… and other attacks on small businesses

The Chancellor of the Exchequer, Philip Hammond, has delivered his first Budget, which is also the final Spring Budget. He’ll be back for another one in the Autumn!

The Budget was full of bad new for small business owners.

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.

Class 4 NIC

This NIC charge on self-employed business profits (not companies) 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.

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?

VAT thresholds

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

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, i.e. 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.

You can download our Budget 2017 report here.