Stop the Chancellor’s budget attack on small business and entrepreneurship

SUMMER BUDGET - the Chancellors proposals and how they'll devastate your wealth

Last week’s Budget was, in my view, deeply unhelpful to small business owners and contractor businesses in particular. For a Government that purports to be pro business and pro entrepreneurship the Chancellor has produced more disincentives to branching out on your own than any Government in the last 10 years!

This Budget dealt not one, not two, not three, not four but FIVE blows to the UK's smallest businesses.

First, IR35 is ominously to be made 'more effective'
These rules try and almost always fail to separate disguised employees from genuine businesses but in the meantime cause significant angst and disruption to people’s lives.
The galling aspect of this announcement is the Government's wilful misinterpretation of the findings of two previous reviews by a House of Lords Select Committee and the Office of Tax Simplification. In both cases it was found that IR35 was unclear, ineffective and should be removed or replaced. The Government appears to have latched on to just the 'ineffective' bit and now wants to reinforce an outdated, outmoded and widely criticised system.

Second, new restrictions on travel and subsistence expenses are to be imposed on one-person limited companies
Independent Professionals travel the length and breadth of the country and abroad, visiting their clients' sites and providing much needed expertise. It's an expensive business and if those expenses aren't tax deductible, they won't be able to do it. It's as simple as that.

This restriction could end up cutting off business opportunities for independent professionals and crucially it could cut off a vital resource supply for the clients. It's short-sighted, it's bad for businesses and it will put the UK's smallest businesses at a huge competitive disadvantage to large businesses. A consultant working on his own will no longer be able to take a contract with a client at the other end of the country, but PWC will. I believe that unless these rules are implemented very carefully they will have detrimental impact on the whole UK economy.
Third, there is a significant tax rise on dividends
This change will affect all company directors, not just independent professionals. The Government’s proposal is that the first £5,000 of dividends will be tax free but thereafter will be taxed at 7.5% within the basic rate tax band (0% now), 32.5% in the higher rate tax band (25% now) and 38.1% (30.56% now) in the highest rate band. Don’t forget dividends are paid out of taxed profits so have already suffered tax at the prevailing rate of Corporation Tax.

Fourth, the Chancellor announced a rise in the level of Employment Allowance (i.e. the allowance against payment of Employers NI) from £2,000 to £3,000
Good news you’d think BUT, the allowance will no longer be available to employers where the director is the sole employee - i.e. Personal Service Companies

Fifth, the chancellor has commissioned a Green Paper to remove tax relief on pension contributions
Only a Green Paper so not to be legislated this year but potentially attacking the ability to make tax efficient company pension contributions.

ACT NOW - Join The Campaign!

It’s very easy just to shrug our shoulders and accept that these proposals are a fait accompli. The Budget proposals won’t become law until they receive Royal Assent probably in September/October 2015. We have an opportunity to make our voice heard and influence Parliament before the legislation is passed.

Nigel Simmons FCCA
IR35Accountant.com