If you own a business, there’s some important legislation on the horizon that will have a major effect on you!
Two of the changes in question were announced by the chancellor in last year’s budget and will come into effect from 6th April 2016, which doesn’t give a lot of time to make sure you’re ready.
Firstly, a new minimum wage for employees aged 25 and over will come into force called the National Living Wage. This will start off at £7.20 per hour, eventually rising to £9 by 2020 and will mean a large hike in wage costs for a lot of employers.
Next, from April any dividends drawn from your limited company above £5,000 will be subject to a tax charge of 7.5%, 32.5% and 38.1% depending upon the level of your income. This means anyone at the moment taking a salary of around £10,000 and dividends of say £30,000, will have a personal tax bill of about £2,000 from 16/17, where it was nil beforehand. For some examples, and to find out more, see our post about changes to dividend tax.
Finally, Auto Enrolment! Over the next 12-18 months, if you employ anyone who earns more that £10,000, by law they have to be enrolled in to a work placed pension scheme. Employee contributions will start at 1% rising to 4% by 2018 and you will also have to make a contribution towards their pension pot, starting at 1% and rising to 3% by 2018. Deductions will have to be calculated and paid over to the pension provider, along with having to issue various correspondence to employees in order to make sure you are fully compliant with the Pensions Regulator and avoid any fines.
This new legislation will have a big impact on a lot of businesses financially as well being a new admin burden to cope with. There are potential hefty fines for not following the Living Wage and Auto Enrolment guidelines, so it’s important to be fully compliant with the rules and deadlines! Ignore this at your peril!
With regards to the extra tax on dividends, we’ve come up with a number of methods to reduce any tax liability and maximise what you can take from the business tax free. Spouse wages, charging your company a rent, gifting shares to your spouse and charging interest on your directors loan balance are to name a few, but we’ll leave that for another blog or a conversation in person.