Mr Darling announced some rate changes to come into force on 6 April 2011, and Mr Osborne gave us more. Some have been confirmed and some are only promised. Most of the changes are small on their own, but the combined effect may change the best way to take profits out of a family company.
NIC rates are all increasing from 6 April 2011. Most employees pay at 11% on income between £5,715 and £43,875 and 1% on earnings above that. This increases to 12% on income between £7,225 and £42,475 and 2% above that. The increase in the starting point protects lower paid employees, but someone with a salary of £50,000 will see their NIC bill increase from £4,259 to £4,380.
Employer NIC rates are also increasing from 12.8% on salary above £5,715 to 13.8% on salary above £7,225. The employer contributions on a £50,000 salary will go up from £5,668 to £5,903. The increases will affect higher earners proportionately more than the lower paid.
Self-employed NIC rates will also go up from 8% and 1% to 9% and 2% on the same ranges of profits as the employee contributions on salary.
The basic personal allowance for income tax goes up from £6,475 to £7,475, considerably more than the usual inflationary increase. The Lib Dems have urged a move to £10,000 as soon as economically possible in order to remove very low earners from tax, but we are unlikely to be able to afford that in the immediate future. These changes to the starting points for tax and NIC make a difference to the payment of salary to the proprietor of a small company or to a spouse or civil partner working in a business.
The main rate of Corporation Tax (CT) will fall from 28% to 27% on 1 April 2011. That affects companies which, with associates, earn £1.5m in profit a year. We have been promised that this rate will fall by 1% each year until it stands at 24%, but that has to be confirmed.
The small profits rate of CT (companies earning up to £300,000 a year, split between associates) is expected to fall from 21% to 20% on the same date. This makes it better for a company to incur expenditure or claim reliefs before then – the relief will be worth more and will reduce an earlier payment of tax.
|It's worth crunching some numbers to see how the changes affect you|