With Chancellor Jeremy Hunt due to announce plans to simplify tax returns for individuals and businesses next week, changes could be great news for the hundreds of thousands of small businesses up and down the UK who file every year.
But, in general, experts are saying that more needs to be done to reduce the tax burden on small businesses – which increased following the Spring Budget last month.
Analysis by On the Spot Accountants and small business support platform Enterprise Nation has found that annual tax bills for some small businesses will increase by a massive £9,000 from this month.
The numbers show that for firms who make a profit of £200,000, tax bills will climb from £39,723 to £49,361 compared to the 2022/23 tax year. With a £150,000 profit, total tax take could rise by as much as £5,888 for a company with two company directors taking a salary of £23,816 each.
The new tax regime was announced by Hunt in March along with the confirmation of the end of the 50 per cent energy relief scheme and Research & Development Tax Credits reform.
Emma Jones, CBE, founder of Enterprise Nation, said: “The increased tax burden on small businesses means that, rather than being able to focus on creating jobs and growing they will be further distracted by their tax affairs – so while tax returns being made easier is a nice gesture, it is not a magic bullet.
“Small business owners will feel these incremental rises hit their pocket at a time when they are paying out more for salaries, goods and services than ever before - and on top of that, they will also see the removal of existing support for energy and innovation.
“As the tax reality of the Budget bites, we see that in some instances businesses will be paying out 26.5 per cent in Corporation Tax alone and seeing huge chunks of hard-earned cash swallowed by the state.”
The analysis looked at different levels of profit and compared the tax take for a business based on amounts directors take out of the business in dividends. The comparison found a business with a profit of £50,000, in 2023/24 would see hardly any difference from 2022/23, partly because Corporation Tax remains at the same level.
They also get a little a light relief because the 1.25 per cent rise in National Insurance that kicked in last year, has been reversed.
But when businesses reach £100,000 in profit, the increases take hold. For example, a director that takes a salary of £12,470, plus dividends could pay an extra £1,950 in tax compared to last year.
Paula Tomlinson, founder of On the Spot Accountants, said: “We are seeing absolute tax levels increasing from 20% to 24% in some circumstances. We are not talking about extremely rich people here. We're talking about people who work all day every day, at their own risk.
“There are of course optimal mixes that can help to mitigate some of this, but that will require action and a pro-active approach with an accountant to understand solutions based on each business’s needs.”
