Spring Budget – 8 March 2017

Budget summary – 8 March 2017

The Budget presented by the Chancellor of the Exchequer, Philip Hammond, today is the last Budget to be presented in the Spring. In last year’s Autumn Statement he proposed the switch so that we will in future have a “Spring Statement” and an “Autumn Budget”.

The key points from a personal and business tax viewpoint are as follows.

Self-employed National Insurance

Self-employed people currently pay two types of National Insurance (NI)

• Class 2 NI is a fixed weekly amount
• Class 4 is a profit geared charge at 9%

Both are calculated via the self-assessment tax return and form part of the payment due by 31 January each year.

From April 2018 Class 2 is to be abolished saving approximately £ 148 per year.

The rate of Class 4 NI is to be increased from 9% to 10% from April 2018 and further to 11% from April 2019.

The abolition of Class 2 coupled with the increase in Class 4 means that self-employed people earning over £ 16,250 will pay more NI. If your taxable profit is £ 43,000 I estimate the additional NI costs will be about £ 220 in 2018/19 and £ 588 in 2019/20.

I assume that the Government has now declared that Class 2/4 NI is outside of its Manifesto pledge not to increase NI (they say that the pledge only referred to Class 1 NI payable by employees). Obviously there is scope for there to be future changes.

>> Edit 17 March 2017 >>Today, Philip Hammond the Chancellor of the Exchequer, announced in Parliament that the planned rise in Class 4 NI is to be scrapped, saying that “There will be no increases in National Insurance rates in this Parliament”. This obviously leaves scope for thresholds and upper limits to change in the short-term and for rate increases in the next Parliament.

Dividend tax

The new dividend tax was introduced in April 2016 so that the first £ 5,000 of dividend income was tax free, followed by rates of 7½%, 32½% and 38.1% depending on your marginal tax rate.

From April 2018, the £ 5,000 “tax-free” level will be reduced to £ 2,000. This will cost an additional £ 225 per person if dividends are received. This is on top of the large increases that taxpayers will experience in the current tax year.

Making Tax Digital (MTD)

Making Tax Digital (MTD) is the HMRC scheme due to be introduced in April 2018 and applies to the self-employed (sole traders and partnerships) and some landlords. It does not apply to Limited Companies which are due to join the scheme in 2020.

The Budget has made a small concession to smaller businesses (i.e. those with a turnover lower than the VAT threshold of £ 83,000) so that these smaller businesses won’t have to “join” MTD until April 2019. Businesses with a turnover over £ 83,000 will still have to join MTD in April 2018.

What is MTD?

The idea behind MTD is that small businesses (sole traders and partnerships) will have to report details of their income and business expenses to HMRC on a quarterly basis (and separate to the quarterly VAT return). Final details of the system have yet to be made public, but it is thought that all businesses will be compelled to maintain their accounting records on proper accounts software/apps rather than on paper or using spreadsheets. The idea being that the software/apps will upload the information to HMRC. I understand that representations to HMRC include an exception for some businesses so that they can keep their records on paper/spreadsheets and upload the relevant information via the HMRC website and their own Digital Tax Account. Rumours abound at the moment, so we will have to wait to see what the final proposals are.

In addition there are two further stages with the MTD system to finalise each tax year. The first of these is called an “End of year activity report” (HMRC originally called this an “End of year activity return”). This stage is for making adjustments and corrections to the quarterly submissions and to provide any other tax adjustments such as capital allowances. A final stage is the checking/correction of other data held by HMRC such as bank interest, dividends and capital gains.

I am proposing to prepare a blog article on MTD in the near future.

Business Rates

If your rateable value in 2016/17 is less than £ 12,000 you will qualify for Small Business Rate Relief (SBRR). If the rateable value is £ 6,000 or less the rate of relief is 100% so that you won’t pay any business rates at all. Between £ 6,000 and £ 12,000 there is a sliding scale so that by the time your rateable value reaches £ 12,000 full rates are payable. Remember that you have to apply for SBRR – it is not given automatically.

From April 2017, 100% relief will apply to businesses with a rateable value below £ 12,000 and the upper limit is £ 15,000. There is a much sharper transition from 100% relief to zero relief.

The recent revaluations mean that many businesses that don’t qualify for SBRR will see large increases in the rates payable. Where the revaluation means that a business no longer qualifies for SBRR, the new provision in today’s Budget means that the increase will be restricted to £ 600 pa.

Pubs with a rateable value of less than £ 100,000 will qualify for a £ 1,000 discount on their rates.

National Living Wage

This is due to rise to £ 7.50 per hour from April 2017.

Personal Allowance

The amount you can earn tax free (the personal allowance) will rise to £ 11,500 from April 2017. If your income exceeds £ 100,000 you lose your PA at the rate of £ 1 for every £ 2 that your income exceeds £100,000.

Higher rates of tax become payable on income over £ 45,000. The additional rate band starts at £ 150,000.

General income tax measures

The Chancellor announced that consultations will be carried out on the following areas:

• Taxation of benefits in kind (BIK) – a review of the exemptions and the way benefits are valued.
• Accommodation BIK – the tax treatment of employer related accommodation is to be “brought up to date”
• Employee expenses – a review of the tax relief given on employee expenses.

E&OE