Budget 2014 – Corporate and Business Tax

Corporation tax rates

As announced previously, the main rate of corporation tax, which generally applies to companies  with profits of more than £1.5 million, will to fall to 21% from 1 April 2014 and 20% from 1 April 2015.

From April 2015, the main rate and small companies rates will be the same and will merge. Until the rates are merged, companies with profits between £300,000 and £1.5 million pay a marginal rate of tax.

Capital allowances

In the Autumn Statement in December 2012, the Annual Investment Allowance (AIA) (the amount that companies can spend on capital equipment and claim a full deduction in that year) was increased to £250,000 (from £25,000) from 1 January 2013 to 31 December 2014.

The Chancellor announced today that the AIA will increase to £500,000 from 1 April (for corporation tax) or 6 April (for income tax) to 31 December 2015, after which it will return to £25,000.

Tax for small unincorporated businesses

As announced in Budget 2012, small unincorporated businesses will be able to use a cash basis for working out their taxable profits for the 2013-14 tax year, so we will now start to see the first accounts being produced on this basis.

Businesses with receipts of less than the VAT registration threshold (which is £79,000 for the 2013-14 tax year and will be £81,000 from 1 April 2014), or twice that if they receive the Universal Credit, will be allowed to join the scheme.  They have to leave the scheme when receipts are more than twice the VAT registration threshold.

Comment: Eligible businesses may benefit from using the cash basis if the amount they are owed by their customers (debtors) plus their stock is generally more than they owe to their suppliers.

This is a timing benefit – there will usually be a one off reduction in profit since they will already have paid tax on the debtors and stock brought forward, but will not have to pay on the debtors and stock carried forward until the next tax year.  Take care though, because the tax will be due at some point – when the business ceases, or receipts go over twice the VAT threshold.

Class 2 National Insurance (NI)

Class 2 National Insurance (paid at a weekly flat rate by the self employed) is currently paid via direct debit or bi-annual bills.

The government is planning to simplify the administrative process of Class 2 NI so that it is collected via the self assessment tax return system, alongside tax and Class 4 NI, with effect from April 2016.

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