Chancellor George Osborne’s Budget announcements yesterday have provided some good news for employees. National Insurance bills have been cut, the threshold for lower rate Income Tax has been raised, and Sunday Trading Hours legislation will now be decided locally rather than nationally. But what does the Budget mean for small businesses and entrepreneurs?
Annual Investment Allowance
The £100,000 Annual Investment Allowance (AIA), currently temporarily increased to £500,000, is not going to be cut to £25,000 as feared but instead will be set at a permanent rate of £200,000. This will allow many small business owners to invest in their business tax-free.
From April next year the National Insurance bill will be cut by £1,000 from April 2016, as the Employment Allowance rises from £2,000 to £3,000. This means businesses will be able to employ four people full time on the National Living Wage and pay no National Insurance at all.
Business owners who pay themselves in the form of dividends from shares, rather than a salary, may benefit from new Dividend Tax reforms. The amount of tax paid on income from shares will be replaced by a £5,000 tax-free dividend allowance for all taxpayers from April 2016. Lower rate tax payers may pay less tax as a result, but those on the top rate, who currently have the option of growing their business and paying themselves dividend income at a 30.6% tax rate will pay more when this tax increases to 38%.
Corporation Tax, which was 28% in 2010 and was cut to 20% in April this year, will be cut again to 19% in 2017 and 18% in 2020. This measure should be welcomed by businesses of all sizes and Jane Plan founder Jane Mitchell said this was “great news”.
The National Living Wage has become mandatory. A rate of £7.20 an hour for the over 25s will be introduced from April 2016 and will reach over £9 an hour by 2020.
The Chancellor said the cost of increasing wages would be less than 1% of corporate profits, noting this would be more than made up for by the cut in corporate taxes – although this statement is from a big business perspective and it remains to be seen how this will affect small businesses, especially those where most employees are in lower-paid jobs, in the longer term.
Free Child Care
One of the biggest obstacles in the way of women starting their own business is often childcare costs. The increase of free childcare for three and four year olds, from 15 hours a week to 30 hours a week, will do a lot to help encourage women entrepreneurs to start or grow their own business. It remains to be seen whether self-employed people will qualify for this new scheme – at the time of writing this had not been specified.
Article written by team member Denise Shaw
Originally posted on 10th July 2015