Expert tax advice for UK small business owners in 2016

Posted on February 22, 2016 by John Neighbour

From experience, expert tax advice for UK small business owners is always welcomed when delivered but more often than not, it is infrequently asked for. As a small business owner it’s more than understandable that other priorities can sometimes take precedence over company accounts. After all, there is always so much to do such as building brand awareness, gaining new customers and growing your customer base.

Small business owners are often time-poor but company accounts, including cash flow management, late payments, bad debts and business tax should all be at the top of your list of priorities. What’s a business if your finances are not in order and working hard for you?

Helpful expert tax advice for UK small business owners in 2016 …

5th April … put it in your diary

From the 5th April, the government is making big changes to the dividend route for businesses. As a UK small business, and assuming you are making a profit, we would recommend you consider bringing forward your dividend payment to save on tax. Naturally, this will mean that your expected dividend will be less in the next financial year but the tax saving could well be worth it. This is not a ‘one size fits all’ so you need to take advice on this.

Assess your personal situation

If you do decide to bring forward your dividend payment just double check that this doesn’t take you into the income tax bracket of over £100,000 as this could impact the level of tax taken against your income and may not be advantageous in your circumstances.

Saving for the future

As a UK small business owner, you will soon be legally obliged to provide employee contribution pensions otherwise referred to as ‘auto-enrolment’. Failure to do so could lead to fines of up to £2,500 daily depending on how many members of staff you employ.

A business owner can put up to £40,000 per year into a pension tax free via an employer based pension. If you were to take the alternative route and save personally, the government would charge National Insurance and Employer National Insurance. So what’s the best route for your business? A business receives tax relief on pension payments and also avoids National Insurance – do it via the business rather than personally if you can.

Digital Tax Returns

The government has announced that from 2016 they will be introducing digital tax accounts. The move will allow small business owners to manage their tax returns in real-time and submit accounts throughout the year rather than in one go at the end of the year. By 2020, your business should be able to link in your accounting software and bank accounts directly to your digital tax account. The benefit? If your account information is submitted regularly your tax bills will be more closely related to your overall performance – no nasty surprises.

Be wary of Phoenixing

Companies have used the Phoenix route to avoid obligations such as onerous leases or large tax liabilities by going into liquidation and buying the business back from the liquidator, but without the liabilities. This has been known as a “pre-pack”. The other reason for doing this is where a company has built up substantial profits and wishes to extract them tax-efficiently. In this case the company is liquidated and the money comes out as a capital gain taxed at 10% rather than as income taxed at a much higher rate. The business starts up again the next day in a new company. There is existing legislation to stop this but HMRC have apparently been reluctant to use it. However, from 6 April the monies will be taxed as income rather than as capital gains if a similar business is started up within 2 years.

Are you a small business owner looking for tax advice for the new financial year? Get in touch, the HB Accountants team would be happy to connect with you to see how we can help your financial planning and accounts.

As responsible professionals, we always advise seeking professional advice on your unique circumstances before proceeding with any of the points raised in this article.

Key Tax Points You Need to Know

Posted on February 8, 2016 by Karen Chase

1 Employment Allowance
This is increasing to £3,000 from £2,000 from April 2016. However, sole director companies will no longer receive any of the allowance. Consideration should be given to appointing another director of a spouse/partner.

2 Savings Income
For basic rate tax payers, from April 2016 interest will be paid gross and the first £1,000 will be tax free. Dividends will no longer be paid with a tax credit and up to £5,000 will be tax free. So these two, together with the personal allowance of £11,000 will mean that is possible to earn £17,000 without paying any tax.
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3 Self Employment
(i) Control – does the employer have significant control over you
(ii) Mutuality of obligations – Does the employer have to offer work and you are obligated to perform it
(iii) Substitution – who decided who can do the work if you are unable to do it?
(iv) Insurance – Do you pay public liability, professional indemnity and product liability insurance?
(v) Mistakes – Are you require to correct and rectify your work in your own time, for no further payment?
(vi) Does a proper self-employed contract exist?

Summer Budget 2015

Posted on July 9, 2015 by Keith Grover

Some main points from the Summer Budget 2015

The personal allowance will increase to £11,000 from 6 April 2016 and to £11,200 from 6 April 2017. Tax at the higher rates will start at £43,000 of income from 6 April 2016 and £43,600 from 6 April 2017. The aim is to reach a personal allowance of £12,500 and a higher rate threshold of £50,000 by the end of this parliament.

From April 2016 dividends will be taxed more heavily, with only the first £5,000 exempt from additional tax. A quick calculation suggests that a 40% taxpayer taking a dividend of £100,000 would pay £7,125 more in tax than at present. It seems likely that it will still be more effective for family companies to pay minimal salaries and top up with dividends but shareholders may wish to take a significant dividend on or before 5 April 2016, even if they immediately lend the money back to the company.

Corporation tax will reduce to 19% from 1 April 2017 and to 18% from 1 April 2020.

From 1 January 2016 full tax relief will be available on purchases of plant and equipment up to £200,000 per annum in total.

Companies will not be able to write off goodwill against corporation tax for business acquisitions on or after 8 July 2015.

Rent-a-Room relief increases from £4,250 to £7,500 per annum from 6 April 2016.

Relief for buy-to-let interest will be gradually reduced to basic rate for higher rate taxpayers over the period from 6 April 2017 to 5 April 2020.

Individuals with income in excess of £150,000 will have their allowance for tax deductible pension contributions reduced on a tapered basis down from £40,000 per annum to a minimum £10,000.

An additional inheritance tax (IHT) relief will be given where a residence is passed on death to a direct relative. This starts at £100,000 on 6 April 2017 and increases to £175,000 by 6 April 2020. It means ultimately that a couple will have a total exemption of £1 million. The additional relief will be indexed after 5 April 2021, but the relief will be gradually withdrawn where the total estate exceeds £2 million.

The remittance basis for non-doms will be removed from 6 April 2017 where they have been UK resident for more than 15 of the past 20 tax years. They will also be subject to IHT on their worldwide assets. Any existing offshore trusts will still be safe unless they hold UK residential property.

The exemption of £2,000 from employer’s national insurance contributions will be increased to £3,000 from 6 April 2016.