For small business owners the start of 2018 is going to be even more dismal than normal.
Not only are they worrying about trading activity, they will have to concern themselves with unwelcome tax bills
Take the example of a small business operating as a limited company with profits of £40,000.
Typically, a salary of £8,000 will have been paid to the owner leaving a corporation tax liability of £6,400 and £25,600 to be paid out in dividends.
In the past, as the dividends fall within the basic rate band, there was no more tax to pay.
For the tax year 2016/2017 this has all changed. Using the above scenario, the dividends will now be subject to tax.
The first £5,000 is tax-free and there is a balance of allowances of £3,000 but the balance of £17,600 is charged at 7.5% leaving a tax bill of £1,320 due for payment on 31 January 2018. On the same day a payment of £660 will be required in respect of the 1st instalment of the 2017/2018 tax liability, resulting in a total of £1,980 being paid out!
A further payment of £660 will be required on 31 July 2018.
Therefore, without your income changing, you are going to be £1,320 worse off each year. Make sure you save the cash to pay the tax!
Flow Online Accounting Limited
Holland House, 1-5 Oakfield Sale, Cheshire M33 6TT
Contact: Chris Wrighton
Deal with real accountants who understand your time is precious