Round-up of business changes
As with most Budgets, the news for companies is mixed. Although all will welcome the planned reduction in corporation tax rates to 18% by 1 April 2020, the changes to the way in which dividends are taxed from 6 April 2016 will, in many cases, have a significant impact on the net amounts paid to shareholders. A company owner ‘paid’ via dividends at the moment may well see their net amount reduced, as the overall deduction is brought more into line with salaries and bonuses. In the case of someone taking dividends totalling £90,000pa at the moment, the extra tax could be in the region of £3,250.
This may make some business owners question whether a company is the most appropriate vehicle for them and will certainly make the decision on whether shareholders in companies claiming research and development tax credits should be paid dividends or bonuses more difficult.
It also needs to be borne in mind that these changes apply only to companies and their owners – the reduction in the corporation tax rate will not affect businesses run through partnerships, LLPs or as sole traders.
The Chancellor has provided certainty – at least to the extent he is able – of a ‘permanent’ annual investment allowance of £200,000 from 1 January 2016, when the allowance was due to be cut to £25,000. This means that businesses will be able to spend up to £200,000 on items of plant, machinery and other qualifying assets and write the costs off for tax purposes immediately, rather than over a period.
There is also a planned increase in the employment allowance from £2,000, to £3,000, from April 2016, meaning that businesses will - provided they do not employ only the director, as these are to be hit by new anti avoidance rules – be able to reduce their national insurance liabilities by up to a further £1,000.
Planned changes to tax advantaged investment schemes, such as the Enterprise Investment Scheme and Venture Capital Trusts, have been introduced largely as planned at the time of the last Budget in March 2015, which among other things, reduce the 'age' of a company which can issue shares under these tax advantaged schemes.
But there is potentially bad news for companies looking to buy businesses, where they had expected to obtain a tax deduction for goodwill and other intangible assets (essentially the difference between the cost of the business and the value of the business’ assets). This deduction has been removed from purchases made on or after the date of the Budget and may have a significant impact on the way in which deals are structured – and perhaps the prices paid.
Plenty to think about; please get in touch with your normal Mercer & Hole contact if there is anything you would like to discuss.
Date: 8th July, 2015
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