The headlines from today’s budget will focus on four main areas
– Increase in the tax free allowance to £8,105 from April 2012 and £9,205 from April 2013
– Loss of child benefit will now affect individuals earnings more than £50,000 per year and not £42,500 as previously announced.
– 50p income tax rate for earnings > £150,000 to be cut to 45p from April 2013
– Age related tax allowances to be frozen, effectively increasing taxes for those over 65
Here are three announcements that impact on small businesses directly.
(1) No corporation tax cheer for small businesses
The main rate of corporation tax (for companies with profits of £1.5m or more) will fall from 26% to 24% next week, and then by a further 1% to 23% in April 2013 then down to 22% in April 2014. While we applaud this reduction, the tax rate for companies with profits less than £300k remains unchanged at 20%. As 99% of businesses will fall into this category, there was definitely no corporation tax cheer for SME Limited Companies from Mr Osbourne.
(2) Three million small firms to see tax simplification from 2013
This is one that got the One Accounting team very excited. The brilliantly named “Office of Tax Simplification” has announced a radical change to how small and micro-businesses prepare their accounts. The Treasury has proposed that from April 2013, businesses with sales of less than £150k per year (it’s estimated there are 3 million of them) can shift their basis of accounting from the traditional “accrual” method to a “cash’ method. Tax would be paid on the cash received in the year, less acceptable operating expenses. The proposals also note that the requirement to keep stock figures for tax purposes will end.
Put simply, this means that small businesses profits (and hence their taxes) will reduce when the new rules come in. If your business has received £50,000 payment in sales income and has £20,000 in unpaid sales invoices at the year end, the total sales under the ‘accrual’ method would be £70,000. Under the new ‘cash’ rules, the total sales are reduced to £50,000. Taxable profits (and tax) will reduce as a consequence. Of course, the £20,000 sales will fall into the next tax year, so the tax is deferred rather than avoided altogether.
The Treasury has announced that they want to introduce these rules for small businesses trading up to the VAT threshold at £77,000. The rules will apply to sole traders as well as companies.
This is a popular move that will appeal to the estimated 30% of small business owners who do not use an accountant or tax advisor. This creates an interesting challenge for the accounting profession as more business owners take a DIY approach to their accounting and tax filings.
(3) Business Tax Dashboard
In April 2012, HMRC will launch an online Business Tax Dashboard, which will offer a quick and easy way for businesses to see how much tax they have already paid and how much they still owe. It will bring together income tax liabilities for the business, VAT and PAYE & NIC. This will be a useful tool for business owners and accountants alike. We’re really encouraged by the additional efficiency and time savings that this will bring to our own firm.
Please leave us a comment if you have anything you would like to share about the budget!