Budget 2015 – The End of Tax Motivated Incorporation?

The Summer Budget 2015 contained some key measures that were a thinly veiled attack on small business owners. What do you need to be aware of?

Perhaps the most controversial announcement was the overhaul of tax on dividend payments. From April 2016 the notional tax credit system (which sees basic rate taxpayers pay no tax on dividends) will be abolished & instead replaced by a new dividend allowance of £5,000. Any dividend payments received above that will be taxed at the following rates;

• 7.5% Basic rate taxpayer
• 32.5% Higher rate taxpayer
• 38.2% Additional rate taxpayer

Initially there had been some confusion as to how this allowance would work in practice but HMRC have confirmed that all taxpayers, regardless of their individual tax rate, will benefit from the first £5,000 of dividend income being tax free. Essentially it is a special type of personal allowance.

Small companies will be severely affected by this change. Those following the traditional accountant advice of taking a small salary & topping up to the basic rate tax band with dividends will potentially see their tax bill increase by up to £1,800 (enough to trigger payments on account).

Employment Allowance:
In a second swipe at micro companies, it was also announced that the allowance which reduces the Employers National Insurance liability by up to £2,000 per annum for companies will no longer be available where the only employees are the directors (one-man bands, husband & wife set ups etc.). This will come into effect from April 2016.

Goodwill Amortisation:
Finally, the announcement that there will be no allowable tax deduction for the cost of purchasing the goodwill element of another business or trade from 8 July 2015 will affect businesses that buy the trade of small competitors or retiring persons.

Many small business clients are likely to be frustrated at these changes, with many commenting that the government have simply failed to recognise the financial risks that small companies have to take on.
It’s likely that small company client’s tax positions will worsen significantly next year.

Our client’s will be receiving detailed information on how the Budget changes will affect them, together with individual discussions so they can consider all options available to them.

For more information on the Taxation services we provide, please visit our Tax Compliance services page at https://www.emeraldaccountants.com/tax-compliance/.

If you require more detailed information on the Budget & the potential impact it could have on both you & your business then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…