Six tax changes that every small business should be aware of

Six tax changes that every small business should be aware of. With the new tax year now underway, there are several changes that could affect the way you operate and the amount of tax you pay as a small business. To help you plan for the year ahead, here are six changes that every small business owner should be aware of:

1. Personal allowance has increased to £11,500

The amount of income you can receive as an individual before incurring Income Tax has risen to £11,500. A £500 increase from 2016/17, this applies to anyone who has taxable income less than £100,000 – the allowance reduces by £1 for every £2 of income you receive above £100,000.

For income above £11,500, the following tax band rates apply:

Basic – 20% for income between £0 and £33,500 (£31,500 for Scotland)

Higher – 40% for income between £33,501 and £150,000 (£31,500 – £150,000 for Scotland)

Additional – 45% for income over £150,000

Other income is taxed first, followed by savings income and then dividends.

Within this, tax free allowances are applied to:

The first £5,000 of dividends.

The first £1,000 of savings income for basic rate payers.

The first £500 of savings income for higher rate payers. 

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2. National Living Wage has increased to £7.50 per hour

The UK’s National Living Wage has increased by 30p per hour (up from £7.20 in 2016/17). This applies to all employees aged 25 years or over.

As a small business, it is important that your employees receive this increased hourly wage from 6 April 2017 onwards.

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3. Corporation tax has been reduced to 19%

The rate of corporation tax has been reduced from 20% to 19% from 1 April 2017.

As a small business owner, this means that you will pay less corporation tax than in the previous tax year. Looking ahead, the Government plans to introduce further annual falls, with the aim of a 17% rate by April 2020.

4. The Primary Threshold for NICs has increased to £157 per week

The UK’s weekly Primary Threshold for National Insurance has increased to £157.

This means that if you own a limited company and pay yourself a small salary plus dividends, you could increase your 2017/18 salary to £8,164. At this amount, there are no deductions for PAYE or National Insurance, and you will still receive your annual credit towards your National Insurance record for state pension purposes.

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5. Salary Sacrifice has been curbed

Certain perks, such as computers, mobile telephones and gym memberships, are no longer allowed as tax free benefits under the Salary Sacrifice scheme.

Swapping your salary for non-cash benefits is a handy way to lower your salary and therefore reduce your tax and National Insurance liabilities. In the new tax year, this is still possible for pensions, childcare vouchers and bicycles (in the Cycle to Work scheme).

Removed perks include: Computers, mobile phones, gym memberships, health screening checks, school fees, company cars (unless ultra-low emission cars)

The scheme still includes: Pension contributions, childcare voucher, bikes on the Cycle to Work scheme, ultra-low emission cars

6. VAT Flat Rate Scheme – 16.5% rate introduced

HMRC have introduced a Flat Rate of 16.5% (previously set at rates from 4% to 14.5% subject to business sector) for ‘limited cost traders’.

The Flat Rate VAT scheme aims to make it easier for small businesses to calculate VAT by paying a fixed rate to HMRC. Previously, qualifying businesses only had to account for between 4% and 14.5% of gross sales. This meant significant savings for businesses that charged customer VAT at a rate of 20%. The new flat rate cracks down on this.

Limited cost traders are businesses that do not buy many goods – total sales on goods in a prescribed accounting period is either:

less than 2% of VAT inclusive turnover; or

greater than 2%, but less than £1,000 pro rata per year.

It is likely that businesses such as IT contractors and those that mainly provide labour with limited expenses will be disadvantaged by either the new flat rate percentage or by withdrawing from the Flat rate Scheme entirely.

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Next steps for your business

Every business is different, so we always recommend seeking professional advice before making any changes. In addition, online Cloud Accounting platforms are an excellent way to keep track of current changes and tax liabilities, and will give you more control over your accounts.

For more advice, contact our expert team here at Maitland Accountants on 01825 748308.