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5 ways the Summer Budget will affect your business

By January 26th, 2017 No Comments

Okay, so we know that the Budget is usually more interesting to accountants than it is to you, the business owner – not because the content isn’t relevant to you (it is), but because it’s full of things like ‘decreased by £400 from the 2015/16 year to the 2016/17 year with alternate percentages…’

We just made that up, but it’s probably in there somewhere.

However, it is incumbent upon us as your accountants to tell you about how the budget affects you, so we’re going to do that.

(If you want to skip reading this and ask us how it applies to you, we’d be glad to drop you a note and tell you. For the rest of you, read on…)

Summer Budget Updates - Image Showing Businesswoman Chopping Down Money Tree

A second summer Budget! The excitement!

Usually, we only get the ‘excitement’ of one Budget every year – generally delivered in March or April time. But with the election of a Conservative government in May, we were treated to a second Summer Budget on 8th July. I know, try to contain yourself!

When the Chancellor stands to deliver a Budget, we’re usually more worried about possible rises in tax on beer, petrol or luxury items like biscuits (unless they’re Jaffa Cakes, which we all know are classed as cakes and exempt from VAT).

But George Osborne was keen to stress that this was a Budget to inspire confidence in British business. So he included quite a few measures intended to create that confidence for businesses to invest, grow and hire bigger workforces. Did he achieve that aim? Read on and decide for yourself.

To save you the bother of trolling though the entire Budget document, we’ve pulled together the choicest tit bits and how they’ll affect you and your business.

So, deep breath, here we go!

1. Dividend tax reform

There’s a new tax on dividends that basic rate taxpayers will need to pay. This replaces the dividend tax credit, a way to reduce the amount of tax you paid on income from shares.

At the moment, if you get a dividend then you’ll benefit from a 10% tax credit. The new rate is based on a tax-free dividend allowance of £5,000.

So if your dividend payment goes over that £5k mark, you’ll end up paying tax as either a basic rate, higher rate or top rate taxpayer (pay attention, there WILL be a test on this at the end…).

This change has been made to make the system simpler – always a great aim – and will benefit small shareholders most of all. There will be around 15% of shareholders who’ll be hit by these changes and will end up owing more tax… so not great news if you fall into that category.

(Again, please ask us if you’re not sure.)

2. Corporation tax

On a more positive note, corporation tax will be cut to 19% by 2017. Hooray, less corporation tax to pay!

Even better, it will lower again by 2020.

This will leave the UK with the lowest rates in the G20 – an attractive rate for future investment.

There’s a great deal in the Budget about larger companies (those with profits of over £20m) – quite frankly, if that’s you, get in touch with us right away. We’ll buy you the choicest of all good biscuits.

Those of you who are just shy of that £20m profit mark, read on for your annual investment allowance.

3. Annual investment allowance

The annual investment allowance is changing. What’s that? It’s the amount of tax your company can claim back on investment or other development capital.

From 1st January 2016, this will decrease to a new permanent rate of £200,000, which is good news if your business is looking to make a claim.

The new permanent figure won’t be subject to fluctuations and the knock-on effect is likely to be more small and medium-sized businesses investing long-term in plant, machinery and other qualifying assets.

(Only two more points to go…you can make it!)

4. Personal tax allowance

Personal tax! Hah, now we’ve got your attention, I’ll bet 😉

The personal tax allowance – the rate at which you start paying tax on your earnings – is currently set at £10,600.

This allowance has been bumped up another £400 for the next tax year.

What does that mean in real terms? In a nutshell, the average worker will have £905 a year more than they did in 2010. Some of that increase gets cancelled out by inflation, of course, but a bit more cash in your pocket never goes amiss. Just don’t spend it all at once, will you! (If you’re not a worker but an employer, well, still spend it wisely.)

Over the next five years, the Government also plans to increase the personal allowance figure so it’s above the national minimum wage. That’s terrific news for anyone working 30 hours a week on the national minimum wage as they’d end up paying no income tax at all. Which leads us nicely on to…

5. The new national living wage

The new national living wage will be brought in next spring for all over-25s. It’s calculated according to the basic cost of living in the UK and at the moment it’s set at £7.20 per hour.

By the end of the decade, the national living wage will increase to over £9 per hour.

That should give several million people an average £5,000 rise in income over five years. A great move for those in low-paid jobs or low-income households.

There’s another benefit too. Employers have found that the living wage has enhanced the quality of the work of their staff and that absenteeism had fallen by around a quarter. There’s also been an increase in motivation levels of employees and a reduction in the turnover of staff.

So it’s good news for your business too.

Oh, and some other important announcements

Yeah, we fibbed – there are more than 5 things. But we didn’t want to scare you. Here’s a quick round-up of the other relevant changes.

  • Increase in Employers’ NIC Allowance – the Employment Allowance rises to £3,000 from April 2016, cutting your employer National Insurance bill.
  • Increase in Higher Rate Threshold – the threshold for high earners paying 40% tax goes up to £43k from next year.
  • Increase in Rent a Room relief – the amount you can earn tax-free from renting out a room in your property goes up to £7.5k per year.

Ok, that’s DEFINITELY it now, we promise. Deep breaths, it’s over.

Have a Jaffa Cake

So, did the Chancellor achieve that aim of inspiring confidence in UK businesses? We’ll leave you to decide on that one.

But you’re now a lot more informed about the big changes from the Summer Budget 2015 and can successfully bore your work colleagues and family alike with misremembered facts and figures at every opportunity.

No, don’t thank us. It was a pleasure.

Anyway, you made it to the end. Well done, you! Treat yourself to a Jaffa Cake, content in the knowledge that HMRC isn’t getting any VAT from you.

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