The budget was predictably huge yesterday, but not just politically – there was plenty in there for small business. Here are the 5 most important points:
1. Corporation tax being cut to 18%.
The corporation tax rate for small business has been 20% for many years now. Whilst the corporation tax came down for larger businesses to 20%, the small business rate hadn’t changed – until now. It will be 19% from 2017 and 18% from 2020. If you own a limited company, this will be a decent tax saving for you.
2. Complete revamp of dividend tax.
Currently, you can take out £39,206 income tax free from your company (£10,600 salary and £28,606 dividends). If you take out more dividends you are charged 25% extra income tax. This is going to change. There will be a new dividend tax regime. No tax up to £5,000, and then tax rates at 7.5%, 32.5% and 38.1%. We haven’t got the detail yet to see what will be the most tax efficient way of taking out money from the company (stay tuned!).
3. 40% band goes up to £43,000
The point at which you pay 40% income tax is currently £42,385. This will increase to £43,000 next year (and apparently is on its way to £50,000 by 2020).
4. Tax-free amount (personal allowance) going up to £11,000
You can currently earn up to £10,600 tax free. This is rising to £11,000 next year and on it’s way to £12,500 by 2020.
5. Employment allowance goes up to £3,000 by 2016.
You can currently save Employers National Insurance (which is usually 13.8%) on your first £2,000. This is now going to increase to £3,000 by 2016.
More tomorrow….
