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Tag Archives: EMI

Posted on in Business Tax
Growing SMEs - The Best Tax Incentive Ever?

As accountants looking after owner-managed SMEs needing to make a step change in their growth, we are often asked how they should do this. A common solution is to recruit a good senior person to help the owner grow the business further.

However, it's difficult to attract the right calibre person with the budget you have available, so let the tax system help you.....

Here are the main questions we ask our clients before making a recommendation:

1. ARE YOU MAKING TAX LOSSES?

Yes - If you are a Sole Trader in your first 4 tax years of trading you can offset these losses against other taxable income from the previous 3 tax years.

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Today's Budget certainly had a strong business emphasis to encourage and incentivise business growth. On the other hand, artificial transactions set up simply to avoid tax would not be tolerated.

Administrative Simplifications For Business

A very important message for business is the introduction of more simplification. HMRC are merging parts of their online screens so it's easier to check your tax due and paid. PAYE and NIC administration is being merged possibly followed by a merger of the rates. If your turnover is less than £77,000 you can opt to prepare your accounts on a cash basis. Helpfully, this is the same as the VAT threshold so you needn't worry about VAT either.
Therefore you may find the navigation of the tax system that bit easier. I also suspect this means small businesses won't be subject to the new business records checks so often as the risk of an error must be much lower and it can't be worth an Inspector's time.
Any of your staff earning less than £8,105 this tax year and £9,205 next tax year, often part time employees, will pay no income tax and little national insurance. However, this seems to mean the PAYE system must still be operated and this will allow your staff to achieve their state pension credits. Importantly, it may help in the recruitment and retention of part time staff, as they will have a higher take home pay. Always something useful to know when hiring staff.

Corporation Tax Rate Simplification

Profits up to £300,000 are taxed at 20% and profits over £1.5m are taxed at 24% from April 2012. Profits in between £300,000 to £1,500,000 suffer a higher marginal rate than the 24%. With the continual reductions to the main corporation tax rate, it looks as though the Chancellor wants all companies to eventually pay the lowest 20%. This is very welcome as it means companies don’t have to worry about crossing the £300,000 threshold which does cause successful companies some issues.

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