2017 Spring Budget, Wednesday, 8th March.
The Budget is one of two major speeches that the government makes each year about how it’s going to spend the nation’s money. It is also the Government’s annual review of levels of taxation as well as their future financial strategy and economic forecast.
In the announcements, small business owners were heavily targeted.
In this summary, we explain the main points of the Budget 2017 for small business owners and remind you of some changes that have already been announced and are due to be introduced soon.
Since writing this blog, the government have decided to hold fire on some of the changes to Ntional Insurance, so watch this space!
The Corporation Tax rate will be lowered to 19% from April 2017 and 17% by 2020.
But, the tax-free Dividend Allowance, which was first introduced in April 2016, will be reduced from £5,000 to £2,000 with effect from April 2018.
This means dividends will be taxed as follows:
- 0% on the first £5,000 (reducing to £2,000 in April 2018)
- 7.5% within the basic rate band
- 32.5% within the higher rate band
- 38.1% within the additional rate band
This will means that an owner managed business will pay further tax when extracting profits from their company, despite the fact that they will be paying less Corporation Tax.
National Insurance contributions
Class 4 NIC’s for the self-employed, currently 9% on profits above £8,164, will increase to:
- 10% from 2018/19
- 11% in 2019/20
However, the Class 2 NIC of £145.60 pa, which used to be paid by monthly direct debit and is now paid at the end of the tax year (as part of the self assessment tax reurn), will be abolished.
Therefore, in 2018/19, clients with profits above £22,724 will pay more NIC, while those below £22,724 will pay less.
From 2019/20, the NIC costs will be higher when the profits exceed £15,444. These figures have been based on there being no changes to the income bands.
Registration and Deregistration Thresholds
Businesses MUST register for VAT once their taxable turnover for any rolling 12-month period exceeds the VAT registration threshold.
They may opt to deregister if their turnover falls below the de registration threshold.
From April 2017
From April 2016
|VAT registration threshold||
|VAT deregistration threshold||
Personal Allowance and Tax Rates
The personal allowance for 2017/18 will be £11,500.
The basic rate band of 20% increases to £33,500.
The higher band rate (40%) starts on income above £45,000.
The Government intends to increase these to £12,500 and £37,500 respectively by the end of their term. This will mean an individual can earn up to £50,000 before paying tax at 40%.
Making Tax Digital
Making Tax Digital is a government initiative that sets out a vision for ‘a transformed tax system and the end of the tax return’ by 2020. The aim of the initiative is to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system. Taxpayers and businesses subject to certain criteria will be expected to update their affairs with HMRC quarterly by using online bookkeeping software.
In today’s Budget, it was announced that Making Tax Digital would be deferred until April 2019 for unincorporated businesses and landlords with turnover below the VAT registration threshold. This will provide them with more time to prepare for digital record keeping and quarterly updates.
For businesses, self-employed people and landlords, the Making Tax Digital timetable is now:
- April 2018 if they have profits chargeable to Income Tax and pay Class 4 NICS and their turnovers are above the VAT threshold
- April 2019 if they have profits chargeable to Income Tax and pay Class 4 NICs and their turnovers are below the VAT threshold
- April 2019 if they are registered for and pay VAT
- April 2020 if they pay Corporation Tax (CT)
Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from MTD.
National Living Wage
The National Living Wage will rise from £7.20 to £7.50 per hour for those aged 25 or over from April 2017. The Government’s aim is to increase this to over £9 an hour by 2020.
As always if you have any questions please don’t hesitate to get in touch.