Budget News 2004 (cont 2)

Employers

From 6th April 2004, you can now pay an employee up to £91 per week without any tax or NI deduction provided you have a signed P46 form.

Self-employed

From 6th April both class 2 & class 4 NI will increase to £2.05 per week and 8% respectively. These are more stealth tax increases, which were not mentioned in the speech.

Company Tax

The zero rate was announced in April 2002 and encouraged many previously self-employed business owners to incorporate their business in order to benefit from this tax saving. Now companies which pay dividends, will not be able to take full advantage of the zero corporation tax rate and will suffer an effective 19% tax increase as a result. It may prove more cost efficient for them to reinvest their profits instead. This will mean that they will not be affected by the increased corporation tax on dividends and will benefit from the increase in first year capital allowances from 40% to 50%, also announced today, for small businesses." However, for small companies investing in IT, this increase in the first year allowance will do little to soften the blow of losing the 100% allowance for such expenditure.