Taxation SME changes from the 2015 budget
Some of the key changes that will impact small businesses in particular are set out below:
Taxation of dividend income from April 2016. The present 10% dividend tax credit is being abolished from April 2016. In its place an annual dividend tax allowance of £5,000 is being introduced. Dividends received will be free of further charge to Income Tax up to this limit. Above the £5,000 limit dividend income will be taxed as follows:
- Basic rate tax payers at 7.5%
- Higher rate (40%) tax payers at 32.5%, and
- Additional rate (45%) tax payers at 38.1%
Shareholder directors of small companies that pay limited salaries and high dividends may be affected by this change and should review their dividend strategy.
National Insurance Employment Allowance. From April 2016 the present £2,000 allowance is being increased by 50% to £3,000. The Chancellor has also announced that the allowance will be withdrawn for one person shareholder/employee companies.
Annual Investment Allowance (AIA). The annual limit for this generous tax allowance, presently up to £500,000 of qualifying expenditure can be written off against taxable profits, was due to revert to £25,000 from 1 January 2016. It has been confirmed that the £25,000 limit will instead increase to £200,000 with no further changes currently tabled.
Corporation Tax rates are due to fall to 19% in 2017 and 18% in 2020.