The first (and last) spring budget given by the Chancellor Philip Hammond on Wednesday March 8th 2017 has certainly stirred up some controversy with announcements on dividends and National Insurance affecting the self employed and those with owner managed businesses.
Small businesses of all types face ongoing pressures from quarterly tax reporting (Making Tax Digital), revised business rates, the National Minimum Wage and the ongoing rollout of Workplace Pensions.
The Chancellor was keen to point out that he wanted the tax system to be fair, particularly with regard to the distinction between employed and self-employed individuals which has been much in the news of late.
‘But a fair system will also ensure fairness between individuals, so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax.’
In the Budget speech the Chancellor announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. This is an incredibly difficult area to review and assess meaningfully and will continue stir up resentment amongst the self employed and those with small owner managed businesses. Many feel they are taking large risks with their families futures to build and grow their businesses, employ people, comply with ever mounting red-tape while feeling marginalised and unsupported by the Government.
Key changes affecting small business are as follows:
- Unincorporated businesses that have an annual turnover below the VAT registration threshold will have until April 2019 to prepare before Making Tax Digital becomes mandatory
- From 2018, Class 2 National Insurance will be abolished, however, Class 4 will rise from 9% to 10% in April 2018 and to 11% in April 2019
- The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018
Please see below for further details
National Insurance contributions
The main rate of class 4 National Insurance contributions will increase to 10% in April 2018 and to 11% in April 2019 which is still below the equivalent of employees National Insurance. Class 2 National Insurance is still set to be abolished from April 2018 reducing the burden by approximately £150 a year and simplifying the system. This means that for 2018/19 onwards, those with profits above approximately £23,000 will pay more, while those below that will pay less. From 2019/20, the NIC costs will be higher when the profits exceed approximately £15,500 (This assumes no further changes to the income bands)
As previously announced, the personal allowance for 2017/18 will be £11,500 and the basic rate band of 20% increases to £33,500. This means the 40% band starts on income above £45,000. The Government intends to increase these to £12,500 and £37,500 respectively by 2020, meaning an individual can earn up to £50,000 before paying tax at 40%.
The tax-free dividend allowance will reduce from £5,000 to £2,000 from April 2018 for director shareholders.
From September 2017, working parents with 3 and 4 year old children will have their tax-free entitlement doubled to 30 hours a week.
£2 billion extra funding for adult social care in England.
The government will introduce T-Levels which aim to make the technical qualification system clearer.
Maintenance loans will be offered to part-time undergraduates and doctoral loans for all subjects for the first time.
These measures were previously announced and have now been confirmed:
- the national living wage will rise to £7.50 from April 2017
- the personal allowance will rise to £11,500 and the higher rate threshold to £45,000
- NS&I Bond will be available from April, paying 2.2% on deposits up to £3,000.
Phased roll out of Tax-Free Childcare
The Chancellor has confirmed that Tax-Free Childcare will be rolled out from April 2017. Tax-Free Childcare will be gradually rolled out for children under 12.
Property and trading income allowances
From April 2017, the government will introduce a new £1,000 allowances for property and trading income. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income.
The Government confirmed the commitment to reducing Corporation Tax to 19% from April 2017 and 17% by 2020 - so some good news for small owner managed businesses.
Making tax digital
Unincorporated businesses and landlords with turnover that is less than the VAT registration threshold (currently £83,000 moving to £85,000 from April 2017) will have the introduction of quarterly digital reporting delayed by 12 months.
For those that have turnovers in excess of the VAT threshold the commencement date will be from the start of accounting periods which begin after 5 April 2018.
VAT Registration Threshold
|From April 2017||From April 2016|
|VAT registration threshold||£85,000||£83,000|
|VAT deregistration threshold||£83,000||£81,000|
Business rates in England
There will be further consultation on possible measures to reform the business rate revaluation process which has stoked huge controversy with many small businesses feeling they are shouldering more of the burden of business rates.
In the interim, the following three measures relating to business rates were announced:
- businesses coming out of small business rate relief will have an additional cap meaning that any bill increase for the next year will not be more than £50 a month
- a £1,000 discount will be introduced in 2017 for pubs with a rateable value of less than £100,000
- a £300 million discretionary fund will be made available to local authorities to target individual businesses that are struggling with rate rises.
R&D tax credits
The government will be publishing measures aimed at reducing the administrative burden for businesses. Currently the information appears somewhat confusing and contradictory so as ever we need to wait on detail.
The National Minimum Wage
The National Living Wage from April 2017 will rise from £7.20 to £7.50 per hour for those aged 25 or over. The Government’s aim is to increase this to over £9 an hour by 2020.
The government will take steps to increase consumer protection including:
- protection from unfair or unexpected fees
- simplifying terms and conditions
- giving consumer bodies greater powers of enforcement
Transport funding announcements included £90 million for the North and £23 million for the Midlands.
The much touted Soft drinks levy rates were confirmed at 18p for the main band and 24p for the higher band.
Finally, funding for the devolved administrations was also announced:
- £350 million for Scotland
- £200 million for Wales
- Almost £120 million for Northern Ireland.