We’ve heard what the Chancellor said in the Autumn Statement about revising growth forecasts and changes to the pension allowances. But what about the things that he didn’t choose to mention in the House of Commons – and what do these mean for small businesses?
Emily Coltman ACA, Chief Accountant to FreeAgent – who provides an online accounting system for small businesses and freelancers – gives us her insight.
Sole traders and non-LLP partnerships with annual sales of under £77,000 will, as the Government suggested in the Budget earlier this year, be able to choose to prepare their accounts on a cash basis from April 2013.
That means that instead of adding up income and costs whether or not you’ve been paid for them, and then paying tax on the resulting profit, you would be able to choose instead to add up what your customers have paid you, and take off what you’ve spent in cash.
There will be no need to worry about adjusting your figures for closing stock, customers who haven’t paid you, bills you haven’t paid, etc. I think this could make small business accounts much easier to understand and to manage.
The Budget also mentioned the option for these small unincorporated businesses to take flat rate allowances for certain expenses, such as subsistence, postage and stationery, and telephone bills, rather than having to spend time calculating the real amounts spent on these costs to go into their accounts.
The Autumn Statement confirmed that this option will be available from April 2013.
The Office for Tax Simplification will carry out a review of the taxation of employee benefits and expenses, with a view to making recommendations for how this could be made easier. I welcome this wholeheartedly as the current P11D reporting and tax system is vastly over-complicated. Why, for example, is private travel paid for by the employer treated differently for NIC if the employer pays for it directly, than if the employee pays and is reimbursed?!
The Government says that it’s currently waiting on progress of other changes and will then look to consult formally on integrating income tax and National Insurance.
I would like to see these integrated as their separation causes a great deal of complication, for example, certain income, such as dividends and bank interest, is subject to income tax but not to National Insurance.
The Chancellor mentioned a temporary increase in the current Annual Investment Allowance level, from £25,000 to £250,000, for 2 years starting on 1st January 2013.
But in the full Treasury report, this is mentioned under “Allowances from corporation tax”. So will this increase only be available to businesses that pay corporation tax – in other words, limited companies, and certain clubs and societies only – and not to sole traders, partnerships or LLPs?
In the Budget the Government announced that it would look to tax as employees anyone who provided their services through an intermediary such as a limited company, and acted as a “controlling person” in the client’s business.
The Autumn Statement has said that this will not go ahead, which will be welcome news for many contractors. However there is also a promise of IR35 being “strengthened”, “to put beyond doubt that it applies to office holders for tax purposes”. This area remains under review so it’s a case of “watch this space”.
A further £72m of follow-on funding has been earmarked for HYPERLINK “http://www.startupbritain.co/loans/” o “http://www.startupbritain.co/loans/” start-up loans. This is a step in the right direction but I would hope to see this being used to expand the start-up loan scheme to open it to those of any age, or perhaps those aged 18 and over. At the moment eligibility stops at the age of 24 which I think is too young a threshold.
There are certainly some key points of interest in the Autumn Statement and some in particular that could make small business owners’ lives much simpler when it comes to finance and tax.
*Emily Coltman ACA is Chief Accountant to FreeAgent, who provides an online accounting system designed to meet the needs of small businesses and freelancers. Try it for free at www.freeagent.com.