Issues affecting Owner Managed Businesses

Taxation of dividends

Almost conspicuous by its absence was any mention of the changes to the way in which dividends are taxed. This is a major change that will affect almost all owner-managers.

From April 2016, the tax credit system will be abolished. A new system of tax rates will then apply to any dividends received.

All individuals will receive a £5,000 tax free allowance on dividends, in addition to their Personal Allowance. However, tax will then be payable on any dividends above this amount, dependent upon their overall level of income.

The tax rates to apply will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. This will increase the personal tax payable for any owner-managers of limited companies by approximately 7.5% compared to the current system.

Whilst many will find that it is still beneficial to trade through a limited company structure, most will not wish to pay the additional tax.

If you wish to find out ways in which you can reduce the impact of this additional tax, why not come along to one of the Minimise Your Tax workshops to find out the options that might help you?

Auto-enrolment

With many small employers shortly to be bound by the principles of Auto-Enrolment, it will no doubt be relatively good news that the proposed increase in the minimum employer contributions to 2% of qualifying earnings (currently 1%) will be delayed from October 2017 to April 2018.

All future increases in the minimum contribution rates will then be in line with tax years.

If your business has not already started auto-enrolment, you will need to comply within the next two years. To find out your required start (‘staging’) date, you can type your business PAYE reference into the Pension Regulator online tool.

It is widely recommended that you should consider your options for Auto Enrolment at least six months in advance of your staging date. For more information, please speak to your Principal Adviser who will be able to introduce you to one of our specialist A4G Wealth advisers.

Travel and Subsistence Relief for Personal Service Companies

If you are currently supplying your own labour through a Personal Service Company (PSC’s), or an Umbrella Company, you are using what is known as an ‘Employment Intermediary’.

Enhanced rules for the reporting of Employment Intermediaries were brought in from April 2015. This meant that those companies using the services of individuals through PSC’s or Umbrella Companies are now required to report them to HMRC quarterly.

From April 2016, any individual whose PSC is caught by these rules will no longer be able to claim tax relief on their travel and subsistence costs.

Whilst this is unwelcome news to many contractors, there does not appear to have been any announcements with regards to Personal Service Company legislation (aka IR35) which was widely feared following a recent consultation.

Time will tell whether any future changes to this legislation will be announced, but in the meantime, why not speak to your Client Manager about an IR35 Contract Review to ensure that you are adequately prepared in the event of a HMRC aspect enquiry?

Opportunities from Investment in Infrastructure

George Osborne announced £100billion of new expenditure on the country’s infrastructure including new housing and transport investment, as well as further investment into science, defence and sports amongst other areas.

Any businesses involved in any other these areas would be well advised to seek out any opportunities that they may be able to find as a result. Businesses involved in the development of science or technology should also consider whether they are eligible for Research and Development Relief.

In the area local to A4G’s offices in Kent, it was announced that the North Kent Innovation Zone will be expanded to attract new private investment which alongside Ebbsfleet Garden City could provide a variety of opportunities for businesses in the construction, civil engineering, science or technology fields.

In addition, the announcement of a new £250million permanent lorry park in the East Kent area to help reduce the effect of Operation Stack will come as welcome news to many Kent residents.

However, is your business fit enough to take advantage of any potential opportunities? If not, perhaps you should consider your business plan and finding the best way to maximise the potential of your business. Speak to your Principal Adviser to find out more.

Further attack on ‘aggressive’ tax planning 

HMRC are to receive a further £800 million investment to recoup an estimated £7.2billion of tax lost through ‘evasion and non-compliance’. 

Highlighted as being on the agenda over the next 5 years in particular were certain artificial arrangements usually used by specialist tax planning schemes. 

However, Voluntary Liquidations are now also to come under the spotlight. These broadly involve a limited company being closed down with any retained cash distributed to the owners through the more favourable Capital Gains Tax regime. 

The government will shortly look to introduce further legislation that where a business re-emerges directly from the ashes, any distributions from the former company will be subject to Income Tax.

If you are considering extracting spare funds from your limited company, speak to one of our Principal Advisers who will be able to run through your options. 

Apprentices – the levy and the savings 

A new levy of 0.5% of the total annual payroll of employers will be introduced in April 2017 in order to provide further funds for the training of apprentices throughout the country.

However, the payment of the levy will only affect employers with a total annual payroll of more than £3million, and so it not expected to apply to all but the largest 2% of employers.

If you are looking to grow your business, perhaps to take advantage of the opportunities mentioned above, you should remember that the employment of apprentices under the age of 25 will not attract Employer’s National Insurance from April 2016, saving up to 13.8% on the cost of employment. 

If you would like to find out more about how apprentices could help your business grow, please contact Kirk Smith or Will Richardson of A4G Business Strategies LLP