Two weeks ago Chancellor Philip Hammond offered up his Autumn Statement along with his Spending Review. Here we take a look at what it means for you and find out how it could affect your small business.
The Autumn Statement is the second of the two most important economic statements that the chancellor gives every year, the first being the Budget.
Traditionally, the Autumn Statement has outlined economic projections and broad departmental spending allocations, while the Budget largely dealt with taxation plans. However, that line has been increasingly blurred and taxation plans are now also announced in the Autumn Statement.
What happened this year?
There is a lot of information to consider from the Autumn Statement, but only a few nuggets are relevant to small businesses.
Our accountants, who are experts in helping you operate your SME, have put together the following snippets to help advise you on exactly how the Autumn Statement will affect you.
THE GOOD NEWS
1. Corporation Tax is down
Limited companies can celebrate - corporation tax is being reduced. Currently standing at 20% of profits, the rate will see its first decline in April 2017, hitting 19%. Then in April 2020, the rate will be reduced again to 17%.
This will make a big difference in the long run.
For example, if your business is making £500k per year after allowances and deductions, you would currently be paying £100k on that profit. In 2020, you’ll be paying £85,000 - saving of £15,000.
2. Changes to the dividend tax band
The Autumn Statement brought with it another tax benefit for profitable businesses, this time providing direct benefit to business owners and shareholders. The high rate tax band for dividends is going up, from £43,000 to £45,000.
From April 2017, you’ll get an extra £2,000 on the lower tax band of 7.5%, before it rises to 32.5% at £45,000. So, instead of losing £650 of those dividends to tax, you’ll only lose £150.
3. Personal allowance will increase again
All self-employed workers will feel the positive effects of the Autumn Statement too.
Personal allowance has been steadily rising for the past few years and that is set to continue. The rate will rise to £11,500 next April. We also got a promise that the allowance will be raised again, to £12,500, by 2020. Fingers crossed!
THE BAD NEWS
1. Disguised remuneration clampdown
The Treasury expects to raise £630m by 2022 by removing the tax benefits of using “disguised remuneration” schemes — offshore trusts used to avoid taxes on earnings — from the self-employed and employers, building on an earlier move affecting employees.
It said it would create a new tax charge on historic loans drawn from disguised remuneration avoidance schemes that are not paid by April 2019. It would also deny tax relief on employers’ contributions to disguised remuneration schemes unless tax and national insurance contributions were paid within a specified period.
We recommend avoiding such disguised remuneration schemes. It is better to pay extra tax than get on than get on the wrong side of HMRC.
2. Flat Rate VAT Abolished
Many businesses enjoy the perks of the flat rate VAT scheme, which allows a company with only one or two employees to pay less VAT than large corporations. However, 2016/2017 is the last tax year this scheme will be in effect.
From April, if you spend less than 2% of your turnover on ‘goods’ — which encompasses the vast majority of small businesses — you’ll have to pay the standard 16.5% on gross turnover. This completely wipes out your chances of saving against VAT.
If you want any further advice or help on how any of these changes will affect you, contact our team today.