On Wednesday the Spring budget was the first of two budgets in 2017, and the last time the UK will have a Spring budget, as it now moves to one annual budget each Autumn.
The budget document may have been considerably lighter on content than normal but it still packed a few surprises.
Headlines include the following:
|Allowances and taxes for employees to change as planned
· No changes to those previously announced regarding the personal tax-free allowance or income tax and national insurance bands;
· Personal allowance will rise as planned to £11,500 this year and to £12,500 by 2020;
· 40% income tax band will also rise as planned from £32,000 to £33,500;
· Headline NIC rates for employees and employers will remain unchanged; and
· The NIC upper earnings threshold will increase from £43,000 to £45,000 for 2017/18.
The changes to the NIC upper limit will mean more NIC paid by employees and employers and will negate some of the tax savings enjoyed by employees as a result of the higher income tax thresholds.
|National insurance for the self-employed on the rise
|· Class 4 National Insurance contributions for self-employed will increase from 9% to 10% in April 2018 and 11% in April 2019; and
· Flat rate Class 2 NIC will be scrapped as planned in April 2018.
Initial estimates of the overall impact of the changes to self-employed National Insurance is that these changes could cost self-employed workers an average of £240 p.a. However, ministers were keen to point out that those earning under £16,250 will pay less.
|Tax-free dividend allowance cut
|The tax-free dividend allowance, which was introduced at a level of £5,000 in 2016/17, will be reduced to £2,000 from 2018/19. This will cost £225 for taxpayers on the basic rate, £975 for those on the higher rate, and £1,143 for those on the additional rate.
As well as affecting many business owners, the reduction in the allowance will also impact on savers, typically those with investment portfolios over around £60,000 (based on current average returns).
One consequence of the changes to the dividend allowance is to increase the attractiveness of ISA’s to savers. Another change is that partnership business models may be more efficient than corporate models in certain circumstances.
|Company loss reliefs to be reformed to offer greater flexibility
|As announced last year, the rules governing carried forward losses will be reformed with effect from 1 April 2017. The change will give all companies more flexibility by relaxing the way in which they can use losses arising on or after 1 April 2017 when they are carried forward. These losses will be useable against profits from different types of income and the profits of other group companies.
Additionally, there will be restrictions brought in on the use of losses where a group or company’s profits are above £5m.
|VAT thresholds to increase
|The VAT registration threshold will increase from £83,000 to £85,000 from 1 April 2017. The deregistration threshold will go up from £81,000 to £83,000 from the same date.
|Making tax digital
|The mandatory application of Making Tax Digital for unincorporated businesses with turnover below the VAT threshold will be deferred for one year, to April 2019. On the back of the introduction of Real Time Information and Auto Enrolment in recent years, this will be welcome news for many.
Despite relatively upbeat economic indicators, it appears clear that the Chancellor wishes to keep his powder dry and to build up a buffer to help ride any waves created by the Brexit process. Indeed, it appears that there is limited strategy other than to wait and see.
Although lighter in content than past budgets, there were some significant announcements, some welcome, others less so. In our view, the increases in national insurance and reduction in the dividend allowance will have a significant impact, particularly on small business owners. On the other hand, the relaxation on the use of trading losses and the delay in small businesses having to comply with Making Tax Digital will be welcomed.
As ever, the devil is in the detail with this budget and it will impact some more than others. If you wish to discuss any aspects of the budget or explore how your business should react, please do get in touch with the RBL team. Otherwise, look out for our Autumn budget later in the year.