The budget was well received in the small business community, and there are changes that you can make FROM TODAY that will mean that you pay less tax:
The maximum mileage rate that HM Revenue & Customs has allowed for many years has been 40p. This rate has been increased to 45p, effective from 6 April 2011. To implement the change in My Bookkeeping Online, go to My Users (in My Settings on the main navigation bar) select each of the Users in turn and then, in the mileage rate box, select 45p and hit save. With the change made, the mileage claim calculator in My Purchases will calculate the claim based on the 45p rate.
The salary that directors can draw without paying income tax or national insurance has increased from circa £5,700 per annum to £7,000 per annum (or £584 per month).
The further bit of good news is that the Corporation Tax small companies rate has reduced from 21% to 20%, and this will feed through into tax returns for years that end after 1 April 2011.
In addition, National Insurance rates have increased, thus being a sole trader will be more expensive.
The benefits of incorporating have, in my view, now improved to the point that it can be considered to be sensible tax planning. For the last few years, the tax benefits of incorporating have generally been offset by increased administration costs. Therefore, in deciding whether to incorporate or not, it was necessary to consider the commercial benefits as well as the tax benefits. As a result of the 2011 budget, the tax and NI benefits are significant enough to make incorporating a bit of a no brainer.
HOW MUCH YOU SAVE IN TAX
Overall, if you do 1,000 business miles per year in your own car, you are a company director and you pay, say, £5,000 per year in Corporation Tax, the tax benefits will total £508 per annum which, as they say, is better than a poke in the eye with a sharp stick.
It is nice when a budget delivers some good news!