Here are some key notes on this year’s Budget as it applies to small businesses:
There were rumors that the VAT threshold would be cut because the UK threshold of £85,000 is one of the highest in the World.
The EU minimum threshold is €10,000 and if that was introduced it would raise £2b. However, the threshold has been frozen for two years.
That’s interesting because it ties into Making Tax Digital (MTD) which has been delayed. I suspect the Governments strategy is to roll out MTD and then get more business into VAT.
There are many benefits to this and as technology advances the hassle of complete VAT returns disappears. I see a time when all business will be reporting and paying tax quarterly or even monthly.
Now we know the allowances and tax rates for the next tax year I can carry out tax planning around profit extraction from April 2018.
The key facts are:
• Personal Allowance of £11,850
• Higher rate threshold of £46,350
• Primary NIC threshold of £702 a month
• Dividend allowance £2,000
So, for a business with one person trading as a limited company the best option for tax planning is an annual salary of ££8,424 plus dividends of £5,426 to use the remainder of the personal allowance and dividend allowance.
This means a person can get £13,850 out of their company without any tax. A husband and wife can get £27,700 and remember, it is possible to employ children and pay rent from your company to you.
Dividends paid over £2,000 attract a dividend tax of 7.5% so if you take out income up to the Higher Rate Allowance of you will pay dividend tax of £2,437.50.
The Government will be consulting around off-payroll working arrangements in the private sector and this could mean the recent public sector reforms will be applied to the private sector.
This will reduce the number of people able to operate as contractors through their own limited company and increase tax.
The abolition of Class 2 NIC will be delayed until April 2019.
R&D Tax Credits
The expenditure credit will increase from 11% to 12% and there will be a new Advanced Clearance Service for claims.
Corporate Indexation Allowance
If you own any assets in your company then be aware that relief from gains due to inflation will be frozen from 1st 2018.
As always, the tax your business and you pay is just part of the story and what’s more important is how much profit you make and that comes down to the effectiveness of your business model, strategy, marketing, sales, and business management. If you’d like to discuss how we can support you in these areas let me know.
Image from Flickr by GotCredit.