Yesterday’s Budget saw George Osborne walking a very fine line…

…trying to appeal to and appease a number of different groups with different demands and agendas, without adding to the burden on the Treasury’s finances. As a result many of the more headline grabbing measures do not take effect immediately, rather they will come into play over coming years.

We have summarised below the main Budget tax announcements that will impact small businesses and their owners, and noted their effective dates, but would stress that these comments are based on the limited information released thus far by the Treasury, and that changes are possible before the measures come into force.

Our very own tax consultant Ian Forbes has evaluated and translated into something a little more digestable:

Business Taxes

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[toggle title=”Corporation Tax Rate Reduction”]Further to previously announced reductions in the main rate of corporation tax, the rate will now be reduced to 20% with effect from 1 April 2015. The small companies rate (payable on annual profits of up to £300k) is to remain at 20%, such that from 1 April 2015 there will be a single rate of corporation tax applicable to all profits of all companies.[/toggle]

[toggle title=”National Insurance “]Employment Allowance The Government will introduce an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 NICs liability, from April 2014. It is envisaged that the allowance will be claimed as part of the normal payroll process through Real Time Information, and it will effectively reduce the costs of employing staff.[/toggle]

[toggle title=”Review of Partnerships”]The Office for Tax Simplification (whose job seems to become more difficult with each passing Budget) is to carry out a review of ways to simplify the taxation of partnerships, starting with an initial scoping exercise to identify those areas most complex for taxpayers.[/toggle]

[toggle title=”VAT “]The registration threshold is increased from £77,000 to £79,000 with effect from 1 April 2013, and the deregistration threshold from£75,000 to £77,000. Small Business Tax Simplification As announced in Budget 2012, two measures will take effect for the 2013/14 tax year with the intention of simplifying the calculation of taxable income for small unincorporated businesses. -First, eligible small businesses (being those with a turnover of less than twice the VAT registration threshold) will be able to calculate taxable income on a cash basis, rather than under normal accounting principles. -Second, all unincorporated businesses will be able to use flat rate allowances for particular items of business expenditure, for example expenditure on vehicles, business mileage and use of home as office. Whilst a welcome simplification for the smallest of unincorporated businesses, the tax advantages of trading through a limited company will continue to deter many from operating this way. [/toggle]

[toggle title=”Small Business Tax Simplification “]As announced in Budget 2012, two measures will take effect for the 2013/14 tax year with the intention of simplifying the calculation of taxable income for small unincorporated businesses. -First, eligible small businesses (being those with a turnover of less than twice the VAT registration threshold) will be able to calculate taxable income on a cash basis, rather than under normal accounting principles. -Second, all unincorporated businesses will be able to use flat rate allowances for particular items of business expenditure, for example expenditure on vehicles, business mileage and use of home as office. Whilst a welcome simplification for the smallest of unincorporated businesses, the tax advantages of trading through a limited company will continue to deter many from operating this way. [/toggle]

Personal Taxes

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[toggle title=”Income Tax Rates and Allowances”]The individual personal allowance will increase to £10,000 for 2014/15, from £9,440 for 2013/14. Thereafter it will be increased in line with inflation (based on the Consumer Price Index measure). T he upper limit for the basic rate tax band will be reduced slightly from £32,010 for 2013/14 to £31,865 in 2014/15, which will have the effect of dragging more taxpayers into the higher rates of tax. As previously announced, the basic and higher rates of income tax will be unchanged in 2013/14 at 20% and 40% respectively, but the additional rate of tax (applicable to income in excess of £150k) will reduce from 50% to 45%.[/toggle]

[toggle title=”New Childcare Scheme”]A new scheme is to be introduced to support working families with their childcare costs. For costs of up to £6,000 per year per child, Government support of 20% will be available, worth up to £1,200. The catches are that: -the scheme won’t start until Autumn 2015; -it will initially be available in respect of children under 5, building up over time to include children under 12; -all parents must be in work and not receiving the Childcare Element of Working Tax Credits (or its Universal Credits replacement), and; -each parent’s income must be less that £150,000. The introduction of this scheme will coincide with the phasing out of the current system of Employer Supported Childcare.[/toggle]

[toggle title=”Employer Provided Beneficial Loans “]The threshold for employment-related taxable cheap loans to be treated as earnings of employment will increase from the current £5,000 to £10,000 with effect from 2014-15. As long as the total outstanding balances on all such loans do not exceed the threshold at any time in a tax year, there is no tax charge.[/toggle]

[toggle title=”Company Cars”]There will be reductions in the value of taxable benefits arising in respect of company cars with emissions of less than 75g CO2 per km with effect from 6 April 2015, in order to incentivise the purchase and manufacture of low emission vehicles in the UK.[/toggle]

[toggle title=”Pensions”]As announced in last year’s Autumn Statement, the annual allowance, being the maximum amount of pension contributions that can benefit from tax relief in a tax year, is to be reduced from £50k to £40k with effect from 6 April 2014. Furthermore, the lifetime allowance is to be reduced from £1.5m to £1.25m with effect from 6 April 2014, which will bring more people within the reach of the tax charges associated with building a pension fund whose value exceeds the lifetime allowance. However the Government are to consult on the individual protection regime, which may benefit taxpayers whose funds become taxable as a result of the reduction in the lifetime allowance.[/toggle]

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