Summer Budget 2015: What's in store for Small Business?

As we Brits know only too well, summer time can be a tale of two halves. It can bring glorious hot days, trips to the beach and barbecues. But it can also mean sun burn, invasions of insects and thundery downpours.

And that’s exactly how the story went for small business owners in today’s emergency Summer Budget. Chancellor George Osborne set out the first all-Conservative budget for nearly 20 years, and he stuck steadfast to his austerity measures. As we’ve seen since the recession in Budgets and Autumn Statements, for every tax break; there would be a tax rise elsewhere to compensate. There are no unfunded giveaways.

The Winners and the Losers

The big headlines for our small businesses and taxpayer clients were the overhaul of the tax treatment on dividends and the changes to tax reliefs available to landlords.

Thundery Showers over Companies

Companies have probably been the biggest losers from the Summer Budget. Although they will benefit from the corporation tax cut, the Dividend Tax Allowance will likely leave many director-shareholders out of pocket. The withdrawal of tax relief on goodwill will also be a sorely missed perk of going limited.

Combine this with what happened in Autumn Statement 2014, when we saw the withdrawal of Entrepreneur’s Relief on goodwill transferred to a limited company and it’s quite clear that the government are keen to reduce the benefits of being a limited company.


Here we’ve summarised the winners and losers of the emergency Summer Budget 2015: 

Sunshine

Showers

Small businesses

Corporation tax cut - Corporation tax will fall further from 20% to 19% in 2017, and then to 18% in 2020; benefiting over a million businesses. Unfortunately, the rate of corporation tax for small and large businesses will remain unified under current plans. 

Dividend tax treatment overhaul - From April 2016 the dividend tax credit will be abolished and replaced with a £5,000 Dividend Tax Allowance. This will mean that the first £5,000 of dividends received will be tax free, and then anything above this will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Fuel Duty - The Chancellor also confirmed that there would be no change to the plans he set out for fuel duty in the Coalition’s last Budget in March 2015. Fuel duty will therefore remain frozen this year.

Corporation tax relief on goodwill - Tax relief will no longer be available for goodwill purchased on or after 8 July 2015.

Annual Investment Allowance (AIA) - This was planned to fall to just £25,000 from 1 January 2016. But the Summer Budget announced it would instead fall to just £200,000. 

Landlords

Rent a room relief - Finally after 18 years, the government will increase the level of Rent-a-Room relief from £4,250 to £7,500 from April 2016. This will be welcome news to people renting rooms out, and potentially Bed & Breakfasts. 

Relief on mortgage interest - From April 2017 this will gradually be reduced and by 2020 relief will be capped at basic rate of 20%. Basic rate taxpayers should see no change; but wealthier property owners may see a rise in their tax bills from 2017.

Relief on furnished residential properties - From April 2016, the ‘wear and tear allowance’ will be replaced by a new system that only allows landlords to deduct the actual costs of replacing furnishings. If you're intending to invest heavily in the furnishing your rental properties, then you should be better off under the new rules. But if you've been reaping the benefits of the generous wear and tear allowance, the glory days are over. 

Employers

Employment Allowance - In order to ease the burden of the National Living Wage, the government will raise the Employment Allowance from £2,000 to £3,000 a year from April 2016. 

National Living Wage - From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020. While this will be welcome news to employees, this could hit small businesses hard. 

 

Director-only companies and the Employment Allowance - To ensure the National Insurance Contributions (NICs) Employment Allowance is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

Personal

Tax lock - In their manifesto, the Conservatives vowed their would be no rate rises to tax, National Insurance or VAT for the duration of Parliament.

Pensions Annual Allowance - For every £2 of adjusted income over £150,000, an individual’s Annual Allowance, will be reduced by £1, down to a minimum of £10,000.

Personal allowance - Will increase from £10,600 this year to £11,000 next year. 

 

Higher rate threshold - Will increase from £42,385 this year to £43,000 next year. 

 

Inheritance tax - The Government will take the family home out of inheritance tax for all but the wealthiest with a new transferable nil-rate band, introduced from April 2017. This will apply when a main residence is passed on death to direct descendants, such as a child or grandchild. 

 

If you’d like to discuss the Summer Budget and how it affects your personal circumstances in more detail, send us an enquiry or call freephone on 0800 0523 555. We’ll put you in touch with your local TaxAssist Accountant. 

By Jo Nockels
Last updated July 2015

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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