Most of the talk before today’s budget was about the government’s expected welfare cuts but on behalf of Team Commercial here at Brethertons I want to focus on the measures that affect the corporate world.
The headline grabbing policy announced today was the introduction of a compulsory national living wage of £7.20 per hour from next April, rising to £9.00 per hour by 2020 for people 25 or over.
The question most employers will have is ‘how can we afford this?’ The OBR has predicted the change will cause the loss of 60,000 jobs but the chancellor announced that the National Insurance Contributions (NIC) and the Employment Allowance will each increase to £3,000 helping businesses with the increased wage cost and resulting in an estimated 90,000 employers seeing their NIC liability reduced to nil.
The other big change for companies is the change to Corporation Tax. From 2017, the rate will fall to 19% and then down again to 18% in 2020. In addition, the current system of tax credits on dividends will be simplified. The Dividend Tax Credit will be replaced by a new Dividend Allowance of £5,000 per year for all tax payers and the dividend tax rates will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers resulting in those who receive significant dividends through a closed company paying more than they currently do. The aim is to reduce the incentives for small businesses to incorporate and remunerate director-shareholders through dividends, rather than director’s wages. In addition, companies where the director is also the sole employee will no longer be able to claim the Employment Allowance.
So will it still be worth incorporating? Tax planning has always been the main reason for most businesses to become limited companies as the tax savings often outweigh the increased paperwork considerations. The tax on dividends will still be less than the tax on income but the gap has narrowed and may narrow further over the coming years. However, there are other reasons to incorporate, not least the benefits of limiting personal liability to those you deal with day to day.
If you want to talk about the issues your business faces then call Team Commercial. We have specialists who can assist you in all aspects of running a company – whether it is dealing with customers and suppliers, dealing with employees or looking at your exit strategy, either myself or one of my colleagues can help you.