Summer Budget: Business taxes
Budget: what it means for business
Smaller businesses will also benefit from a reduction in employer’s national insurance contributions following an increase in the employment allowance next year.
However, these changes must be viewed in light of the increase in the minimum amount businesses will be required to pay their staff, following the announcement of a new national living wage. Large employers will also face an “apprenticeship levy”. This will impact different employers in different ways, with those committed to training expected to be able to get back more than they put in.
Companies with annual taxable profits of £20m or more will face an acceleration in their corporation tax payment dates. For accounting periods commencing on or after 1 April 2017, such companies would be required to pay their quarterly instalments in the 3rd, 6th, 9th and 12th months of their accounting period.
Significant changes have also been announced to the taxation of dividend income. The significant differential between the rates of corporation tax and income tax have provided an incentive for businesses to incorporate and for business owners managing the extraction of profits as dividends.
The current dividend tax credit system will be replaced. Instead, shareholders receiving dividends will be entitled to receive up to £5,000 of dividend income each year tax free. Above this amount, dividend income will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Businesses making capital investments will be reassured that the annual investment allowance will not be falling to £25,000 as it had been scheduled to do. Instead, the allowance will be set at £200,000 and will be held at that level.
There was mixed news for the banking sector. On one hand, it was announced that the bank levy would be significantly reduced over the next six years and that by 2021 it will be based only on UK operations, rather than applying to banks’ worldwide balance sheets.
This will be welcomed by large international banking groups such as HSBC. However, it was also announced that a bank corporation tax surcharge will be introduced next year at a rate of 8% on a bank’s corporation tax profits. Significantly, this surcharge will be calculated on profits without taking account of available carried forward losses.
As is always the case, there were many more specific changes to the taxation of businesses. Some of these will be welcomed, but they will all add to the ever increasing and complex UK tax regime. HMRC will be gearing up their resources with an additional budget of £750m, which is expected to result in an additional £7.2bn in revenue raised from taxpayers.
Businesses will need to ensure they are well armed to navigate the changes and ensure they are compliant, but also that they are making the most of the available incentives and reliefs.
David Ward is a Tax Director at Johnston Carmichael