[12.03.2016]

SMALL BUSINESS TAX ATTACK #5

 

 

Small Business Tax Attack Blogs 2016 #5

 

PAYROLL ISSUES

 

 

EMPLOYMENT ALLOWANCE

The GOOD NEWS is that the Employment Allowance is increasing from £2,000 to £3,000 per year. This is a government subsidy of Employer’s National Insurance Contributions that is available to almost all employers (exceptions are mainly those who supply the public sector) and means that many smaller employers do not have to pay Employer’s NI at all.

 

The BAD NEWS is that from the start of the new tax year in April 2016, single director companies with no other employees will no longer be able to claim the allowance, which is a kick in the teeth for many contractors. However, it is not as bad as it sounds. Employer’s NI on the optimal salary for the director of a small company (£11,000 in 2016/17) is £405 for the year.

 

With the interplay of the different taxes, single directors will be lose £300 from the loss of the Employment Allowance.

 

WHAT CAN YOU DO ABOUT IT?

So there could be a SILVER LINING.  Perhaps.  It may encourage single-director companies to pay a salary to a family member, for example. This would preserve the Employment Allowance and also result in a reduction in Corporation Tax, and possibly personal tax also (see also SBTA#1).

 

But you also need to consider the impact on  pensions – see below.

 

PENSIONS

The government is sending out very mixed messages about pensions.

 

On one hand, the amount you can contribute to a pension (and get tax relief on it) has been reduced sharply in recent years, which discourages people from investing in them.

 

On the other hand, the roll out of workplace pensions is now in full swing and large numbers of small companies are reaching their staging dates.

 

While it is generally a good idea to encourage/force people to save for a pension, as the state retreats from its own commitments in this regard, for small companies with one or two employees, it is a lot of red tape, with the cost of compliance almost certainly exceeding the amount of the pension contributions.

 

WHAT CAN YOU DO ABOUT IT?

It’s worth getting ahead of the game for workplace pensions. You can’t avoid it so prepare in good time (you need to know your staging date) and make sure you set up a pension scheme that suits you and your workforce.

 

If all employees are ‘in the family’ (husband and wife companies, for example), all of them could be appointed as directors. But be wary of making directors of other employees – it should not just be about saving a few pounds in pension contributions. Directors have additional rights and responsibilities that could be much more significant.

 

LIVING WAGE

Like pensions but even more so, it’s hard to find fault with the National Living Wage of £7.20 per hour being introduced in April 2016, although it only applies to over-25s.

 

But small businesses will have to foot the bill and deal with the additional red tape that will inevitably follow.

 

WHAT CAN YOU DO ABOUT IT?

Why not take this as the incentive you need to boost productivity by systemising your business?  Think of your employees as driving the growth of your business and not just as costs to be kept down.  You never know, it might be the start of something special…

 

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