Philip Hammond’s first Budget speech as Chancellor was a relatively low key affair, with only a few standout announcements.
One of these was the increase in Class 4 National Insurance contributions (NIC’s) for the self-employed. This increase follows the previously announced abolition of the outdated Class 2 NIC’s, which the Chancellor stated would only increase the tax gap between the employed and self-employed. As a result, from April 2018 the main rate of Class 4 NIC’s will be 10%, rising to 11% in April 2019.
Although he is being criticised for hitting the self-employed the hardest, the Chancellor has confirmed that for unincorporated businesses with annual turnover below the VAT registration threshold, Making Tax Digital (MTD) and the associated quarterly reporting obligations will not become mandatory until April 2019, a year later than it will come into force for some others. As part of this, the Chancellor also confirmed that the VAT registration threshold will increase to £85,000 from April 2017.
As expected, there are no changes to the previously proposed increase in the personal allowance, to £11,500 in April 2017, and to reach £12,500 by April 2020.
There were also no changes to the Corporation Tax rates, which are set to fall to 19% in April 2017, which the chancellor pointed out was the lowest rate in the G20, and dropping to 17% by April 2020.
However, in order to reduce the tax gap between the self-employed and those operating via a company, the tax free dividend allowance will be reduced from £5,000 to £2,000 with effect from April 2018. As a result, investors in receipt of dividends in excess of £2,000 will also be affected.
Although detail on this is yet unknown, it was also announced that the government has reviewed the R&D tax regime for companies, and whilst they state it is both effective and globally competitive, in order to make the UK even more attractive for R&D, they have committed to reducing the administrative burdens involved with such claims.
With the business rates revaluation set to take effect in England from April 2017, the Chancellor confirmed that for businesses losing Small Business Rate Relief, any increase will be capped at £600 per year. In addition to this, public houses with a rateable value up to £100,000 will also receive a £1,000 business rate discount for 2017. The Chancellor stated this would affect 90% of all pubs.
The Chancellor also followed up on his announcement at last year’s Autumn Statement to tackle tax avoidance, evasion, and non-compliance, setting out further action and introducing financial penalties for professionals who enable a tax avoidance arrangement which is later defeated by HMRC.
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