Budget 2015 - SMEs could see smaller profits after summer budget

Measures introduced in the Chancellor’s Summer Budget may affect the profit margins of SMEs. 

George Osborne’s seventh Budget – the first of this Conservative Government – heralded a decrease in Corporation Tax but saw a rise in dividend taxes.

SMEs will see significant changes to dividend taxation from April 2016, which will impact on the overall tax rates and the effective tax rates on extracting profits.

Furthermore, the introduction of the National Living Wage is going to be a big cost for SMEs.  Even though it has been marginally offset by an increase in the employment allowance, the effect of paying higher wages – which is a fixed overhead – will ultimately be smaller profits.

In a bid to create what George Osborne called “a permanent change to incentivise investment”, the Annual Investment Allowance will no longer fall to £25,000, but will be frozen at £200,000 from 1 January 2016.  However, the temporary £500,000 limit was set to expire on 31 December 2015, but will now be a permanent relief available at a reduced rate of £200,000.  It is a shame that the Chancellor didn't choose to keep the Annual Investment Allowance at the current level and show a true commitment to boosting productivity for SMEs for the rest of the parliament.

For a more detailed review of yesterday's budget please click here.

For more information, please contact Stuart Hinnigan or your usual contact at the office.