05/08/2015

By Andy Bailey, Senior Product Manager at Exact

George Osborne’s budget announcements delivered many benefits for small businesses. However he has added complexity – and therefore costs – for small and medium-sized enterprises (SMEs). The headline news was the gradual reduction in the main rate of Corporation Tax from 20% to 18% by 2020, and setting a permanent level of Annual Investment Allowance at £200k from 1 January 2016; both of which will be welcomed by SMEs.

It is also positive to see these rates announced so far in advance, giving business owners the time they need to plan for the future. This is reinforced by the new Business Tax Roadmap, which the Chancellor announced will be made available from April 2016. This can only be a good thing for business owners’ long term planning.

Below are my top tips for SMEs in light of the announcements in the budget.

1. Review your remuneration strategy

The changes to dividend taxation rules, along with National Living Wage and Personal Allowance increases could have a significant impact on your income if you’re a small business owner.

2. Take a look at your payroll

In addition to the Auto Enrolment changes already taking place, employers need to make sure they will be compliant with the National Living Wage and are claiming the correct amount of Employers Allowance. The introduction of a NLW, which increases the National Minimum Wage for those aged 25 and over to £7.20 will be welcomed by low earners, but will prove a challenge for SMEs who now have to increase salaries.

3. Now could be the time to incorporate

With the gap between higher rate Income Tax and Corporation Tax increasing further, now could be the time to move to a Limited company structure. Although the reduction in Corporation Tax should also be considered along with the other pros and cons of this business structure.

The budget was, on the whole, good news for SMEs, but it’s important for business owners to take the time now to plan how they are going to make the most of increased allowances while planning for the potential increased costs.