Chancellor Philip Hammond today (8 March) announced his ‘final’ Spring Budget which contained measures that he described as laying the infrastructure for a “stronger, fairer, more global Britain”.
As Mitchell Charlesworth predicted last week, the Chancellor briefly touched upon Business Rates reform and other items such as the definition of ‘self employed’ but there is the feeling that the Chancellor is saving his more ‘heavy weight’ announcements until the next Budget later this year.
However, there were some interesting announcements that will affect both SMEs and the self employed. Mitchell Charlesworth have provided an initial commentary below with a further indepth analysis to follow shortly.
National Insurance Contributions
Currently an employee pays 12% Class 1 national insurance on their earnings up to £43,000, and an additional 2% on any excess, whereas someone who is self-employed will pay 9% on profits up to £43,000 and also 2% on any excess.
In an effort to level the playing field between employees and the self employed, the government has abolished Class 2 NICs (from 6 April 2017) and has instead introduced new Class 4 NICs, which will see an increase in the rate of contributions by 1% each year over the next two years. This will bring contributions almost in line with those paid by an employee. Therefore the rates will be 10% and 11% from 6 April 2018 and 2019 onwards.
The Chancellor also indicated that the following remuneration methods are currently being consulted upon:
Taxation of Benefits in Kind | Accommodation Benefits | Employee Expenses
Dividend Tax Allowance
The £5,000 dividend tax allowance, will be reduced to £2,000 from 6 April 2018 onwards. The cut in the allowance will see a tax increase for all taxpayers who receive dividends of more than £2,000. The reduction in the allowance may prompt a surge in investments into ISAs or pension funds rather than individuals personally owning shares.
The reduction has been introduced to targeted owner manager businesses who extract company profits through a mixture of both salary and dividends, however on the face of it, it seems that pensioners may be the hardest hit.
Making Tax Digital
The timetable for Making Tax Digital has been slightly amended. There is a one year deferral for business, self-employed and landlords whose turnover is more than £10,000 but less than the VAT threshold, these entities will only need to comply with the Making Tax Digital reforms from April 2019 onwards. However, those with earnings over the VAT threshold will still fall within the Making Tax Digital regime from April 2018 onwards.
Although the details were vague the Chancellor confirmed that there is scope for reform of the business rates regime to avoid massive increases. In the interim he announced the following measures:
Businesses newly coming out of Small Business Rates Relief will not see an increase in their business rates of more than £50 per calendar month
There will be a £1000 discount on business rates for pubs in England with a rateable value of less than £100k
£300million to be allocated to local councils to support struggling businesses on an individual case by case basis – the formula for allocation is yet to be confirmed.
A snapshot of the other Budget points:
- Personal allowance to rise to £11,500 from April 2017and the threshold for higher rate tax will increase to £45K from £43K (except in Scotland)
- No additional alcohol duty increases other than those previously announced
- National living wage to increase to £7.50 from 6 April 2017
- Further investment of £110 million for free schools
- Free transport for school children who receive free school meals at certain schools.
- Investment of £216 million over the next three years in existing schools
- The introduction of ‘T-Levels’, to give more credence to technical education
- £2billion invested in social care in England over the next three years, £1 billion of which to be made available in 2017/18
- A new minimum excise duty on cigarettes based on a packet price of £7.35
- Vehicle excise duty rates for hauliers and the HGV Road User Levy frozen for another year
- Funding of £5m to support people returning to work after a career break in the form of a ‘Returnship’
To discuss any points raised in this year’s Budget, please contact your usual Mitchell Charlesworth contact, a member of our tax team or e-mail Cara Bartlett who will direct your enquiry.