By Simon Vincent, Senior Accountant at Hive Business.
Yet another Budget has been and gone. This time it was the ‘last’ Spring Budget, and once again, as with the ‘last’ Autumn Statement, Phil thankfully appeared to keep his tinkering with tax legislation to a minimum compared to his predecessors.
Presenting a slightly more upbeat forecast on the economy (although let’s not mention that surplus…), this Budget announced only a few policy changes, with a comically repetitive focus on “fairness”.
You cannot have failed to hear about the changes to National Insurance – in contravention of manifesto promises, there will now be an extra 2% for self-employed individuals over the next two years. Apparently, this does not break their law on the topic as this is Class 4 NI and not the Class 1 NI that was legislated (look into my eyes, not around my eyes… )
With the abolition of Class 2 NICs kicking in at the same time, this is set to cost about £240 per year. (That is until they changed their mind!)
At the same time, the fresh out of the wrapper dividend allowance has already been slashed from £5k to £2k, following the argument that this had increased the tax gap in favour of being a company. I would disagree: the 7.5% increase in tax on dividends introduced last year substantially narrowed this gap. The cut in this allowance will cost individuals operating through a company £225 per year but the increase in NI completely offsets this in the usual self-employed vs. limited company comparison.
You’re still better off operating through a company. Something about “foot”, “self” and “shot” comes to mind, but you can work out the order.
You may want to act fast to take advantage of this allowance before it reduces. There’s still potential savings of £3,250 to be had before this reduction kicks in for proper share restructuring.
The small print
As is always the case, however, there were several changes that were not announced. These mainly rubber stamped previous announcements but of note:
- Proposed changes to Substantial Shareholders Exemption will indeed be introduced from April 2017, widening the availability of this relief to almost all companies disposing of subsidiaries – this is an area much more relevant to dentists nowadays following the abolition of tax relief on goodwill;
- A consultation on rent-a-room relief will be held over the summer with a view to focusing this more towards long term lets. This would appear to us to be clearly targeted at Airbnb users taking advantage of this long-standing relief that pretty much pre-dates the internet;
- HMRC are following through on restrictions to salary sacrifice arrangements, with only Pensions, Childcare, Cycle-to-Work and low emission vehicles escaping the restrictions from April 2017;
- Companies trading in Northern Ireland will be able to benefit from the 12.5% Corporation Tax rate being introduced in April 2018;
- Making Tax Digital has been delayed for all unincorporated businesses (including rental portfolios) with turnover less than the VAT threshold (which is rising to £85k);
- A guaranteed rate on the new NS&I bond was announced to be 2.2% over 12 months although the catch being this is only for deposits up to £3k.
The final draft of the Finance Bill 2017 will be released on 20th March and this is when we’ll be able to get a better picture of exactly how some of these changes will work.
If you’d like to speak to us about the recent Budget, get in touch on 01872 300232 or email firstname.lastname@example.org.