The March 2017 Budget was largely as expected, apart from Chancellor Phillip Hammond’s announcement that National Insurance Contributions (NICs) would increase for self-employed workers. But within a week of the budget statement this notion of an extra NIC burden on the self-employed was withdrawn. Significant changes which will go ahead include the dividend allowance being cut to less than half its current level and confirmation that the rate of corporation tax will be cut to 17% in April 2020. Read on to discover how the budget might impact your business. For further details and accountancy support email firstname.lastname@example.org or call +44(0)1438 869 644.
Government U-turn on self-employed burden
The Chancellor announced that National Insurance Contributions (NICs) paid by the self-employed would be levelled out towards the rate paid by the employed. The plan was to increase Class 4 NIC for self-employed people from 9% to 10% starting on the 6 April 2018 and then to 11% from 6 April 2019, bringing it closer to 12% Class 1 NIC employee rate. Flat rate Class 2 NIC contributions which are currently £2.80 a week, would then stop on 5 April 2018
Following criticism that the Government was wrongly targeting the self-employed and had reneged upon its manifesto commitments, a subsequent announcement stated that Class 4 NIC changes would be delayed until the autumn budget and a review undertaken to look at the relative benefits the self-employed are eligible for, compared to employees. Then one week after the original March budget statement, Chancellor Hammond announced a Government U-turn. It has decided not to go ahead with the Class 4 NIC measures set out in the budget. It will continue with Class 2 NIC from April 2018.
That’s good news for the self-employed but it means that the March budget isn’t balanced and the Government will need to plug a £2bn gap in the Autumn 2017 budget. Watch out for myriad niche (but less controversial) taxes to cover the shortfall.
Dividend allowance reduced
The Chancellor announced that the tax-free allowance on dividends will be reduced.
This allowance is currently £5,000 and only came into effect in April 2016. Now it will be cut to £2,000 with effect from 6 April 2018. The move is designed to recoup an estimated £6bn in lost taxes due to owner-managed businesses becoming limited companies to take advantage of this concession. This step will affect individuals who work through limited companies and take out profits as dividends, as well as people who receive a dividend income of over £2,000.
Corporation tax cut
As previously announced the rate of corporation tax rate will be reduced to 19% from 1 April 2017 and then to 17% from 1 April 2020. This change reflects the Government’s commitment to having the lowest rate of corporation tax of all the G20 countries
In Northern Ireland, the rate paid by small and medium sized enterprises will be reduced to enable them to compete with businesses in the Republic of Ireland where the current rate of corporation tax is 12.5%.
Business rates relief
The long-dreaded increase in business rates, due to a reassessment of property values will be softened by several transition measures. Currently 600,000 small businesses get small business rates relief. For any small business coming out of the rate relief scheme, the Chancellor has announced that there will be a cap on the amount of business rates paid, so that no small business pays more than £600 extra in business rates than they did in 2016-17. In addition, pubs can claim a £1,000 discount on their business rates for one year, where their rateable value is up to £100,000, with around 90% of pubs falling into this category. In a final measure to soften the implementation of new rateable values, local authorities will be given a £300,000 million fund which they can use to address cases of hardship, by providing discretionary relief.
Digital reporting deferred for some
Plans for ‘Making Tax Digital for Business’ are well-known and designed to shift reporting online and cut errors by 10%. Non-incorporated businesses and landlords need to start filing data with HMRC on a quarterly basis from April 2018. However, whilst the arguments for digitalising reporting are widely understood, the timescales for making the transition from paper to online have been criticised. Now the Chancellor has announced that businesses with turnover below the VAT threshold, currently £83,000, will be subject to a one-year deferral to April 2019.
Small business cash accounting threshold increased
Currently small businesses can choose the option of cash based accounting where turnover is up to £83,000. The Chancellor announced that from 6 April 2017 this threshold increases to £150,000 turnover, giving more small businesses this choice.
The Government website Gov.uk, explains the measure: “If you run a small business, cash basis accounting may suit you better than traditional accounting. This is because you only need to declare money when it comes in and out of your business. At the end of the tax year, you won’t have to pay Income Tax on money you didn’t receive in your accounting period.” This option no longer applies if turnover goes up above £300,000 in the tax year, in which case traditional accounting methods apply.
Allowances, income tax, and capital gains
The personal tax allowance is to be increased from the current level of £11,000 in 2016-17 up to £11,500 from 6 April 2017. This is the amount that can be earnt before tax.
The basic rate tax band goes up from £32,000 in 2016-17 to £33,500 in 2017-18 and the threshold for the higher rate of tax is set at £45,000. The Government is on track to achieve its stated aim of increasing the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament.
Also from 2017-18, the capital gains tax annual exemption will increase £11,100 to £11,300.
New rate set for National Living Wage
Currently the National Living Wage is set at £7.20 per hour. In line with the Government’s plans announced in the Autumn 2016 budget, the Chancellor has confirmed the new National Living Wage pay rate of £7.50 per hour from 1 April 2017. It’s a legal requirement for employers pay this rate to workers aged 25 and over. Employers with staff aged under 25 years must pay at least the National Minimum Wage which also goes up from 1 April 2017.
|New rate from 1 April 2017||£7.50||£7.05||£5.60||£4.05||£3.50|
Full broadband gets closer
The Government is set to invest £200 million to test ways to accelerate access to full-fibre broadband network. Proposals include aggregating the demand of public sector organisations in a locality to offset the investment risk, directly connecting to public buildings like schools thereby bringing full broadband closer to nearby businesses, and opening up public assets such as ducts to enable more cost-effective expansion of the network.
This proposal is in addition to the £1.7bn Broadband Delivery UK programme which intends to enable 95% of premises to access superfast broadband by the end of 2017. Current coverage is estimated at 92%.
Economic forecast better for 2017
Government forecasts for economic growth remain the same up to 2021. However, the forecasts have been revised so that growth is more robust in 2017 and dips from 2018-2020.
This year the forecast for GDP growth from the Office of Budget Responsibility is up to 2%, which is up from 1.8% in 2016 and the previous forecast for the period of 1.4%. Then from 2018-2020 the new forecast predicts lower growth than before of 1.6% in 2018 (was 1.7%), then 1.7% in 2019 (was 2.1%) and 1.9% in 2020 (was 2.1%). Grown is predicted to rise back to 2% (as previously forecast) in 2021.
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