What the 2014 UK Budget Means for Independent Business

George Osbourne’s latest budget was released today, but what does it means for the business owner?

There are many positive moves for business, and it is set in the context of upgrades in economic outlook; an indication that the economy is on the mend and this is echoed by the experience of our clients in the last 12 months.

New HMRC Powers: We think the biggest and most potentially damaging changes for independent businesses are the increased HMRC powers regarding avoidance and late payment of tax liabilities. HMRC will now be able to collect unpaid tax from a taxpayer’s bank account where payment has not been made. They will also be able to collect tax which has been assessed on a taxpayer even where it is subject to dispute before the dispute has been settled. Although, it is indicated that these powers are designed to tackle large scale tax avoidance by big businesses, we think the implications for smaller companies are alarming. There are some restrictions on the use of these powers; for example the tax due has to be in excess of £1,000 and they cannot reduce a bank balance to be less than £5,000. However, in the case of a small business with a legitimate dispute with HMRC this could in some cases result in the closure of that business.

Some other key impacts for business will be:

Class 2 National Insurance Contributions for the Self-Employed – The collection of these will now be bought within the self-assessment regime hopefully simplifying things for both HMRC and the tax payer.

Annual Investment Allowance (AIA): Increased to £500k from April 2014 to December 2015. This has gone up and down like a yo-yo since it’s introduction 2008 with the intention of encouraging investment. As any tax benefit is a timing one only, caution should be used in factoring this into spending decisions.

Simpler Employee Expenses and Benefits Reporting – a review of the current system and the introduction of a simpler (and it is hoped fairer system) will be made.

Income Tax Band increase for 2015/2016: The personal allowance will be increased to £10,500 and for the first time in recent years there will be an equivalent increase in the basic rate threshold also. This is great news as now most business owners will benefit from the threshold increase.

Fuel Duty Freezes & Energy Initiatives – For businesses with significant transportation costs this will be a relief, as there are no planned increases in fuel duty. Furthermore there are increased initiatives aimed at supporting the energy industry and promoting energy efficiencies to try and keep energy costs affordable for business.

Increases in Company Car Tax – As in previous years the increased taxation of the company car driver continues over the next few years.

National Minimum Wage Increase October 2014: Increase to £6.50 an hour (a 3% rise). 2% on apprentice rates but also the introduction of degree apprenticeships.

Export Initiatives: Funding for export and additional support for exporters will be introduced.

Other Changes: There are increases in ISA limits and rules and significant changes to pension draw down rules.

What action should you take?

As many of the impacts don’t come in until April 2015, there should be minimal requirements to adjust your business budgets for this year; the only potential negative impacts to this year will be the minimum wage increase.

If you have a large manpower budget you should check to see how this impacts you and if your budget contains sufficient allowance for wage inflation to cover this. Where major capital spend was being rushed prior to 31st March due to AIA constraints, this now can be deferred if better for business reasons. You should then start thinking now about the impact on next year’s budget. The continued harmonisation of Corporation Tax rates between small companies and those at the main rate (previously announced) mean that smaller business will have no taxation advantage over larger competitors from next April and you should consider how this might impact on margins.

Also with an election on the horizon just 1 year away there is no certainty about some of the longer term initiatives identified or the economic outlook. Therefore we would encourage businesses to think carefully before taking on extra staff or increasing personal spending commitments on the back of increased demand or lower taxes. We would encourage all businesses to have a stress tested budget of their own, along with a plan going out 3-5 years, to ensure the plan is resilient enough to handle further margin reductions or downturns in demand.

Furthermore, we would advise that you meet with your Independent Financial Advisor to understand the impact of the dramatic changes to ISA and pension rules and how they may impact on you; this is especially important if you are above 55 and have a defined contribution pension fund.

If you would like help in understanding the impact of the above changes to your business then please contact us and we will be pleased to discuss your requirements with you. Then, once your plan is in place, go down the pub for a pint of beer which will be 1p cheaper than yesterday!

Full detail of the budget can be found at: BBC Coverage

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