15-Mar-2017, Philip Hammond once more took an audience at the House of Commons last week and delivered his Budget 2017. It wasn’t a big Budget by any stretch, probably due to the Autumn Statement now becoming the main Budget announcement later this year (and for all years subsequent). Still though, he managed to make a couple of important announcements affecting our clients.
The most significant impact is the reduction of the dividend allowance from £5,000 down to £2,000 from April 2018 (so you still have one more year of the £5,000 allowance). The dividend allowance taxes all dividends up to the allowance threshold at 0%. For dividends above this, the tax rate depends on the individuals overall earnings band but is generally 7.5%, followed by 32.5% for those earning above the basic rate band (and then 38.1% for earnings above that). It’s another significant increase in tax and while its still worthwhile using a ltd company from a tax perspective, it makes your personal tax planning even more important.
NIC Changes for Self Employed
You may have seen mention of this in the newspapers. While it doesn’t affect our clients (this change affects sole traders), it has received a lot of media coverage as the Tories were accused of breaking a manifesto commitment to not increase National Insurance (although they have pointed out that this commitment only referred to Class 1 NIC).
The main rate of Class 4 NICs will be increased to 10% (from 9%) from 6 April 2018 and will be further increased to 11% from 6 April 2019. This follows on from the announcement that Class 2 contributions are to be abolished from April 2018.
It’s a simplification of the NIC regime for self-employed, but no doubt also a tax increase for those self-employed traders earning over £16,250.
Property and Trading Allowance
As previously mentioned in the Autumn Statement, a new £1,000 allowance becomes effective from 06 April 2017 for individuals with small amounts of income from providing goods, services, property or other assets. This means if you have a little side business with relevant income (before expenses) of less than £1,000, the there is no need to declare the income, or pay tax on it.
Making Tax Digital
In relation to Making Tax Digital (MTD), businesses with turnover below the VAT threshold will have an extra year before they must comply with the MTD digital reporting requirements. There are different timetables for different types of businesses, but for our clients who trade using a Ltd Company, the requirements of MTD (involving quarterly reporting of Turnover / Profits) commence from April 2020.
The VAT registration thresholds usually change each year, and this year is no exception. From 1 April 2017, the VAT registration threshold will be increased to £85,000. The deregistration threshold will similarly increase to £83,000. If your business turnover exceeds the registration threshold then your company MUST register for VAT. And if it drops below the deregistration threshold (once it’s registered) then your business CAN deregister for VAT if you want it to.
As mentioned in the 2016 Autumn Statement, the government will cut the rate of corporation tax to 19% from April this year and then again to 17% in 2020. This was well publicised previously, and was expected. Overall its good news for our clients.
Avoidance, evasion and compliance
This continues to be a central theme for this Parliament, and it has announced over 35 new measures to tackle avoidance, evasion and aggressive tax planning. It estimated that since 2010, HMRC has secured around £140 billion in additional tax revenue through tackling avoidance, evasion and non-compliance, and the UK’s tax gap remains one of the lowest in the world. All our clients use their ltd company compliantly, and any offers you receive from offshore providers, or schemes that appear overly complicated to avoid tax, should be ignored, as the risks are just too high.
Rent a room relief
And finally, buried in the Budget was a section suggesting the “rent-a-room” taxbreak would be removed for short-term letting. At the moment an individual may rent a room in their own residence, and provided that rental income does not exceed £7,500, all rental income is tax-free. The purpose of this relief was to increase the supply of affordable long-term lodgings, but short term lets through the likes of Air BnB do not meet this objective. So the Government “will consult on proposals”, with a view to abolishing the relief for short term lets.