Pre-budget report may encourage more limited companies in Somerset, says Old Mill
The next tax year may encourage small and self employed businesses in Shepton Mallet and Yeovil to consider incorporation, claims accountants and financial advisors Old Mill.
“Through his pre-budget report, the chancellor may well have inadvertently encouraged many small businesses and self employed people to consider becoming limited companies in order to enjoy the ‘tax breaks’ such a change would offer,” explains Old Mill’s tax planning specialist Catherine Vickery.
The two announcements within the pre-budget that may encourage further incorporation among small business, says Old Mill, are the Chancellor’s decision to delay the 1% rise in Corporation Tax – the tax paid by companies – for another year and his decision to increase the rate of National Insurance by 1% from April 2011.
Currently, companies making profits of less than £300,000 pay corporation tax at 21% while a self employed individual making profits more than around £44,000 has to pay 40% tax whilst if profit is in excess of £150,000 from 6 April 2010 they will have to pay the new higher rate tax of 50%.
“If an individual earning £150,000 or more from a self-employed business decided instead to become a limited company, they could pay themselves a salary and ensure they stay within the basic rate of tax and if they need more income, they can pay themselves in dividends, saving themselves a considerable amount of tax,” explains Catherine.
“And, the 1% rise in the rate of National Insurance from April 2011 also makes incorporation a more attractive proposition, because National Insurance is only payable on salary and not total income,” continues Catherine.
“Therefore, if a small business or self employed business was to become a limited company, they would only have to pay national insurance on the salary they paid to themselves and not the total profit earned,” she said.
If you run a small business or are self employed and are considering incorporation, contact Catherine.Vickery@oldmillgroup.co.uk or call 01749 343366.