A budget for small businesses?

The recent budget was noteworthy for being light on content.  Small businesses however will probably feel as though someone stole their sweeties after being hit by a triple whammy of costs and charges

Firstly of course, there was the now notorious increase in Class 4 National Insurance.  Many small businesses had been looking forward to the £200 or so saving that the abolition of class 2 would bring, but Mr Hammond took that away with an increase of roughly £400 in each of the next two tax years for small businesses paying the top end of self employed National Insurance, so by 2019-20 they will be paying £50 a month more

Secondly, there was the confirmation that quarterly tax reporting will come in next April for private landlords and unincorporated businesses.  HMRC’s response to the sensible and measured proposals sent to them in response to their plans has basically been to ignore them.  The smallest businesses get a one year deferral, but for most the system comes in next April. Given that one of the larger software suppliers has said the first versions of their Making Tax Digital (MTD) software will be available later in the year, that is a very tight timetable, and to make matters worse, it seems there will after all be a cost for the software.  No doubt the “savings” HMRC promised will turn up eventually

If all that was enough to make small businesses think of incorporating (which would at least defer the start of MTD), the final whammy coming in next year is the reduction to £2,000 of the dividend allowance – effectively clawing more tax off hard pressed small businesses whose right to extract profits by dividend had already been attacked in last year’s budget by the surprise withdrawal of the dividend tax credit

All in all, not really a very friendly budget for small businesses

Changes to the VAT Flat Rate Scheme

HMRC has announced that it will be making changes to the VAT Flat Rate Scheme from 1 April 2017.

The main change is the introduction of an additional flat rate of 16.5%. This rate will apply to businesses in any sector but only if they have limited costs. All businesses using the flat rate scheme should check whether they will fall to be limited cost businesses.

Limited costs refers to costs of goods being below 2% of turnover or below £1000 per annum. Further details may be found in VAT Notice 733.

There will not be changes to existing flat rates for businesses that are not limited costs businesses.

HMRC has made available a calculator online to help businesses work out of they are a limited cost businesses – please go to www.gov.uk and search for “Check your VAT flat rate”

Any business who is not a limited cost business should continue to use the relevant VAT flat rate but monitor business costs. Any business who is a limited cost business must decide whether it is beneficial to continue to use the flat rate and if it is to use the new rate of 16.5% from 1 April 2017. The new rate may result in having to pay more VAT.

If you have any queries re the changes, please contact Nina Basra on 0845 643 055 or Nina.Basra@covertax.co.uk.