Small business singled out again
The Chancellor of the Exchequer has delivered the final Spring Budget and one which was not particularly impressive.
Dividend tax allowance
As from 6th April 2018 the tax-free allowance will be reduced from £5,000 to £2,000. This will mean that director-shareholders will pay an extra £225 on their dividend income. Apparently, Mr Hammond believes this will help deter businesses incorporating purely for tax motives. What he fails to appreciate however is that contractors don’t automatically choose to form their own companies but rather this is driven by large corporates and the public sector who won’t deal with them in any other form. Yet it is far simpler to whack the small businessman rather than ruffle the feathers of the government’s friends in high places.
Rates & allowances
The income tax personal allowance and basic rate bands for 2017/18 had already been announced, with the personal allowance increased to £11,500 from £11,000 and the basic rate band rising to £33,500 from £32,000.
The Chancellor reaffirmed that the personal allowance and higher rate threshold will continue to be increased to £12,500 and £50,000 by the end of this Parliament.
Class 4 NIC
This NIC charge on self-employed business profits (not corporates) above a certain limit will increase from 9% to 10% in April 2018 and to 11% in April 2019. With the abolition of Class 2 NIC next year, this necessitates the Chancellor closing the NIC gap between the self-employed and the employed, particularly as the self-employed have, since April 2016, been able to access the same State Pension as employees.
The 2015 Tory manifesto said, “A Conservative Government will not increase the rates of VAT, income tax or National Insurance in the next Parliament”. Never trust a politician!
Given that the Class 4 NIC charge is to rise to 11% in two years and tax on dividends falling in the basic rate band is only 7.5%, how is this going to make incorporation less attractive?
From 1st April 2017, the VAT registration threshold will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000.
Benefits in kind
The government is considering how the tax system could be made fairer and more coherent, including looking at the taxation of benefits in kind and employer expenses. Consultations will be made in respect of:
- Taxation of benefits in kind
- Accommodation benefits
- Employee expenses
Rent-a-room relief that enables owner-occupiers and tenants to earn up to £7,500 tax-free per tax year from the letting of furnished accommodation in their home is to be redesigned to ensure that it is better targeted to support longer term lettings. A consultation paper will be published later.
Making Tax Digital
Unincorporated businesses with a turnover below the VAT threshold will be given a further year’s grace, ie until April 2019, to prepare for digital record keeping and quarterly updates. Limited companies are still on course to join MTD in April 2020.
Research & Development (R & D)
The government will make administrative changes to the R & D Expenditure Credit to increase the certainty and simplicity around claims and will take action to improve awareness of R & D tax credits among SME’s.
Capital gains tax
The annual exemption (amount of tax free capital gains) will increase from £11,100 to £11,300 as from 06.04.17.
Savings & investments
Following the announcement in last year’s Autumn Statement, the government has confirmed that a new three year National Savings & Investments savings bond will yield a gross return of 2.2%, as originally expected. The bond will be open to investors aged 16 or over who will be able to invest between £100 – £3,000. It will be available for 12 months from April 2017.
An increase in the ISA limit from £15,240 to £20,000 was also confirmed, as well as the introduction of the new Lifetime ISA, from 06.04.17. The Lifetime ISA is open to individuals aged from the age of 18 until they turn 40. Those under 50 will be allowed to save up to £4,000 a year and receive a government bonus of up to £1,000 a year. Amounts invested into a Lifetime ISA can be withdrawn tax-free to put towards a first home or once the holder turns 60.
There were no other major changes to the business tax regime.
The article outlines the typical tax payment dates and methods of estimating the values of tax payable for each type of tax, including VAT, PAYE, NIC, CIS, Corporation Tax, and Dividend and Personal Taxes.
Rishi Sunak has proposed a number of changes to the way that Corporation Tax will be calculated and applied. Learn more.