Small company owners can breathe a sigh of relief. The main talking points coming out of the Emergency Budget were the increase in VAT to 20% from 4 January 2011, the increase in capital gains tax for higher rate tax payers to 28%, with immediate effect, and confirmation of the so called “jobs tax” by increasing all national insurance contribution rates by 1% from 6 April 2011.
Given that most businesses (with some notable exceptions e.g. those in the health sector) are VAT registered, the increase in entrepreneurs’ relief from £2m to £5m and the fact that most director-shareholders remunerate themselves with dividends rather than salary it appears that at face value there is not too much to worry about. Further, the standard personal allowance is to increase by £1,000 to £7,475, the level at which national insurance contributions becomes due increases and the small company corporation rate reduces from 21% to 20%, all from April 2011. This is all good news for small company owners and given the income tax rates already applicable to sole-traders it is clear that incorporation is favourable.
However, behind the scenes in the corridors of Parliament there is plenty of activity and the Government intend to shortly deliver a clear direction for small business tax policy, the backbone of British enterprise. The Government remains committed to a review of so called one-man band single client companies (IR35) as well as small business tax in general and will release further details shortly. Further, the Government will explore whether there is a case for developing a General Anti-Avoidance Rule and have also announced further restrictions on pension tax relief. We can expect to receive more information on these policies this autumn.
Nevertheless, with an effective rate of 60% income tax on a sole-trader’s taxable income between £100,000 and £112,750, notwithstanding a 40% rate on taxable income above £37,400 and a 50% rate above £150,000 the benefits of trading through a company vehicle are significant even when taking into account the significant compliance issues to deal with, in particular the Companies Act 2006 filing and disclosure requirements.
It is essential, more than ever, that owner-managed businesses have a tax strategy for the next couple of years so as to maximise wealth and not to get caught by any forthcoming legislative changes.
If you would like to discuss your
tax affairs or receive a Macario Lewin
budget summary booklet please contact us via our contacts page.
Impending dates to note: ·
6 July
2010 Forms P11D for 2009/10 to be filed
with HMRC ·
19 July
2010
Class 1A National Insurance Contributions to be paid |
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