Following the budget speech, the press has been full of summaries and analysis of all the big changes.
You might be asking yourself, however, which of the announcements really affect you and your small business, and which are part of the political wrangling that always surrounds a budget speech. To help you with this we have reviewed the budget and picked out those points and details that we think are most relevant to you, the small business owner or self-employed contractor.
Overall we believe the budget benefits small businesses and their owners, reinforcing the government’s assertion that Britain is ‘Open for business’. Mr Osborne’s budget also aimed at getting people back into employment, onto the housing ladder, and spending once again.
- Salary: If you are currently paying yourself the minimum salary amount (no tax and national insurance) you need to increase this to £641 per month from April 2013
- VAT: The threshold at which you MUST register your company for VAT has risen from £77,000 to £79,000 for a 12 month rolling period
- Corp Tax: Remains at 20% for small companies
- Tax Efficient Salary: Over the last few years the chancellor has raised the Lower Earnings Threshold (i.e. the amount an employee or director can earn tax free) from £6,475 in 2010 to £9,440 this year and this will further increase to £10,000 next year. For most of our clients (company directors) this means tax savings of about £700 per annum if you pay yourself at or below this lower earnings threshold. Please contact your accountant if you would like to discuss your salary amount further.
- SEED Investments: From April 2013 until April 2015, there will be an extension to the Capital Gains Tax (CGT) relief available for taxpayers reinvesting their capital gains into qualifying SEED companies. The current 100% exemption from CGT on amounts reinvested will be reduced to a 50% exemption.
- Director and Employee Loans: For many year employees and directors have been allowed to take an interest-free (or low-interest) loan from their employer up to a maximum amount of £5,000 without it being treated as a taxable benefit. From 6 April 2014 this amount will be raised to £10,000.
- Non-domicile: The concept of Ordinary resident is to be abolished in favour or Overseas Workday relief. OWR will apply to individuals in their first (tax) year of residence and in short means that earnings which relate to duties performed overseas are known as foreign earnings and are only taxable in the UK if they are remitted (brought in) to the UK in that first year of residence.
- Capital Gains: The capital gain allowance increased in 13/14 from £10,600 to £10,900
- Pensions: The annual allowance and lifetime allowance will both be reduced in 2014/15.
- The annual allowance is reduced from £50,000 to £40,000
- The lifetime allowance is reduced from £1.5m to £1.25m
- NIC: The big news for your company is the announcement of what the chancellor is calling the ‘Employment Allowance’ effective from 5 April 2014. This comes in the form of a £2,000 allowance per annum to be offset against Employers National Insurance and will result in a real reduction to the cost of employing someone.
- VAT: The VAT registration threshold will be increased to £79,000 (from £77,000) from 1 April 2013. This means that if you expect that your company will have turnover of more than £79k in any 12 months period you MUST register for VAT
- Cash Basis for Self Employed: Starting in April 2013 unincorporated businesses turning over less than £79,000 per annum will be allowed to calculate profits on a cash rather than accruals basis i.e. based on invoice payments received and expenses actually paid. There will also be flat rate allowances for common expenses such as motoring and home office use.
Other notable points:
- Childcare – Effective from autumn 2015. For working families where both parents earn less than £150k p.a. and with childcare costs of up to £6,000 per year per child, support equal to 20% (£1,200) of childcare costs will be made available and will apply to all children under the age of 5. The scheme looks set to involve an online voucher system
- Home Ownership – The help-to-buy scheme has been introduced to encourage home ownership. The scheme is available from 1 April 2013 and will only apply to new builds worth a maximum value of £600,000. Under help-to buy homebuyers will be able to borrow up to 20% of the value of most new build properties as long as they can raise a 5% deposit.
- Anti-Avoidance: The government has announced a major crackdown on tax avoidance schemes with specific reference to closing down schemes based in the Isle of Man and Channel Islands. A common scheme of this sort, and one that we have had numerous enquiries about lately, is the Employee Benefit Trusts (EBTs). Sable has been advising clients to avoid these for some years now and these schemes are now receiving some major interest from HMRC.
We have selected the Budget changes which are most relevant to our clients and have included some key considerations.
We will happily advise further on an individual basis, so please feel free to contact us.