2017 Spring Budget
ATTACK ON SELF-EMPLOYED IN BUDGET
In his first Budget on 8th March the new Chancellor Phillip Hammond announced that he would level the playing field between employees and the self-employed by increasing Class 4 National Insurance Contributions (NICs) from 9% to 10% from 6 April 2018 and then to 11% from 6 April 2019. His justification is that the self-employed are now entitled to more generous state benefits than in the past and thus NIC rate should be increased towards the 12% Class 1 NIC employee rate. Note that the flat rate Class 2 NIC contributions, currently £2.80 a week, cease on 5 April 2018.
The chancellor stated that only the self-employed with profits in excess of £16,250 will pay more national insurance.
However, it would appear that this measure won't be part of the Finance Bill and will have to be approved in a separate Bill - there is potential that this will not be passed...watch this space.
TAX FREE DIVIDEND ALLOWANCE TO BE REDUCED TO £2,000
Talking of attacks...any client that has been to see me reecntly will know that I was sceptial about the £5,000 dividend allowance and it came as no surprise that the allowance has already(!) been reduced from £5,000 to £2,000 from 6 April 2018.
Currently, once the dividend allowance has been used the remaining dividends are taxed at 7.5%, 32.5% and then 38.1% depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate. There are rumours that these dividend rates may also be increased in future years.
Although the cut in the tax-free dividend allowance is clearly aimed at owner managed companies, it will also impact on those with substantial share portfolios. Mr Hammond reminded us in his speech that the annual ISA investment limit increases to £20,000 from 6 April 2017 and that dividends on shares held within an ISA continue to be tax free.
START OF DIGITAL REPORTING DELAYED FOR SMALLER BUSINESSES
The Government is committed to the "Making Tax Digital" (MTD) project which is scheduled to start in April 2018 with the first quarterly updates being submitted by the self-employed and property landlords in July 2018.
Many business owners, professional advisors and the Treasury select committee had expressed concerns about the timescale for the introduction of MTD. The Chancellor announced that there will be a one year deferral in the start date to 2019 for self-employed businesses and property landlords with gross income below the VAT registration limit.
TAX FREE CHILDCARE SCHEME STARTS 2017
As previosuly discussed in our newsletters, the chancellor also announced that the new tax-free childcare scheme is due to start in 2017.
The scheme will provide up to £2,000 a year in childcare support for each child under 12 where the parents save in a special account. If they save £8,000 the government will top up the account with 20% to a total of £10,000 which can then be used to pay for childcare costs.
BUSINESS RATES RELIEF FOR SMALL BUSINESSES
There has been much lobbying from the small business sector to reduce business rates. The Chancellor stated that 600,000 small businesses currently benefit from small business rates relief.
He also announced that no small business that is coming out of small business rates relief will pay more than £600 more in business rates this year than they did in 2016/17.
In order to support the licenced trade from April 2017, pubs with a rateable value up to £100,000 will be able to claim a £1,000 business rates discount for one year.
As mentioned earlier, the VAT registration limit increases by £2,000 to £85,000 from 1 April 2017. At the same time the de-registration limit increases to £83,000.