Chancellor Philip Hammond delivered his fairly bland first (and last) Spring Budget. Fairness across the tax system was highlighted and used as a precursor to his main announcements. Other announcements were aimed at longer-term growth and productivity, with balancing the books still being the main objective. In amongst the waffle there were some points of note and the top ten points are as follows:
- National Insurance for the self-employed – the main rate of Class 4 National Insurance contributions will increase from 9% to 10% in April 2018 and to 11% in April 2019. This ties in with the abolition of the flat rate in Class 2 from 2018 and reflects the introduction of the new State Pension to which the self-employed have the same access. This will see a contribution increase for those with profits falling between £16,250 and £43,000. This was referred to as the ‘start’ of aligning the self-employed with the employed.
- Shareholder dividends – in a similar vein, the tax rates on dividends were increased in April 2016 alongside a £5,000 tax-free dividend allowance per shareholder. From April 2018 this allowance will be reduced from £5,000 to £2,000. Whilst the Government state that 80% of investors will not be impacted, it is likely to impact director shareholders, in particular family companies. This could be an additional tax increase of between £225- £1,143 per shareholder, per year.
- Corporation tax – no major changes were announced, the corporation tax rate is set to fall to 19% from April 2017, with a competitive 17% rate aimed for by 2020. In addition, to ease corporate administration, the Government will consult on Research & Development reliefs to reduce the on-going administration and increase the digitalisation of this regime – but crucially it appears there will be no change in the rates.
- Making Tax Digital – quarterly digital reporting is being introduced in stages from April 2018 to revolutionise the current tax reporting system. The Chancellor announced a year’s grace for unincorporated businesses and landlords with turnover below the VAT threshold (£85,000 from April 2017), delaying the requirement for quarterly reporting until April 2019.
- Buy-to-let landlords – although not mentioned in the Budget, the interest relief restrictions are being introduced from April 2017, with 25% of interest being restricted to basic rate relief. This measure could have a real cash flow impact on landlords paying down financing. The restriction to basic rate relief on all interest will be in place fully by 2020/21.
- Inheritance Tax – the new ‘family home’ tax free allowance for inheritance tax is being introduced in phases from April 2017. This gives an additional £100,000 of tax-free succession per person, saving up to 40%. By 2020/21 this will have increased to £175,000 per person. When added to the standard nil rate bands this can provide the heralded £1m inheritance tax free band for a married couple. There are a number of conditions to be met and the relief is tapered on estates over £2m, so each position should be checked before relying on the relief.
- Savings – the NSI bond rate, which begins in April 2017, was announced at 2.2%, not as ‘market-leading’ as perhaps anticipated. It has a three year term and a maximum investment of £3,000. The returns are limited but still worth discussing with your financial adviser as part of your overall planning.
- Business rates – many English businesses are going to feel the pinch from the business rates revaluation taking effect from April 2017. To restrict the impact for businesses losing Small Business Rate Relief a £600 increase cap will be introduced. In addition, local authorities will have access to £300 million of discretionary funding. And finally, to protect pubs, a £1,000 business rate discount will be available for those with a rateable value of up to £100,000, benefiting 90% of all pubs. Although these measures are short-term, for the first year only.
- Training and education – it was recognised that the labour market is changing and the skills needed are varied. Funding was announced for STEM (science, technology, engineering and maths) subjects, new ‘T-level’s for 16-19 year olds for technical education, increased training time and work placements. Funding was also announced to support those returning to work from a career break.
- Childcare – tax free childcare will be available to all eligible parents by the end of 2017. To qualify, parents need to be earning at least £115 each per week. It doesn’t rely on employers and includes those in self-employment. The savings can be large and the online process should be easier.
Happy International Women’s Day!