Member Article

Tax benefits to end for SMEs?

Changes in the recent budget will make it much less attractive for small businesses to convert to becoming limited companies.

With little fanfare, the Chancellor introduced two new measures that significantly decrease the tax benefits many business have been able to enjoy.

The ability to set goodwill against profits – an advantage enjoyed when incoprorating a business – has been abolished with effect from 8 July 2015. Meanwhile, an overhaul of the dividend regime is likely to reduce the post-tax profits of many SMEs.

Darren Rigden, Partner at Crowe Clark Whitehill, the national audit, tax and advisory firm with offices in Maidstone and Tunbridge Wells, said: “Even now, several weeks after the budget, companies are only just realising the implications of the Chancellor’s announcements. Small, owner managed businesses could really suffer.”

Individuals with dividends less than £5,000 will benefit most paying no dividend tax at all; higher rate tax payers are better off until their dividend income exceeds £20,400; and additional rate tax payers will gain until they hit an income level of £25,000.

Darren Rigden continued: “It appears that, purely from a tax perspective, it may not be worth incorporating if anticipated profits are expected to be less than £40,000, especially given the additional administrative and compliance costs involved.

“However there are still other advantages of incorporating including the added protection that a limited company gives to the business owners. The Corporate tax rates will also be reduced to 19% from 2017 and 18% in 2020 which is good news for business in the UK.

“Initial calculations show that the tax savings between incorporating or not are minimal. However, due to abatement of the personal allowance those with incomes around £125,000 gain the most from incorporating.”

The changes to dividend taxation will need to be considered when businesses are considering incorporation and professional advice should be taken. For advice from Crowe Clark Whitehill call 01622 767676.

This was posted in Bdaily's Members' News section by Crowe Clark Whitehill .