Chancellor of the Exchequer, George Osborne gave small business owners a tax boost in the March budget by removing the requirement for them to pay National Insurance Contributions for employees. The decision to remove “tax of jobs” is to help cash strapped small businesses – but a rise in business tax could put you out of business.
The allowance for self-employed individuals is the largest tax cut in the budget, but has received criticism in some quarters as it relieves a third of employers in the country of paying tax duties which will ultimately cost the country £6bn over years. On the other hand it gives job seekers who were made redundant an incentive to start-up their own business and relief the stress on unemployment benefits hand-outs.
The tax cuts, which are expected to be introduced in the 2014/15 tax year will allow small businesses to take on an employee and pay them £22,400 without having to also pay National Insurance contributions. Alternatively small business owners can employ four people on the minimum wage. The tax break will remove a huge barrier for around 450,000 small businesses.
Business tax hits small businesses
However, as is always the case with government budgets, what they give with one hand they take away with the other. Although the Chancellor was keen to announce he was slashing Corporation tax to 20 per cent, meaning that large companies will now pay the same rates as small businesses, what he failed to mention was that business tax is on the rise.
Business tax is the corporate equivalent of council tax and is the biggest tax hurdle that small businesses have to face. Even if the business is not profitable, they are still liable to pay business tax. The consequences of the budget breaks that come into force next year is likely to put numerous small shops out of business whilst large corporations are given tax breaks.
The concern for small businesses is that they could fall into a tax trap. On the one hand they are given the incentive to expand their business and take on more staff, but in doing so may overstretch their budget when they get hit with business tax at the end of the year. The job tax scheme was originally trialled in 2012 in the East and South England outside London and the results only had limited success.
The Treasury also appear to being trying to catch small businesses out with a change to inheritance tax. Up until now, it used to be the case that small businesses that used the family home as security for a business loan would not have to pay inheritance tax. Now that Osborne has changed the rules family´s are faced with the horrible choice to either sell the family home at the expense of the heirs or pay inheritance tax each year through the business.
Tax implications for small business are becoming more complicated and restrictive and given the UK economy is still unstable it is recommended you seek professional tax advice from Taxaccolega, a low fixed fee accountant, and learn how you can actually save money on tax liabilities rather than putting a strain on your business finances by overpaying tax.