Summer Budget 2015: Great for working people but challenging for SMEs?
27th July 2015 | News
There’s no doubting that the Conservatives’ Summer Budget 2015 was welcome news for those aged 25 and over and currently on the minimum wage, but concerns linger regarding rising wage bills for SMEs.
With small business owners set to pay more to their staff and the way they pay themselves under scrutiny, there’s no doubt that ambitious, growing SMEs need advice and support more than ever to enjoy continued growth.
Chancellor, George Osborne announced a compulsory living wage of £7.20 from April 2016, rising to more than £9 by 2020.
Those business owners with a high number of lower-paid workers could experience significant wage bill increases; especially given the added burden of workplace pensions.
According to the Office for Budget Responsibility (OBR) the move will result in six million workers enjoying a pay rise.
The IGF Group claim that the numbers could stack up even higher on closer inspection.
“Anybody moving from the current minimum wage to the compulsory living wage next year might not consider 70 pence an hour a great deal of money but if you multiply that by 20 people working eight hours a day then the bosses’ annual wage bill has just gone up by nearly £30,000,” said the IGF Group in a recent blog post.
The OBR gloomily anticipates an enforced pay rise to result in weekly worked hours to fall by as much as four million with the loss of 60,000 jobs.
In addition, those business owners affected will also have to consider their own remuneration process. Historically, the British tax system has encouraged small business owners to take smaller salaries and larger dividends in order to remain as tax efficient as possible.
However, plans to abolish the dividend tax credit from April 2016 and introduce a new dividend tax allowance of £5,000 a year will have tax implications for anyone receiving dividends as part of their yearly income.
The new rates of tax on dividend income above the £5,000 allowance will be capped at 7.5 per cent for basic rate taxpayers, 32.5 per cent for higher rate taxpayers and 38.1 per cent for additional rate taxpayers.
Unsurprisingly this move has been met with disapproval by many entrepreneurs, with many more contractors and small business owners forced into paying dividend tax despite playing a key role in the country’s economic recovery.
“Supporting this vital cog in our improving economic machine is clearly still work in progress as these two elements of the recent Budget would indicate,” added the IGF Group.
“Wage hikes require careful cashflow planning and access to flexible funding whilst any tinkering with remuneration policy and dividend income needs a serious tax brain on the case.”