Thomas Coombs say the Budget is a step in the right direction for SMEs, but has a sting in the tale for some

Leeds-based accountancy firm Thomas Coombs has today said that the Chancellor’s latest Budget Statement is on the whole positive for SMEs, but that caution should be applied to certain elements.

George Osborne set out from the start of his Budget statement to show that he is on the side of the small business owner by quickly announcing changes to the Business Rates Threshold.

From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates. This relief is currently only available to businesses that occupying a property with a rateable value of £6,000 or less.

However, the new threshold will mean that a tapered rate of relief will be available for properties with a rateable value of £15,000, meaning 600,000 businesses will pay no rates at all.

On the back of this Mr Osborne also announced that from April 2016, the higher rate of Capital Gains Tax (CGT) will be cut from 28 per cent to 20 per cent and the basic rate from 18 per cent to 10 per cent. These moves will be particularly beneficial to those wishing to sell their business.

Entrepreneurs’ relief will also be extended to long term investors in unlisted companies, providing them with a 10 per cent rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gain. This will be extremely beneficial for businesses seeking outside investment and also helpful to those wishing to sell their business.

The Chancellor also announced that corporation tax will be cut to 17 per cent by 2020, which represent a helpful saving for companies. He also announced changes that will reduce commercial Stamp Duty Land Tax for the majority of SMEs buying new property and proposed a new micro entity tax exemption, which in particular will help online hobby traders and small traders who may not have previously declared their income.

Christopher Darwin, Partner at UK200Group member firm Thomas Coombs, said: “For small businesses and their owners this is a relatively well rounded and positive Budget, but there are a few things that they need to consider that have not been so openly publicised by the Chancellor.

“One of the groups likely to be most upset by the Budget is buy-to-let investors, who have already been battered by the Chancellor’s previous statements.”

Christopher Darwin pointed out that while the majority of businesses would benefit from the cuts to CGT, buy-to-let investors will still pay the current rates of 28 per cent and 18 per cent.

He also said that businesses needed to be cautious about how they lent money to their owners, as the loans to participators tax rate will be increased from 25 per cent to 32.5 per cent in April 2016, affecting loans, advances and arrangements made on or after 6 April 2016.

This follows on from changes to tax on dividends announced in the Autumn Statement, which have increased tax liabilities for company owners when they share in the profits, with effect from April 2016.

Christopher Darwin added: “While there are a number of big ticket items that will excite SMEs there are things in the Budget that need to be treated with care.

“The government’s approach appears to be quite stealthy and businesses need to be aware of the changes made outside of the main headlines. In the majority of cases it might be best to seek professional advice.”

If you would like advice on any of the subjects raised in the Budget Statement, please Christopher Darwin.

Owners and shareholders need to be ready for the change to dividends

Accountants Thomas Coombs are encouraging business owners and shareholders to reassess their position on dividends ahead of changes to the way they are taxed next month.

At present there are considerable savings to be made in National Insurance contributions if a minimal amount is paid as salary and any balance of a remuneration package is paid as dividends.

From 6 April 2016, the way dividends are being taxed will change and the 10 per cent tax credit currently available to taxpayers will be abolished.

Instead, each individual will have available a flat rate dividend allowance of £5,000. Any dividends received in excess of this allowance will be taxed as follows:

  • 7.5 per cent if dividend income is within the standard rate (20 per cent) band
  • 32.5 per cent if dividend income is within the higher rate (40 per cent) band
  • 38.1 per cent if dividend income is within the additional rate (45 per cent) band

These changes are likely to have a direct impact on the overall savings in NIC and income tax that can be achieved by those who receive dividends and some people may find it beneficial to reassess their remuneration policy.

Last week, the House of Lords Economic Affairs Committee said that HM Revenue & Customs (HMRC) had poorly communicated these changes and that the changes were complex, confusing to the majority of tax payers.

In light of this, Thomas Coombs is worried that some people may still be caught out by the changes and might end up paying more in tax than they need to.

Christopher Darwin, Partner at Leeds-based accountants Thomas Coombs, said: “It would seem that HMRC have done a poor job of communicating the changes to dividends to taxpayers and there are likely to be many people out there who are in the dark about how this will affect their affairs.

“These changes represent a significant change to the rules and those who are not aware or don’t understand the changes need to act quickly to get the help they need.”

Dividend recipients also needed to be aware that HMRC had amended the tax codes of many owners, directors and shareholders to “code out” an estimated amount, added Christopher Darwin.

The deduction in the PAYE code will be labelled ‘dividend tax’, as part of HMRC’s goal to move the payment of tax forward.

“To work out whether the deduction for “dividend tax” is approximately correct the estimate for your total income tax liability for 2016/17 will need to be checked, including funds received through savings and investments,” said Christopher Darwin.

“Failing to get your PAYE code correct could have a significant effect on the amount of tax you pay in the following year, so ensuring that it is right is vital. Those who are unsure should seek professional assistance to help them with their dividend affairs.”

If you would like help to make sense of the changes to dividends then our team at Thomas Coombs can help. To find out more, please contact Christopher Darwin.

Are you ready for the National Living Wage?

With just a month left before the new National Living Wage is introduced, Leeds based accountants Thomas Coombs are encouraging employers to get the correct payroll processes in place.

From 1 April 2016 employees over the age of 25 who are currently earning the minimum wage rate of £6.70 per hour will see a 50p increase in their pay, bringing it to £7.20 per hour.

The average full-time worker in this pay bracket, working 35 hours a week, will see their pay packets rise by more than £900 a year.

This rate looks set to increase further over the next four years, eventually reaching £9 per hour by 2020.

This significant increase in workers’ pay is likely to have a substantial impact on business’s wage costs and will is also likely to place an additional burden on their payroll systems.

Christopher Darwin, Partner at Thomas Coombs, said: “Paying your employees the correct wage is extremely important.

“Failing to pay the correct wage will not only create animosity amongst your workforce, but could also land you with a hefty fine and lead you to be named and shamed by the Department for Business, Innovation and Skills, which could do significant reputational damage to your firm.

“It is inevitable that this new wage increase will have a significant effect on your business’s profits in the months and years to come, so now is the time to assess where savings can be made within your company.”

Christopher Darwin added that certain industries such as the care sector, retail and hospitability, which employ a large number of low paid staff, would be affected most by the changes and would need to consider what actions need to be taken to ensure their ongoing success.

If you would like to know more about Thomas Coombs’s range of payroll and accountancy services, please Christopher Darwin.

Stuart Adam, Thomas Coombs

Plan now for the end of the tax year

Thomas Coombs is reminding individuals to use all the tax reliefs and allowances available to them before the current tax year ends on 5 April 2016 in order to minimise liabilities.

According to Stuart Adam, Partner at Leeds-based Thomas Coombs, there are a number of investment and tax planning ideas that should be considered.

For example, if you have adult children who are planning to buy a home, you might consider gifting funds so that they can invest in the new help-to-buy ISA. This new ISA is available to first time buyers over the age of 16. Savings of up to £200 per month attract a 25 per cent tax free bonus from the Government, providing £3,000 cashback on a maximum saving of £12,000. On the subject of ISAs, have you used your maximum annual investment of £15,240? Or has £4,080 been invested in a Junior ISA or Child Trust Fund for any child under the age of 18?

Stuart Adam also reminds pensioners that from 6 April 2016, tax relief will be restricted for 45 per cent taxpayers. However, there are transitional rules that may give you the opportunity to make extra pension contributions and claim full tax relief.

“The Lifetime Allowance (LTA) reduced from £1.5 million to £1.25 million in 2014 will reduce to £1 million on 5 April 2017. If this is likely to affect you, I suggest you take advice as there are ways of protecting your funds if you act now,” said Stuart Adam

Business owners are also prompted to seek advice because from 6 April 2016, Dividend Tax Credit will be abolished and replaced by a new Dividend Tax Allowance of £5,000 a year.

As Stuart Adam explains: “The new rates of tax on dividend income above the allowance will be 7.5 per cent (up from 0 per cent) for basic rate taxpayers, 32.5 per cent (up from 25 per cent) for higher rate taxpayers and 38.1 per cent (up from 30.56 per cent) for additional rate taxpayers. These changes to dividend taxation will impact on the overall tax rates for owner-managers, in particular, those who have traditionally extracted their income by way of a low salary and a much larger dividend.”

However, the income tax position is only part of the picture because for most owner-managed businesses, the overall tax costs (including the corporation tax position) will need to be considered. The overall tax cost of extracting a dividend will increase from approximately 20 per cent to 26 per cent for a basic rate taxpayer, 40 per cent to 46 per cent for a higher rate taxpayer and from 45 per cent to 50.5 per cent for an additional rate taxpayer.

“If you have cash in your business which you wish to extract in the form of dividends ahead of the 1 April deadline you need to get in touch with us now to ensure you don’t miss out,” said Stuart Adam, adding: “If you would like professional advice on anything discussed here, or dedicated advice tailored to your circumstances, please contact us by Stuart Adam at Thomas Coombs.