A summary of the key business tax announcements made in the Chancellor’s Spring Budget on 8 March 2017.
Dividend allowance cut to £2k
In a surprise move, it was announced there will be a cut in the tax free dividend allowance from the current £5,000 to £2,000 with effect from the start of the tax year in April 2018. This will cost basic rate taxpayers an extra £225 in income tax each year, higher rate taxpayers £975 and additional rate (45%) taxpayers £1,143 a year.
The Treasury said the allowance was being shrunk so as to “reduce the tax differential between the self-employed and employed, and those working through a company, to raise revenue to invest in public services”.
The spin doctors at the Treasury seem to have forgotten the introduction of the extra 7.5% tax on all dividends in April 2016, which saw a company director earning £40k per year pay an additional £2,000 per year in tax in the 16/17 tax year.
Self-employed Class 4 NICs increases to 11% by 2019
A two percentage point increase in national insurance contributions (NICs) paid by the self-employed (sole traders and partnerships) has been met with fury by the self employed and entrepreneurs, although it creates more of a level playing field with PAYE workers.
There were some interesting comments from MP’s on the NIC increase:
John Redwood, Conservative MP for Wokingham said: “I don’t think we should be going out of our way to tax work, growth and enterprise and success.”
Iain Wright, the Labour MP for Hartlepool, described it as a “tax on enterprise”.
The Conservative MP Anna Soubry suggested Mr Hammond will be forced into a “U-turn” on dividend payments, adding: “This will not be popular and many will argue it’s unfair.”
Rupert Harrison, who was chief of staff to the former chancellor George Osborne, described the move as “very risky territory for a Conservative Chancellor with a small majority” and suggested it would be so unpopular that “we can rule out a snap election”.
Personal allowance rises to £11.5k
The income tax personal allowance will rise for the seventh year in a row to £11,500 and the higher rate threshold will increase to £45,000 (£43,000 for Scottish Taxpayers), from April 2017.
Making Tax Digital delayed until April 2019
The Chancellor has delayed the introduction of HMRC’s Making Tax Digital for for those under the latest £85,000 VAT threshold.
VAT registration threshold rises to £85k
From 1 April 2017 the VAT registration threshold will increase to £85,000 from £83,000 and the de-registration threshold will rise from £81,000 to £83,000.
Childcare benefits set to double to £5k
From September 2017, free childcare for three and four year olds will increase from 15 to 30 hours, worth up to £5,000 for each child.
Road tax rise for vehicles registered before April 2017
As part of the spring Budget there will be an increase in road tax rates for cars, vans and motorcycles registered before April 2017 in line with RPI. This is set to cost individuals no more than £5 extra in Vehicle Excise Duty.
Corporation tax rate cut to 19%
In line with the government’s need to keep the UK as competitive as possible in, there will be a further cut in the UK’s corporation tax rate bringing it down to 19% from the 2017/18 tax year.
20% VAT on roaming charges outside EU
UK VAT is to be introduced on roaming telecoms services used outside the EU for the first time, meaning that holiday makers and business travellers will see a 20% hike in call charges