08 Mar Small Business 2017 Budget Highlights (or low lights!)
Small Business Budget Highlights (or low lights!)
The Chancellor of the Exchequer has delivered the final Spring Budget. This is not the first time this has been attempted however. Twenty four years ago, Norman Lamont, made the same announcement only to be sacked ten weeks later!
Listening to Philip Hammond, at times one did wonder if this was not a Labour budget given the measures designed to make small businesses pay more tax.
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.
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.
There were no other major changes to the business tax regime.