Tax & admin · 9 December 2015

How recent government policy will impact on micro business tax operations

The last year has been a busy one for micro business tax changes
The last year has been a busy one for micro business tax changes
Learning about the range of micro business tax policiesthat affect you as you’re starting up, and then keeping up with the changes to legislation can be a challenge.

With this in mind, I thought it would be useful to provide a roundup of the past few months to assess what changes there have been in government policy and how these will impact on you and your business.

The good?

Starting with the positives, it’s obviously worth noting that corporation tax is going down falling to 19 per cent in 2017 and then 18 per cent in 2020, making it the lowest in the G20.

Elsewhere, George Osborne announced a 50 per cent increase to the national insurance employment allowance, from 2, 000 to 3, 000 a handy change for small business owners wanting to reduce wage bills. It is though, important to look at this alongside the national living wage, which may well offset the saving in some cases.

The Annual Investment Allowance is an interesting one it was always intended to be a short-term measure, allowing small and medium-sized businesses to make tax-deductible investments in various equipment, plant and machinery in a bid to kick-start growth. It currently sits at 500, 000 and was due to decrease to 25, 000 from January 1, 2016. Osborne has instead decreased the allowance to 200, 000 from that same date onwards. This may be a decrease, but it’s actually a longer-term measure than it was initially billed as, so it’s positive news for small businesses.

The bad?

The dividend shake up has been a particularly discussed change among smaller firms. Currently, small business owners who are top rate tax payers have the option of growing their firm and paying themselves dividend income at a 30.6 per cent tax rate or selling the company and paying capital gains tax at a rate of 28 per cent.

From 2016, the top rate of tax on dividend income will rise to 38 per cent, while capital gains tax is set to remain at 28 per cent. It was a fairly unexpected change, and some owners may decide to put their firms up for sale before the new rate comes into play. Tax is unlikely to be the only driver behind this kind of decision, but it could contribute.

The old system has been scrapped, with a tax-free Dividend Allowance of 5, 000 a year for all taxpayers, replacing the Dividend Tax Credit in April next year. In the past dividends were one way for small business owners to pay themselves and this change could prove quite an adjustment for some.

Most disappointing in recent months however, was probably the announcement on business rates. The big change here was that theyve been localised and a lot of small firms Ive spoken to wouldve preferred a reduction.


 
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ABOUT THE EXPERT

Bivek Sharma has been a partner with KPMG for over ten years, specialising in accounting, tax and software. He started the Small Business Accounting division over two years ago with a goal to transform accounting services for small businesses. The team works with a huge variety of industry sectors and companies including coffee shops, technology companies, manufacturers, pubs, restaurants and retailers.

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