The Spring Budget brought good news and some bad news for small businesses, Enterprise Nation provides a clear summary to understand the changes:
Firstly the good news.
Small businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD). This is the measure which the government will be introducing in April 2018 under which businesses will be required to file quarterly tax returns in a digital format.
Until the Spring Budget this was going to affect all unincorporated business with annual turnover above £10,000. The Spring Budget has given unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold until April 2019 to prepare before MTD becomes mandatory.
Considering that the software to provide businesses with the ability to meet these requirements has not yet been designed (HMRC will start trials in April 2017), this decision will give unincorporated businesses and their accountants more time to prepare for the changeover to digitalized tax returns.
The bad news largely came in two forms.
*Firstly the self-employed will pay an increased National Insurance Contribution (NICs). Currently, the self-employed may have to pay both Class 4 and Class 2 NICs:
Class 4 NICs at 9% are paid on profits between £8,060 and £43,000
Class 2 NICs are paid on profits of £5,965 or more
From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019.
Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes. The government says that this better reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016. In the Summer, the government will also consider whether there is a case for greater consistency in parental benefits between the employed and self-employed.
*NOTE there was a an update on the above point on March 15 2017 where the Chancellor announced that the increase in Class 4 NICs has been cancelled.
The second bit of bad news concerns those businesses which are incorporated (limited companies). The tax-free dividend allowance ,which enables individuals to receive £5,000 of dividends tax-free will be reduced to £2,000 from April 2018.
This will reduce the tax difference between the self-employed and those working through a company. Typically, general investors will need over £50,000 worth of stocks and shares outside an ISA to be affected. However it will reduce the incentives for small business to incorporate and to pay profits in excess of the proprietors Income Tax Personal Allowance as dividends.
The fact that this change takes effect in April 2018 allows time for directors of limited companies to discuss with their accountants, whether it will minimize their taxation liabilities in 2017/18 to pay dividends before 5 April 2018. Partially offsetting this additional tax liability is the reduction in the corporation tax rate from 20% to 19% from April 2017.
For businesses subjected to the increase in business rates from April 2017 there is some relief; £435m to support businesses affected by the business rates relief revaluation.
This means no small business that is coming out of small business rates relief will pay more than £600 more in business rates this year than they did in 2016-17.
Funding for local authorities will allow them to provide £300m of discretionary relief to provide help to businesses most affected by the revaluation. And from April 2017, pubs with a ratable value up to £100,000 will be able to claim a £1,000 business rates discount for one year.
The impact of these changes will take time to filter down to the individual businesses so from a business perspective the news is mixed. However the Chancellor has not really tackled the growing regulatory burdens that businesses, particularly small ones, are facing as a result of measures introduced in previous budgets. The delay in MTD for those businesses with turnover under the VAT threshold was a great first step but he could have gone a lot further.
In response to the Spring Budget on 13 March 2017 The Federation of Small Businesses (FSB) released a list of challenges facing the self-employed – see their website for the full list however these include no sick pay, no employer pension contributions, inferior maternity pay and pensions and putting their homes and family’s livelihoods on the line to build their businesses.
FSB National Chairman Mike Cherry said: “While setting yourself up in business can be incredibly rewarding and exciting, there are many risks and the government provides few safety nets. The risks that the self-employed face makes them fundamentally different to employees. This is why the proposed National Insurance tax grab on this group is an absolute kick in the teeth, just at a time when we need to create more entrepreneurs, not fewer.”
“We called on the Government to think again and there is at least now a delay to allow Ministers a rethink. They must come to their senses. Each and every item on our list shows just how different life is for the UK’s 4.8 million self-employed. The Government should be spending its time focusing on issues like these rather than picking the pockets of the UK’s hard-working strivers.”
The Spring Budget raises a number of issues regarding the taxation of small businesses. It is important that businesses – the self-employed, partnerships and limited companies – have a discussion with their accountant to understand how the Spring Budget measures will affect them.
A good accountant will be happy to explain the pros and cons of government changes and how they affect you and your business. Here at Keen Dicey Grover our door is always open to talk you through the complexities of tax, allowances and government policies.
We make it our policy to work with our clients to ensure they are operating in the most financially efficient way, now and in the future. By ensuring our clients are confident and informed about their financial business structure, we know this enables them to concentrate on building their business and growing their finances.
Keen Dicey Grover
We care………..we really care
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