I was in the office this afternoon and Jonathan was busy muttering that he was going to Watch The Fallout in the opinion polls as to whether or not the Conservative party believed in small businesses.
Historically, the Conservative party was seen as pro-business, but following the announcement on the Social Care levy, this is now debatable and may lead to a fallout in their support from the owners of small family businesses, which are an important cornerstone for the UK economy.
During the coronavirus crisis, Government policy was NOT to support through the furlough scheme, the owners of limited companies who extracted profits from their companies via a low salary and dividends.
The latest announcements about tax rises (if it looks like a shih tzu, sounds like a shih tzu and walks like a shih tzu, then calling it a ‘levy’ does not disguise the fact it is a tax increase) will give rise to a further and unwelcome increase in the tax burden for small family businesses.
Now, in addition to the proposed 39.5% increase in the effective Corporation Tax rate to 26.5% on profits between £50,000 and £250,000 (see this Blog from the Dog if you thought the increase was only 6%), there are now further proposed burdens:
- Increasing the rate of Employers National Insurance by 1.25%; and
- Increasing the tax on dividends by 1.25%
So, what might this mean in the real world?
Assuming a pre tax profit of £100,000 with a gross Employer’s National Insurance liability of £16,500, the increased tax burden is:
Extra Employer’s National Insurance - £1,495
Increased Corporation Tax - £3,353
Increased tax on dividends - £952
Now this might make you prick up your ears!
Rental profits will not be subject to the additional tax liabilities being levied to fund social care. So, perhaps the Conservative party is now the natural home for buy to let investors rather than business owners.
As this was clearly making Jonathan hot under the collar, I asked what tax mitigation could be done to minimise this impact on business owners. Jonathan suggested that pension contributions may be a way of minimising these tax rises as pension income also appears to be exempt from the new levy.
Thanks for reading this blog and if you need more advice, please contact the lovely team at Rowdens. Being the cutest labrador ever, I am now off to paws and reflect on which toy demands my closest attention.
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