According to ICAEW, small businesses face a heavier administrative burden even though some of the nine changes it has highlighted will not come into immediate effect. Most of them, however, will ultimately benefit the SMEs by reducing the amount of tax they pay.
“It’s important that small businesses are aware of the changes this coming tax year and beyond,” said ICAEW head of enterprise Clive Lewis.
“A number of changes have contributed to an added burden for SMEs, including pensions auto enrolment and tax dividend changes, so it’s encouraging to see that George Osborne’s Budget provides some much-needed relief for small businesses.”
Perhaps the most difficult change is auto-enrolment which requires all businesses to provide a workplace pensions scheme for employees or face a penalty notice ranging from £400 to £50,000, depending on the issue involved and the size of the company.
All businesses have been given a “staging date” which for larger companies, has already taken place. The scheme is now being rolled out to smaller businesses, many of whom will have staging dates throughout 2016-2017.
The other change that may cause implementation problems relates to the way dividend income is taxed.
From April 2016, each taxpayer will receive an annual £5,000 tax-free limit for dividend income. Dividend income of over £5,000 (and after using up any remaining personal allowance) will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for those on the highest incomes who pay additional rate income tax.
ICAEW warns that the change will result in many small companies and their owners paying more tax and national insurance contributions. Existing limited companies have until midnight on 5 April to pay a dividend which will be “free of tax”.
ICAEW also highlights the changes to small business rates relief and the new tax allowances for shared economy earnings for which, although they don’t some into operation until April 2017, SMEs should be “keeping on their radar”.