The first Budget from new Chancellor of the Exchequer Phillip Hammond proved to be a solid if uninspiring affair with no major changes to policy but rather a tinkering at the edges and clarification on some of the earlier planned changes. The most controversial of these being the increase in National Insurance contributions for the self-employed which in part, arguably, contradicts the Conservative’s manifesto.
We have summarised below some of the changes which may be of importance to individuals and small businesses.
Limited Companies Taxation
The Government confirmed its intention to lower the Corporation Tax rate to 19% from April 2017 and 17% by 2020.
However, it is reducing the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018.
The dividend allowance replaced the dividend tax credit in April 2016, and offers a 0% tax rate on dividends within the dividend allowance.
Ultimately the reduction in the dividend allowance will increase the cost of extracting income from owner-managed companies by £225 for basic rate taxpayers and £975 for higher rate taxpayers.
The lower corporation tax rate partly mitigates the reduced dividend allowance.
In our view the Chancellor is continuing to challenge what he perceives as tax-geared incorporations and does not recognise or reward the risks taken by genuine family businesses.
National Insurance for the self-employed
The additional costs for the self-employed have been introduced according to ‘spreadsheet Phil’ to redress the difference in amounts paid by employees and the self-employed as both are entitled to the same state pension rights with effect from 2016.
Making Tax Digital
In the March 2015 Budget, the Government announced its plans to modernise the tax system through technology and end the need for annual returns under the banner Making Tax Digital (MTD).
Instead, taxpayers and businesses subject to certain criteria will be expected to update their affairs with HM Revenue & Customs quarterly, online, through bookkeeping software.
The Chancellor has announced that MTD will be deferred by one year until April 2019 for unincorporated businesses with turnover below the VAT registration threshold (£85,000 from April 2017).
Whilst this is welcome news, MTD appears to be full steam ahead despite a lack of clarity in the actual details regarding the costs, requirements or any workable technology to submit the returns.
Personal Allowance and Tax Rates
The personal allowance for 2017/18 has been increased to £11,500. This means that the basic rate band of 20% increases to £33,500 and the 40% band starts above £45,000.
We have summarised below some of the changes which may be of importance to individuals and small businesses.
Limited Companies Taxation
The Government confirmed its intention to lower the Corporation Tax rate to 19% from April 2017 and 17% by 2020.
However, it is reducing the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018.
The dividend allowance replaced the dividend tax credit in April 2016, and offers a 0% tax rate on dividends within the dividend allowance.
Ultimately the reduction in the dividend allowance will increase the cost of extracting income from owner-managed companies by £225 for basic rate taxpayers and £975 for higher rate taxpayers.
The lower corporation tax rate partly mitigates the reduced dividend allowance.
In our view the Chancellor is continuing to challenge what he perceives as tax-geared incorporations and does not recognise or reward the risks taken by genuine family businesses.
National Insurance for the self-employed
- Class 4 National Insurance Contributions (NIC) for the self-employed will increase from its current level of 9% to 10% in 2018/19 and 11% in 2019/20 on income above the nil rate band of £8,164 pa. These changes have been made to cover the abolition of Class 2 which is currently £145.60 pa.
- This means that for 2018/19, those with profits above £22,724 will pay more, while those below the threshold will pay less. From 2019/20, the NIC costs will be higher when profits exceed £15,444 assuming no changes to the income bands.
The additional costs for the self-employed have been introduced according to ‘spreadsheet Phil’ to redress the difference in amounts paid by employees and the self-employed as both are entitled to the same state pension rights with effect from 2016.
Making Tax Digital
In the March 2015 Budget, the Government announced its plans to modernise the tax system through technology and end the need for annual returns under the banner Making Tax Digital (MTD).
Instead, taxpayers and businesses subject to certain criteria will be expected to update their affairs with HM Revenue & Customs quarterly, online, through bookkeeping software.
The Chancellor has announced that MTD will be deferred by one year until April 2019 for unincorporated businesses with turnover below the VAT registration threshold (£85,000 from April 2017).
Whilst this is welcome news, MTD appears to be full steam ahead despite a lack of clarity in the actual details regarding the costs, requirements or any workable technology to submit the returns.
Personal Allowance and Tax Rates
The personal allowance for 2017/18 has been increased to £11,500. This means that the basic rate band of 20% increases to £33,500 and the 40% band starts above £45,000.