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Two steps forward for business – and one step back

Two steps forward for business – and one step back

The Chancellor insists that “Britain is open for business,” and his March 2013 Budget contained two measures that will be of interest to businesses large and small – even though you will have to wait for them to take effect. But now a measure in last year’s Budget has just started to bite.

One of the items of good news is the introduction of a unified rate of corporation tax. For the current financial year, the small profits rate is 20% and the main rate is 23%, while profits between £300,000 and £1.5 million suffer an effective marginal rate of 23.75%. Next year, the main rate will come down to 21% and the marginal rate will be 21.25%, before the single unified 20% rate applies from 1 April 2015. This is quite a drop from the top marginal rate of 32.75% that was charged just a few years ago.

The second bit of good news will particularly benefit smaller businesses. This is the new annual £2,000 employment allowance which, from April 2014, all businesses will be able to set off against their national insurance contributions (NICs) bill. At current rates, a business will be able to employ four workers on the minimum wage without any NICs cost.

The employment allowance could change the ‘salary versus dividend’ decision for ownermanaged companies, which currently is heavily skewed in favour of dividends. It narrows the difference, but dividends still win out. Assuming an initial salary near the NICs threshold, in the region of £16,500 of additional profits could be withdrawn as salary, with employer NICs covered by the employment allowance.


This article originally appeared in the Summer edition of Tayler Bradshaw's accountancy newsletter Money Matters. The information represents Tayler Bradshaw's understanding of law and HM Revenue & Customs practice as at May 2013.

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