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Monday 28th March 2011 A budget summary for small businesses. This week’s budget was fairly tame and there was little to really get our teeth into, however the former governments habit of announcing tax increases up to 18 months prior to implementation, means that there are several tax increases that we are going to start to feel come April 2011. I shall not repeat the new tax rates and thresholds as these can easily be viewed via the HMRC website www.hmrc.gov.uk/rates/ The Good News Directors salary Directors who choose to take a small salary and dividends as part of their payment package from the company will be pleased to know, that the maximum they can pay themselves tax free from the company without incurring any national insurance contributions will increase to £7,072 per annum. This works out at approximately £589 per month and should save an average company corporation tax of £275 per annum Mileage Rates For all of the business owners claiming the Approved Mileage Rate (AMR) of 40 pence per mile, we had the news that this is finally being increased to 45 pence per mile for the first 10,000 miles in a tax year. This is with effect from 5 April 2011. The rate for travelling over 10,000 miles per year remains at 25 pence per mile. Together with the recent adjustment to the advisory fuel rates (the rate at which you can reclaim VAT on the AMR or pay employees with a company car), this is good news. For those of us who do 10,000 miles for year, this results in being able to withdraw an additional £500 from the business tax-free. For companies this is also an additional cost for the company that will save £100 in corporation tax per year. Don’t forget, for each passenger with you in the car on company business, you can claim 5 pence per mile. Also, remember, you receive the 10,000 allowance per employment. Therefore if you have more than one unrelated employers, who you do business mileage for, or if you change employers during the year, you will benefit even more from this increase. Corporation Tax For small businesses with profits below £300,000 per year, the rate of Corporation Tax falls from 21% to 20% with effect from 1 April 2011. For those of us without a March year end, the effect of this is that it is pro-rated for the accounting year. I.E. if your company year-end is 30 April 2011, the first 11 months will be taxed at 21% and the last month will be taxed at 20%. Profits are deemed to arise evenly throughout the year, so there is not an opportunity to try to suggest all of the profits arose in April! For companies with profits in excess of £300,000 the rates will fall from 28% to 26% with effect from 1 April 2011. Business Rates The small business rates relief holiday has been extended for another year from October 2011. This applies to business properties with a rateable value of less than £18,000 per annum. This relief is applied on a sliding scale, so if your property rateable value is below £6,000 per annum, you would be entitled to 50% relief, whereas the closer the value gets to £18,000 this relief will be reduced to nil. Business Rates – Enterprise Zones The government announced that there will be up to 100% business rates relief for businesses located in enterprise zones for up to 5 years. This would not have affected those of us in North/West Yorkshire, until now as Leeds City would appear to be on the new list of zones. We will have to await clarification on this matter. The Bad News National Insurance We have had plenty of notice of this (December 2009 pre-budget report), however the increase by 1% on employees, employers and self employed national insurance does not make this bitter pill any easier to swallow. The new rates of 12% for employees, 13.8% for employers and 9% for the self employed come in from 6 April 2011. There remain opportunities however. Thankfully the rumours of the government planning to plug the loophole whereby employee benefits in kind are not subject to employees national insurance did not ring true, and therefore there remains scope to save employees national insurance by operating salary sacrifice schemes to offer low tax benefits or tax free benefits. For example low emission vehicles or training. Additionally, there is still the benefit for self employed individuals to operate via a company to avoid their national insurance, although the benefits really start once profits are over £15,000 per annum. Furnished Holiday Lettings The tax relief here was that if you owned a holiday property that was let for 70 days a year and never to the same person for more than 30 consecutive days, then if you made a tax loss on this property, you could set it off against other income. This relief had been about for years, then it was taken away, then it was brought back again. Well the latest position is that this has now been taken away again. With effect from April 2011, any losses arising on furnished holiday lets can only be set off against other furnished holiday lets. Capital allowances Previous budgets have announced the reductions in the tax write off for new capital assets. Just to clarify the rates for the current year, as there is much confusion about at the minute, these will be:
First year allowance – no longer available *The writing down allowance is in respect of cars or assets bought in excess of the annual investment allowance limit. Rather than getting full tax relief, you only get a percentage each year. VAT It was announced that online VAT registration will become mandatory and is currently under consultation. Having worked with many new businesses registering for VAT over the last year, we have identified numerous occasions where initial registrations have been prepared online and no action has been taken by HMRC. We therefore encourage filing for registration the old fashioned paper way, as this has seemed to be quicker and more reliable.
There are many other tweaks and alterations that are being made to tax credits, employer funded childcare, non-dom tax, R&D which we have not covered here, however should you wish to discuss these or any other subject not covered in this summary, we would be happy to help. |
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Are you a buy to let property owner? Budget summary for small businesses Don't fall for the 'No Tax Return Needed' Letter! |
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