This coalition government (which I broadly support) has again disappointed today. George Osborne trumpeted the importance of small business to the economy and, as evidence of this, the drop in corporation tax rate. What a pity, then, that the 2% drop in the main rate does NOT apply to small businesses with profits of less than £300,000 per year. For us living in the real world, the rate drop is only 1% (or half as much).
George, if you really want Britain to be the best place to “start, run and grow a business” then you must reward small businesses first. Companies of all sizes generally start out small so getting low tax rates on their profits at the beginning is vital. What a missed opportunity.
So, the focus for all responsible small business people is to minimise their net profits (yes, really) and, in that way, minimise their tax. The simplest way to do this is to employ yourself (and your partner if possible) in the normal way at a rate equivalent to the personal allowance (just over £7k from April). By doing this, that part of your income is tax and NI free. Your profits are also reduced by that amount and you therefore pay less corporation tax.
If possible, you should also see if you can benefit from the new tax allowance for research and development. The best option is to talk to your accountant but, essentially, you could get a big allowance for innovation. Worth a look.
Otherwise, it’s back to normal – grinding away trying to make money on a day to day basis whilst trying to handle the idiots at HMRC (I recently had a demand for £0.00 threatening the bailiffs if I didn’t pay). Good marketing and cost cutting can more than offset the effect of the monkeys in the government.
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