Budget implications for small limited companies

In spite of measures to help small business, the Chancellor left contractors frustrated by the lack of any Budget day clarification on IR35 “office holders”. Nick Huber sifts the Budget paperwork and online discussions to assess the overall pros and cons for small limited companies.

Small businesses were among the most obvious winners from Wednesday’s Budget, which included a reduction in employer’s national insurance bills and a scrapping of stamp duty on shares trades on the Alternative Investment Market.

There were also measures to improve the supply of funding to SMEs – such as extending the capital gains tax exemption under the Seed Enterprise Investment Scheme (SEIS).

The Treasury document setting out the £2,000 Employer’s allowance explained that every business will be able to employ one worker on a salary of £22,400, or four employees working full time on the adult National Minimum Wage, without paying any employer NICs at all.

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Comments

Adopt the Irish model    1 thanks

Ian McTernan CTA | | Permalink

From my understanding there is no employers NIC type liability on payments made to directors and controlling shareholders In Ireland and hence no tax saving between paying out salary or dividends from an Irish company.  It's kind of like a reward for running your own company, as the money is yours.

Hence they don't have this crazy system with upteem layers of complexity.

Maybe the 'tax simplification' people could knock some sense into HMRC and seriously look at changing the whole tax system so it rewards people who genuinely run their own company.

IR35 was such a bad idea and rather than abandon it and introduce a simple 'employment' test along with using the GAAR they keep wanting to throw more legislation at it.

Knocking sense into the right party

dwgw | | Permalink

Interesting idea Ian, but the government of the day is the only one that can change the tax system.  HMRC simply does as successive governments bid.

We seem to have a "grass is always greener" view of the Irish tax system.  Perhaps that's justified although my only recent experience of it involved family members paying capital acquisitions tax of nearly €26k on inheriting an estate worth about €185k.  Be careful what you wish for!      

Tom 7000's picture

employees Nic

Tom 7000 | | Permalink

dont foirget that.....

 

All it means is Directors salaries go up to the tax free band as ees ni is less than CT

 

come guys keep up

hear hear!

pgm2tsc | | Permalink

hear hear Ian McTernan!

kevinringer's picture

Ian's suggestion is interesting ...    1 thanks

kevinringer | | Permalink

... but if I was in Government I would chose to level the playing field the other way by introducing NICs on small/close company dividends!

@kevinringer    1 thanks

pauljohnston | | Permalink

But why

Small companies are the life blood of this country.  If you tax dividends as employment income you remove any incentive to take risk.

Tom 7000's picture

what paul johnston said    2 thanks

Tom 7000 | | Permalink

If I thought I had to pay 45.8% tax ie it +ers nic +ees nic at the low rate and then 55.8% at a higher rate rather than the 20% that I pay now, I wouldn't bother

 

a) Working past 4.30

b) Acquiring other firms of CAs

c) Employing staff

 

Indeed, All I would do is build up tiny firms of CAs over a 1 year period and sell them to you boys and pay 10% CGT until I had used up my £10 m ER allowance, well either that or retire

irish model-nhs and employers' NIC

david5541 | | Permalink

The irish dont have the NHS so where-ever possible flock to the north to claim some connection with the uk along with so many other "health tourists" who come here and receive the luxury of our NHS...

(never mind all the young girls who have to come here to get a termination) 

This is paid for by NIC but to make NIC costs for small employers LESS is a 1/2 way house measure- we should be removing the cap on NIC after all there is no cap on income tax. is there?

tinkering thats all the budget did....

Ian McTernan CTA wrote:

"From my understanding there is no employers NIC type liability on payments made to directors and controlling shareholders In Ireland and hence no tax saving between paying out salary or dividends from an Irish company.  It's kind of like a reward for running your own company, as the money is yours.

Hence they don't have this crazy system with upteem layers of complexity.

Maybe the 'tax simplification' people could knock some sense into HMRC and seriously look at changing the whole tax system so it rewards people who genuinely run their own company.

IR35 was such a bad idea and rather than abandon it and introduce a simple 'employment' test along with using the GAAR they keep wanting to throw more legislation at it".

 

 

The incentive to take risk is

NeilW | | Permalink

The incentive to take risk is embedded in the large fees charged by the business for the service.

If you can't get those larger fees, then you need to get a proper job.