available to companies where the sole director is the only employee.

A National Living Wage is being introduced for workers aged 25 and over. National Living Wage – The government will introduce a new premium for those aged 25 and over starting at 50 pence leading to a new National Living Wage (NLW) of £7.20 in April 2016. The target is £9.00 per hour by 2020.

National Minimum Wage – The combined 50 pence premium with the 20 pence minimum wage increase on the current rate will benefit 1.7 million workers and means that a current NMW worker working 35 hours a week will see their annual salary increase by over £1,200 from April 2016.

Taxation of employee benefits and expenses – As announced at Autumn Statement 2014, from April 2016 the government will simplify the tax system by introducing a statutory exemption for trivial benefits in kind costing less than £50. (Finance Bill 2016)

Apprenticeships levy – The government will introduce a levy on large UK employers to increase the number of apprenticeship starts. In England, employers will be able to access this funding for apprenticeship training. Details including rates and implementation will be set out in the Spending Review.

Dividends

Dividend tax credits will be replaced with a tax-free Dividend Tax Allowance of £5,000, and new dividend tax rates. The tax rates will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers.

Landlords

Tax relief on mortgage interest for individual landlords will be restricted to the basic rate of income tax.

Individuals renting out a room in their main residence will benefit from an increase in Rent-a-room tax relief to £7,500 from April 2016 (currently £4,250).

Reform of the Wear and Tear Allowance – From April 2016, the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. The government will publish a technical consultation before the summer. (Finance Bill 2016)

Further information

The full Summer Budget can be found here https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015

If you are concerned about how any of these changes could affect you please contact us.

 

Budget Spring 2015

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Budget Spring 2015

We’re all aware that this budget comes very soon before the general election on 7th May 2015. The proposals in this budget may not become law, and anything could be amended. Many of the announcements related to changes we already know about, but there were one or two surprises.

Personal Taxation

Basic Personal Allowance and Transferable Allowance for 2015/16

The personal allowance for those born after 5 April 1938 will be £10,600 for 2015/16. As a corollary, the transferable allowance for married couples and civil partners (10% of the personal allowance) will be £1,060. This is available to certain couples, subject to qualifying criteria.

The higher rate threshold (i.e. the aggregate of the personal allowance and the basic rate limit) will be £42,385.

Personal Savings Allowance

It is proposed that a new Personal Savings Allowance be introduced from 6 April 2016. For a basic rate taxpayer, this will exempt from income tax the first £1,000 of savings income, such as bank and building society interest. For a higher rate taxpayer, only the first £500 will be exempted.

The Personal Savings Allowance will not be available to additional rate taxpayers. At the same time, the deduction of basic rate tax at source from interest paid by banks and building societies will be abolished for all savers.

Online Tax Accounts

Over the last decade or so, we’ve seen a steady decrease in the numbers of paper forms being submitted to all governmental departments, and an increase in online services. The government seems keen to extend the transition by planning to abolish the paper tax return for millions of individuals and small business through the introduction of digital tax accounts. A roadmap setting out the policy and administrative changes will be published later this year.

In addition, the Government will consult on a new payment process to support the use of digital tax accounts that allow tax and National Insurance contributions to be collected outside of PAYE and self-assessment. This will be legislated for in the next Parliament.

How (or if) this will work in practice we have yet to find out.  The principles of NI and taxation are not changing, but the new methods of reporting and paying could be significant changes for self-employed people.

Direct Recovery of Debts due to HMRC from Taxpayers’ Bank Accounts

Again, this is not a new announcement, and the government intends to legislate for it in a firure finance bill. It is something to be aware of if your tax affairs are not up-to-date.  HMRC will be able to collect payment of tax and duties directly from credit balances in debtors’ bank and building society accounts, including ISAs, without first having to apply to the courts. HMRC will only take action against debtors who owe over £1,000 of tax or tax credits. They will always leave a minimum aggregate of £5,000 across debtors’ accounts, and will only put a hold on funds up to the value of the debt. Secondary legislation to be published shortly will set out details of the process and safeguards for taxpayers.

This is intended to be used when taxpayers fail to pay on time, and by the time things reach this stage, any taxpayer should be fully aware of all attempts made by HMRC to recover the debt.

Employment Taxation

Abolition of the £8,500 Threshold for Benefits in Kind

The £8,500 earnings threshold that determines whether employees pay income tax on all of their benefits in kind and expenses, and whether employers pay Class 1A National Insurance contributions (NICs), is to be abolished for 2016/17 onwards.

Currently, an employee whose earnings for the tax year are less than £8,500  pays tax only on certain employee benefits. The abolition of the threshold will mean all employees will be taxed on their benefits and expenses in the same way. The employer’s NICs treatment will follow the income tax treatment.

Statutory Exemption for Trivial Benefits in Kind

A statutory exemption is to be introduced for 2015/16 onwards that will allow employers to identify and treat certain low value benefits provided to employees or former employees as trivial. These benefits will then be exempt from income tax and Class 1A National Insurance contributions and will not need to be reported to HMRC. A benefit will be trivial if it meets all the following conditions:

  • the benefit is not cash or a cash voucher;
  • the cost of providing it does not exceed £50;
  • the benefit is not provided under salary sacrifice arrangements or any other contractual obligation; and
  • it is not provided in recognition of particular services performed, or to be performed, by the employee.

An annual cap of £300 will be introduced for office holders of close companies (broadly those controlled by 5 or fewer people) and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of exempt trivial benefits each year.

Employee Expenses: Dispensations

The current system whereby an employer can apply to HMRC for a dispensation to pay expenses free of tax in certain circumstances will be scrapped for 2016/17 onwards. Instead, expenses provided to employees will automatically be exempt in any case where the employee would have been eligible for a deduction had he incurred and paid the equivalent expense himself. The exemption will also allow the employee to be paid a scale rate rather than be reimbursed the actual expense he has incurred. This can either be a rate set by HMRC or a rate that the employer has agreed with HMRC. The exemption will also apply to benefits in kind provided by employers in respect of expenses incurred by their employees It will not apply to expenses/benefits provided as part of a salary sacrifice arrangement or in conjunction with other arrangements that seek to replace salary with expenses. Similar rules will apply for NIC purposes.

Collection of Tax on Benefits and Expenses through Voluntary Payrolling

Legislation is to be introduced to allow HMRC to make changes to the PAYE Regulations to provide for voluntary payrolling of certain benefits in kind. The intention is that employers will be able to opt to payroll benefits for cars, car fuel, medical insurance and gym membership for 2016/17 onwards. Where employers do so, they will not have to make a return on Form P11D for these benefits. Instead, they will report the value of the benefits through Real Time Information, and that value will count as PAYE income liable to deduction using the PAYE Tax Tables. The amended Regulations will determine the value to be placed on the benefit for this purpose.

Van Benefit Charge for Zero Emission Vans

The van benefit charge for zero emission vans will increase from £nil, beginning in 2015/16. The van benefit charge for such vans will be 20% of the van benefit charge for vans which emit CO2 in 2015/16, 40% in 2016/17, 60% in 2017/18, 80% in 2018/19 and 90% in 2019/20. From 2020/21, the van benefit charge for zero emission vans will be the same as the van benefit charge for vans which emit CO2.

National Insurance Contributions

NICs for the Self-Employed

Class 2 contributions will be abolished in the next Parliament. Class 4 contributions will be reformed to introduce a new contributory benefit test. The Government intends to consult on the proposals later in 2015.

Business Taxation

Research and Development

Legislation will be introduced to restrict qualifying expenditure for research and development (R&D) tax credits so that the cost of consumable items incorporated in products that are sold in the normal course of a company’s business are not eligible for R&D relief, with effect from 1 April 2015. Qualifying expenditure on consumable items will be limited to the cost of only those items fully used up or expended by the R&D activity itself which do not go on to be sold as part of a commercial product. This restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is given.

In addition, from 1 April 2015, the rate of the above the line credit for large companies will increase from 10% to 11% and the rate of the relief for the SME scheme will increase from 225% to 230%.

 VAT

VAT Registration Thresholds

With effect from 1 April 2015, the VAT registration threshold will be increased from £81,000 to £82,000. The deregistration threshold will be increased from £79,000 to £80,000. The registration and deregistration thresholds for acquisitions from other EU member states will be increased from £81,000 to £82,000.

This is a summary of announcements most likely to affect owners of small UK businesses.  Things could change after the general election but in the meantime if you’d like more information on how the changes may affect you please get in touch.