Tax Raids on Small Businesses

4th September 2015

A dying businessman called his friend and said, ‘Bill, promise me that when I die you’ll see that I’m cremated.’

‘OK,’ said his friend.  ‘And what do you want done with the ashes?’

‘Oh, just put them in an envelope and send them to the Revenue. Write on the envelope “now you have everything.”‘

A bit extreme, but sometimes tax can really feel like that. Recently, decisions by the treasury really have seemed like a tax raid on small businesses.  These actions weren’t glaringly obvious in the budget, but their implications are now becoming very clear:

(1) Dividends are now going to be taxed in a new way. Business owners who normally take a low salary and the balance of their drawings as dividends will now face an extra tax bill of around £1800 (for the average person – obviously the bigger your dividends, the larger the tax bill.)

(2) Over the past couple of years there’s been a useful tax allowance for small businesses where there was a discount on Employers’ National Insurance on salaries.  This is now to be removed if the only employees are the directors (typical very small family business, then.)

(3) Entrepreneurs Relief has been removed on goodwill.  Basically, this was a nice tax break when an existing sole trader or partnership business was rolled into a limited company.

There are still very, very good reasons for using a limited company as a vehicle to run your business, but these tax raids have made it even more important that you understand what’s going on, and have the right plan in place to minimise you tax.

We’re firmly of the belief that small businesses are great, and are the engine room of our economy and country.  These moves make it look like, instead of valuing and encouraging small businesses, the government just see them as a cash cow to be milked.

A shame, but the battle goes on.

If you have any questions get in touch with AK Tax & Accountancy in Kent.