Tax Tax Advice

Two thirds of self employed say tax changes will negatively impact their business

30 Apr 2019

Nearly 70% of small business owners believe both the recent and upcoming tax changes are going to have a negative impact on how their business performs, according to a new poll.

From considering immediate changes like the cut in dividend allowance, to future plans surrounding Making Tax Digital, there are a number of changes that could affect small businesses in the current tax year, and further down the line.

Further to that, 69% of the 700 small business owners surveyed think these changes are going to be for the worse.

As a small business accountant, we know that tax can be a tricky game and an expensive one, too, if you’re caught on the wrong side of the law. Our team of tax accountants have worked with hundreds of clients in advising them on tax planning and ultimately saving them money where possible.

Here is our breakdown of the changes that are being implemented and how they could potentially impact your business.

Drop in dividend allowance

One of the biggest changes introduced this year was the cut to dividend allowance.

Up to the start of the 2018-2019 tax year, you could claim £5000 tax free if you paid yourself a dividend through your company. Now, the maximum is £2000.

In practice, this means you’ll be paying tax on £3000 more than you were last year, which could take a sizable bite out of your profits, depending on which tax bracket you fall into.

Making Tax Digital

While Making Tax Digital (MTD) hasn’t been fully introduced yet, it has been looming over small business owners for years.

This year, you’re able to sign up to the government’s pilot of the scheme ahead of its introduction in 2020 - something which we highly recommend.

Further to that, MTD for VAT is due to be introduced in April 2019 which will see the filing of VAT returns done solely online from there on.

While it may feel like an extra burden to get used to the new system, it will be worth familiarising yourself with it before its use becomes compulsory.

Our team of accountants are fully prepared for HMRC’s digital changes and are ready to help your business fulfil its digital obligations and avoid any consequential penalties.

Small businesses with employees will be paying more

If your business has a team of staff, the new tax year holds some changes which will eat into your profits.

For one, the National Living Wage rose to £7.83 from £7.50 at the start of this tax year.

With the introduction of the National Living Wage the penalty for non-payment will be 200% of the amount owed, unless the arrears are paid within 14 days.

The maximum fine for non-payment will be £20,000 per worker. However, employers who fail to pay will be banned from being a company director for up to 15 years.

For example, high-street fashion chain, Debenhams, had to re-pay £134,000 to more than 11,000 staff - more than half of its shop workers - after an accounting error left each of them around £11 short in wages.

The company was fined £63,000.

The second thing to be aware of is pensions.

Again, this change came in in April, and as an employer you’re now obliged to pay a 2% contribution to your employees’ pensions. This is up from 1% last year, and will rise again to 3% in 2019.

IR35 looms large

IR35 remains a cause for concern for many small businesses.

There are concerns about perceived flaws in how IR35 reform will work for the private sector, which may or may not be addressed before it’s written into law.

The controversial reform will potentially shift the burden of determining employment status from the worker to the client or hirer.

If you have concerns about particular tax changes, get in touch with our team today and we can give you piece of mind with our advice and services.