Chancellor Philip Hammond’s first and last Spring Budget (he decided last year to move them to the Autumn from now on) was predicted to be boring – but judging by the amount of press comment it has attracted it appears to have been anything but.
Jameson Accounting Services has put together a summary of the key announcements that are likely to impact small business – including a recap of earlier announcements that are coming into effect in 2017.
The major talking points – NIC for the self-employed and tax-free dividend allowance
Two of the more controversial announcements were measures designed to equalise the tax positions of the employed, self-employed (sole traders or via partnerships) and limited company shareholder/directors.
The tax-free dividend allowance (only introduced on 6 April 2016) will fall from £5,000 to £2,000 with effect from 6 April 2018.
At the same date, for the self-employed, Class 2 NIC was confirmed as being abolished (this currently applies a flat £2.80 per week charge for anyone earning profits at or over £5,965 per year, rising to £2.85 per week on profits at or over £6,025 per year for 2017/18). This abolition does cause problems for businesses with profits below the NIC thresholds wanting to make voluntary contributions in order to preserve state benefit entitlement, as the only remaining voluntary contribution rate (Class 3) is substantially higher than Class 2.
The controversial part to the NIC changes impacting the self-employed, turned out to be short-lived, as within a week Mr Hammond was forced into a u-turn. This involved an announcement to increase the main rate of Class 4 NIC on 6 April 2018 from 9% to 10% (this currently applies to profits between £8,060 and £43,000, rising to between £8,164 and £45,000 in 2017/18). A further 1% increase in the main Class 4 NIC rate would have come into effect one year later, bringing it to 11% – only 1% below the rate applying to employees.
The U-turn leaves a £2bn hole in the budget position which the Chancellor has said will be addressed in the autumn budget. What remains of the government’s strategy to address the impact of the shifting balance between the various employment models, remains to be seen. The Taylor Review which was announced in late 2016 seemed to be taking an appropriately strategic perspective but this has now been undermined by tactical and disjointed tax announcements.
Other tax rates and allowances
As previously announced the personal allowance for 2017/18 will increase by £500 to £11,500. The intention to increase this to £12,500 by the end of this parliament (in 2020) was re-confirmed.
The income tax 20% basic rate band is increasing by £1,500 in 2017/18 to £33,500. This means that with the increased personal allowance the higher rate threshold (at which 40% income tax rates apply) rises by £2,000 to £45,000 from 6 April 2017. Note that different rules apply to Scottish tax payers.
The additional rate (currently 45%) band continues to start at £150,000.
The rate of corporation tax (currently 20%) had already been announced as falling to 19% from April 2017 and to 17% from April 2020.
The threshold for VAT registration will increase from £83,000 to £85,000 from April 2017. The VAT deregistration threshold increases from £81,000 to £83,000 at the same time.
Making Tax Digital (“MTD”)
We saw the announcement of a welcome amendment to this major change in the way businesses and landlords report their tax affairs (maintaining electronic records and submitting quarterly updates to HMRC). Smaller unincorporated business and landlords (and their accountants!) will now have one more year to prepare – any of these entities with turnover below the VAT threshold (£85,000 from April 2017) will have to comply from April 2019 and not April 2018 – the earlier date still applies if turnover exceeds that level.
Entities subject to corporation tax have until April 2020, as previously announced.
There was no update on whether the currently announced £10,000 income level, below which MTD will not apply at all, is to be increased.
Cash basis of accounting
There are two changes in this area – for trading income, the threshold up to which businesses may adopt the cash basis for their tax returns, increases from the VAT registration threshold to £150,000 from 2017/18. This had been previously announced as part of the response to the consultation on Making Tax Digital.
Also from the same date the default basis for unincorporated landlords up to the same threshold of gross rents will become the cash basis, and anyone wishing to continue with the accruals basis below this will need to opt in.
Other changes of note
From April 2017 the previously announced changes to the way unincorporated landlords gain tax relief for interest come into effect – the main impact will be on higher and additional rate tax payers.
Some protection was announced for business impacted by the business rates revaluation.
Insurance premium tax continues its steady rise over the past few years, reaching 12% from June 2017.
Tax Free Childcare schemes are due to commence roll out from April 2017 – although details are still very sketchy considering the timescales. The budget announcement said this would start with the youngest children, but with no indication of what age ranges, or the timetable for the remainder. As a reminder one of the key beneficiary groups here are the self-employed who are not able to participate in the payroll-driven childcare voucher scheme that has existed for many years.
Lifetime ISAs are also to become available from April 2017, as will be the three-year NS&I Investment Bond (allowing savings of up to £3,000 to earn 2.2%).
These comments are general in nature – for advice tailored to your individual circumstances please contact us.