Budget 2014 – summary for small business owners

As announced by George Osborne today:

Corporation tax

  • Rate stays at 20% for annual profits up to £300k
  • Annual investment allowance doubles to £500k from April 2014

Personal tax

  • Personal allowance of £10,000 for 2014/15 and £10,500 for 2015/16
  • Basic rate of 20% applies to the next £31,865 and £31,785 respectively
  • Higher rate of 40% on further income up to £150,000
  • Additional rate of 45% thereafter
  • From 2015/16, married couples can transfer up to 10% of their personal allowance if neither of them are higher rate tax payers

National Insurance (from April 2014)

  • 12% NIC for employees on earnings between £153 and £805 per week
  • 2% NIC on any additional earnings
  • 13.8% NIC for employers on earnings in excess of £153 per week (no upper limit)
  • The first £2,000 due per year for employers NIC is effectively exempt so does not have to be paid
  • 9% Class 4 NIC for the self-employed on annual profits of £7,956 to £41,865
  • 2% Class 4 NIC on any additional profits
  • Class 2 NIC for the self-employed (£2.75 per week) will be collected via Self Assessment from 2016/17

VAT

  • Registration threshold increases to £81,000 from April 2014

Pensions (from April 2014)

  • Lifetime allowance is cut to £1.25m
  • Annual investment limit is reduced to £40k

Savings (from July 2014)

  • ISA limit raised to £15,000 for both cash and share investments
  • Junior ISA limit increases to £4,000

Capital gains

  • Annual exemption increases to £11,000 from April 2014
  • Rates stay at 10%/18%/28%

Autumn Statement 2013

Below is a summary of the new tax rates and thresholds for 2014/15 announced by George Osborne today:

Personal tax

  • Personal allowance to cover the first £10,000 of income per tax year
  • Basic rate of 20% applies to the next £31,865
  • Higher rate of 40% on further income up to £150,000
  • Additional rate of 45% thereafter

National Insurance

  • 12% NIC for employees on earnings between £153 and £805 per week
  • 2% NIC on any additional earnings
  • 13.8% NIC for employers on earnings in excess of £153 per week (no upper limit)
  • 9% NIC for the self-employed on annual profits of £7,956 to £41,865
  • 2% NIC on any additional profits

Savings

  • ISA limit of £11,880 for stock and shares
  • ISA limit of £5,940 for cash

Changes from April 2015

  • Transferable married couples allowance of £1,000
  • No employers NIC for employees under the age of 21

Other

  • Abolition of the paper car tax disc from 1 October 2014
  • Increase in State Pension age to 68 from the mid 2030′s, and a further increase to 69 by the late 2040′s

Budget 2013 – new tax rates

Below is a summary, for small businesses, of the announcements made in today’s Budget.  Detailed tax rates and thresholds can be found on the HMRC website.

Individuals

  • Personal allowance is £9,440 for 2013/14 and £10,000 for 2014/15.
  • Basic income tax rate remains at 20%.
  • Higher rate tax (40%) is to apply on earnings over £41,450 from April 2013 and over £41,865 from April 2014.
  • Additional tax rate (paid on earnings in excess of £150,000) will reduce to 45% from April 2013.
  • For 2013/14, National Insurance kicks in for employees, at 12%, when they earn in excess of £149 per week, employers have to pay, at 13.8%, once wages exceed £148 per week and the self-employed pay 9% NI when earnings exceed £7,755 per annum.
  • The annual pension contribution allowance is to reduce from the current £50,000 to £40,000 from April 2014.
  • Annual capital gain exemption is to increase to £10,900 from April 2013.

Companies

  • Main company tax rate is to reduce to 23% from April 2013, 21% from April 2014 and 20% from April 2015.
  • Small company rate (where profits are below £300,000) is to remain at 20%.

VAT

  • Registration threshold to increase to £79,000 from April 2013.

Other

  • Annual investment allowance (tax relief for fixed assets) will increase substantialy from £25,000 to £250,000 from April 2013.
  • NIC holiday of up to £2,000 for small businesses taking on new employees.
  • ISA allowance increases to £11,520 from April 2013.
  • Inheritance tax threshold remains at £325,000.

The above is a brief summary of a 192 page Budget document.  If you suffer from insomnia, we recommend perusing the detailed Budget announcements.

Accountant shows his generosity

One afternoon a top accountant was riding in his limousine when he saw two men along the road-side eating grass.

Disturbed, he ordered his driver to stop and got out to investigate. He asked one man, “Why are you eating grass?” “We don’t have any money for food,” the poor man replied. “We have to eat grass.” “Well, then, you can come with me to my house and I’ll feed you,” the accountant said. “But sir, I have a wife and two children with me. They are over there, under that tree.” “Bring them along,” the accountant replied.

Turning to the other poor man he stated, “You may come with us, also.”  The second man, in a pitiful voice, then said, “But sir, I also have a wife and SIX children with me!” “Bring them all as well,” the accountant answered. They all entered the car, which was no easy task, even for a car as large as the limousine.

Once under way, one of the poor fellows turned to the accountant and said, “Sir, you are too kind.” “Thank you for taking all of us with you”.   The accountant replied, “Glad to do it. You’ll really love my place. The grass is almost a foot high and you’ll save me having to pay for it being mown.”

New IR35 guidance

After many months of discussion and negotiation HMRC has unveiled its new risk assessment scoring for IR35 investigations.  It has already come in for criticism from various tax and contractor groups and we don’t think much of it either.  Remember, this is going to be biased towards most contractors falling within IR35.

The full document can be found here but a summary is below:

The tests are voluntary and HMRC cannot make you take them or, if you do take them, you do not have to reveal to HMRC which band you are in.

There are 12 subject areas in the tests in Chapter 4 – each one carrying a points score. The final tally reveals your risk: less than 10 points = high risk; 10 to 20 = medium risk; and more than 20 = low risk.

Evidence is needed to support your answers. In summary the tests and scores are:

  • Business premises- do you rent/own business premises outside your home? (10 points for a Yes)
  • PII- do you need Professional Indemnity Insurance? (2 pts)
  • Efficiency- can you increase your income through efficient working, eg finishing fixed price contracts early (10 pts)
  • Assistance - do you employ anyone? (35 pts)
  • Advertising - have you spent more than £1,200 on advertising in the past year (2 pts)
  • Previous PAYE - have you been an employee of your client (minus 15 pts)
  • Business plan - do you have a business plan and a business bank account (1pt for a yes to both)
  • Repair at own expense- do you have to put errors right at your own expense (4 pts)
  • Client risk- have you been unable to recover more than 10 per cent of your yearly turnover (10 pts)
  • Billing - do you invoice for work carried out before being paid and negotiate payment terms? (2 pts)
  • Right of substitution- do you have a right to send a substitute? (2 pts)
  • Actual substitution - have you substituted? (20 pts)

Budget 2012 – new tax rates and thresholds

Below is a summary, for small businesses, of the announcements made in today’s Budget.  Detailed tax rates and thresholds can be found on the HMRC website.

Individuals

  • Personal allowance (the amount earned before tax is due) will increase to £8,105 from April 2012 and to £9,205 from April 2013.
  • From 6 April 2012, National Insurance kicks in for employees when they earn in excess of £146 per week but employers have to start paying once wages exceed £144 per week (so much for simplification!) and the self-employed pay NI when earnings exceed £7,605 per annum.
  • Basic rate tax band (20% tax rate) is to reduce to £34,370 from April 2012 and to £32,245 from April 2013.
  • Higher tax rate (paid on earnings in excess of £150,000) will reduce to 45% from April 2013.
  • Pension allowance is to remain at £50,000.
  • Capital gains allowance is to remain at £10,600.
  • Child benefit will be phased out, from Jan 2013, where one parent is earning between £50,000 and £60,000. No child benefit is payable once earnings exceed £60,000.

Companies

  • Main company tax rate is to reduce to 24% from April 2012 and to 23% from April 2013.
  • Small company rate (where profits are below £300,000) is to remain at 20%.
  • IR35 changes are being proposed to ensure more businesses are caught but nothing concrete has been announced yet!

VAT

  • Registration threshold to increase to £77,000 from April 2012.

Other

  • Annual investment allowance (tax relief for fixed assets) will reduce to £25,000 from April 2012.
  • Unincorporated businesses with a turnover below £77,000 will be able to use a simpler cash accounting system from April 2013.

The above is a brief summary of a 208 page Budget document.  If you suffer from insomnia, we recommend perusing the detailed Budget announcements.

Budget Day 2012

George Osborne will be announcing the new tax rules and tax rates next Wednesday 21 March. 

We will publish a summary for small businesses on this site shortly afterwards.

VAT penalties

Are VAT officers taking their new penalty powers too seriously?  Well, the fact that more than half of them are overturned on appeal would suggest so.

A Freedom of Information Act request shows that 16,270 penalties were reversed out of a total of 28,912.  HMRC said that alot of these reversals were because it was found that the taxpayer has a reasonable excuse for their actions and that this does not mean that the penalties were incorrectly levied in the first place.

We say, don’t pay a penalty just because it has been charged.  Seek advice as to whether or not you have grounds to overturn it.

Tax-forces

The Taxman launched five taskforces on 7 November 2011 with the aim of clamping down on tax evasion in various parts of the country.

North West and North Wales – landlords and construction workers

South East – taxpayers who have not submitted all of their tax returns (income tax, corporation tax, VAT, PAYE)

Scotland – scrap metal dealers and fast food outlets

We understand that the Taxman is planning a total of 12 taskforces in 2011/12 with more to follow in subsequent years.

HMRC have said that “these taskforces will come down hard and fast on those who have chosen to break the rules and deliberately evade the taxes they should be paying…..we can and will track you down and you’ll face not only a heavy fine, but possibly a criminal prosecution as well“.

Mmmm, fighting talk – be careful out there!

Business Records Check

HMRC has confirmed that they now expect to check the business records of a reduced number of businesses as part of their recent Business Records Check (BRC) initiative.

The new annual target is 20,000 visits, down from the original 50,000.  An additional 90 staff have been recruited to the initial headcount of 30 in order to facilitate these visits.

HMRC have confirmed that they will not, initially, be charging fines to businesses who don’t maintain adequate records.  However, this will change in the near future so all businesses should be ensuring that their paperwork is now up to date.