The unexpected cut to Corporation Tax will be a boost to some big businesses, but smaller companies could suffer from hidden taxes in the Budget, according to Halesowen-based Chartered Accountants Nicklin LLP.
Ahead of the Budget many commentators felt that an additional cut to Corporation Tax was unlikely. However, the Chancellor of the Exchequer, George Osborne, has surprised many business leaders by announcing future cuts to Corporation Tax rates. During his announcement the Chancellor said that rates would drop to 19% in 2017 and then again to 18% by 2020; a move that will be welcomed by many firms.
For SMEs the Budget held a number of measures that could affect their success in the coming years. Among these measures is the change to the way dividends are taxed. Under these reforms, the Dividend Tax Credit will be abolished in April 2016 and a new Dividend Tax Allowance of £5,000 a year will be introduced.
The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. These significant changes to dividend taxation will impact on the overall tax rates for owner-managed businesses, and the effective tax rates on extracting profits.
The Chancellor also announced the introduction of a living wage. This will see the minimum wage over the age of 25 increase to £7.20 by April 2016 and then increase again to £9.00 by 2020. This increase in wages is likely to significantly affect smaller firms who may see monthly expenditure increase dramatically.
The Budget also held bad news for landlords who will see changes to tax reliefs they receive on costs deducted from profits. Currently they can claim up to 45% tax relief on costs, including mortgage payments, but the Chancellor has announced that this will be cut to 20% for all individuals by April 2020.
Mr Osborne also announced a crackdown on those with non-domicile status, as from 2017 permanent non-dom tax status will be abolished. This will mean that anyone resident in the UK for more than 15 of the past 20 years will be required to pay tax at British rates on all worldwide income and gains.
Harvey Owen, Managing Partner at Nicklin LLP said: “While the last few Budgets have been very supportive of small businesses, this latest statement appears to contain a number of measures that could have a significant impact on the profits and taxes of small firms.
“Anyone concerned about the announcements made in the Budget should seek professional help immediately to ensure they get the right advice ahead of the proposed changes.”
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