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Budget 2014 – what can small companies expect?

With the help of some industry commentators, we look at the measures the Chancellor is likely to announce when delivering his latest Budget on March 19th, and how they may affect small company owners.

Income Tax thresholds

One of the biggest Budget talking points discussed in the media over the past month has been whether or not the Chancellor will raise the higher rate income tax threshold, as record numbers of individuals have been drawn into the 40% tax band in successive Budgets. This is known as ‘fiscal drag’, whereby the Treasury raises more tax simply by keeping keeping tax band thresholds static, and letting inflation do the rest.

Of course, the personal allowance is due to increase to £10,000 from April, so the chances of a giveaway to comparatively wealthy taxpayers seems unlikely. “In reality, he has little scope to do either”, according to Tina Riches, national tax partner at Smith & Williamson. “However, announcements ahead of the next election to increase both thresholds are likely, although they may be timed to take effect at a later date.”

Richard Rose, tax partner at BDO, goes one step further and suggests that George Osborne may raise the personal allowance band to £10,500, which would cost around £3.25bn to implement. He also suggests that the Government “may seek to stake an early marker for the forthcoming 2015 general election by reducing the higher rate of income tax by 1p.”

What about National Insurance?

We all know that National Insurance is merely another form of income tax, and while the personal allowance is due to rise to £10,000 from 6th April, employees NICs kick in from just under £8,000. Some commentators are calling on the Chancellor to raise the employees’ NIC threshold towards the £10,000 mark.

Riches says that such a move would be an “excellent boost to the enterprise economy and, in my view, would be more attractive to business than deducting the first £2,000 from employers’ NI bills.”

LLP salaried members rules

The Chancellor is expected to press on with new rules which will treat certain members of Limited Liability Partnerships (LLPs) as ’employees’, rather than ‘self-employed’ for tax purposes. Law firm Osborne Clarke argues that the implementation should be delayed until 2015 (a date also recommended by the House of Lords). The concern is that “the rules are being brought in too quickly for taxpayers to adapt to the new capital and budgeting disciplines required by the rules and without adequate transitional relief being in place.”

Corporation Tax

Most experts do not expect to see any further cuts to the main rate of Corporation Tax, as the cut from 23% to 21% from April 2014 has been pre-announced. The main rate will fall further, to 20%, from April 2015, when it will finally be aligned with the small profits’ tax rate (the rate paid by the vast majority of small limited companies).

Tax relief on pensions

A reduction in the pension tax-free lump sum amount is usually on the cards at each Budget, according to many tax experts. Richard Rose even suggests that the Chancellor may remove higher rate tax relief on pension contributions altogether, and could raise up to £6bn. Although not a measure the accountancy firm would condone, it might be politically necessary with a year to go before the next general election; “Hitting the higher earners, the timing of this may now be right for the Government to weather any political backlash.”

Tax avoidance

Further action against tax avoidance is highly likely. Accountants Murray Harcourt suggest that “there will be specific legislation targeted at bespoke tax avoidance schemes.  This legislation will not have an impact on most businesses but should ensure a fairer tax system when legislated.”

Baker Tilly suggest that people (and companies) who use avoidance schemes “will have to make payments on account of the tax ‘saved’ by using the scheme.

Capital Allowances

The Annual Investment Allowance is set to fall from £250,000 to a mere £25,000 from 1st January 2015 (pre-announced). Will the Chancellor announce a further extension to help encourage small business investment?

Entrepreneurs Relief

Baker Tilly also suggest that the lifetime allowance for claims under Entrepreneurs Relief may be cut from the current £10m to perhaps £5m, as “the lifetime allowance is a generous and hence vulnerable allowance.”

Further information

The Budget will be unleashed at 12.30 on Wednesday 19th March. You can find out more information on the GOV.UK site.

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