Tax guidelines change this week

Tuesday 5 April 2016

Being a small business means you have to keep on the ball about a number of different things. From deciding when to grow and expand your brand to taking on and managing new staff, it can seem like a constant juggling act keeping a company going.

The tax system and finances in general are a common headache for businesses of all sizes, but especially for smaller ones as it can be difficult to know which rules apply to you and which don't.

Later this week (April 6th), the tax rules surrounding dividends will change. Announced in the July Budget last year, it will mean that the first £5,000 of dividend income earned by shareholders will be completely free of tax.

Amounts over this initial sum will be taxed at 7.5 per cent for any income falling within the basic rate band. Higher-rate and additional-rate earnings will be subject to higher tax levels of 32.5 per cent and 38.1 per cent, respectively.

The Federation of Small Business (FSB) has said that further simplification of the tax system is needed for companies of this size.

Martin McTague, policy chairman at the FSB, commented: “While we understand the rationale for addressing the long recognised imbalance in the tax system due to the tax treatment of dividends, it comes at a challenging time for our members."

He cited recent changes to the pension scheme and tax returns, as well as the introduction of the National Living Wage, which came into effect on April 1st, across the UK. The recent change to minimum wage means that some small businesses will be obliged to pay any employees over the age of 25 at least £7.20 per hour.

"FSB has consistently pushed for simplification of the tax system for small businesses. To

support this work, we commissioned EY in 2015 to deliver a series of ambitious options for policymakers," Mr McTague explained.

He said that members often see tax administration as a major burden on their businesses, and called the recent changes "concerning" as they have not been made in a "holistic" way.

Seeking professional advice about finances can help ensure your small business keeps up-to-date on all the upcoming tax changes, and can even bolster your earnings.

By Victoria McDonnell

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