The Chancellor of the Exchequer, Philip Hammond, delivered his first Spring Budget to Parliament yesterday, optimistically reporting in his opening speech to Mr Deputy Speaker on “an economy that has continued to confound the commentators with robust growth. A labour market delivering record employment. And a deficit down by over two-thirds.”
He made light of the fact that this will also be the last Spring Budget, with the Treasury reminding him that he was not the first Chancellor to announce this, 24 years ago Norman Lamont having presented the same and being fired 10 weeks later….
Not much was mentioned in the way of Brexit, only that the Budget prepares “Britain for a brighter future” and “living within its means”.
With that, we summarise the key points from the 2017 Budget Speech.
Business Rates
The Chancellor announced three measures which will apply to the national business rates system for England:
- Any business that loses the small business rate relief will not see their bill increase by more than £50 a month, and subsequent increases will be capped at the same figure of £50 a month;
- Any pubs with a Rateable Value of less than £100,000 will see a discount of £1,000 on their business rates bill;
- A £300m fund will be provided to local authorities “to deliver discretionary relief to target individual hard cases in their local areas”.
Corporation Tax
Mr Hammond’s ambition is for the UK to be the best place to start and grow a business, and with that in mind he went on to declare that in 2020 Corporation Tax will fall to 17%. Currently the rate of Corporation Tax is 20%, decreasing to 19% from 1 April 2017. Good news for Limited Companies.
Making Tax Digital
Expressing that “In a digital age, it is right that we develop a digital tax system”, the introduction of quarterly reporting for businesses with a turnover less than the VAT registration threshold, currently £83,000, will be delayed by one year. Good news for smaller businesses who now have more time to get their house in order, and to let the bigger traders iron out the inevitable creases in the new MTD systems.
National Insurance Contributions
With an announcement that many took to be an attack on the self-employed, and something that reportedly fails to take into account the risks they take and the employee benefits they forsake, the Chancellor stated:
“An employee earning £32,000 will incur between him and his employer £6,170 of National Insurance Contributions. A self-employed person earning the equivalent amount will pay just £2,300 – significantly less than half as much.”
The abolition of Class 2 NIC will still take effect in 2018 but “in order to improve fairness of the tax system” the main rate of Class 4 NICs for the self-employed will increase from 9% to 10% effective from 6 April 2018*, with a further 1% increase in April 2019. This will see a reduction in total NICs bill for self-employed people earning less than £16,250, but an increase for those above that level.
As a side note it’s worth mentioning that this increase in NI goes directly against the 2015 Tory election manifesto, which stated:
- we will not raise VAT, National Insurance contributions or Income Tax
- we can commit to no increases in VAT, Income Tax or National Insurance. Tax rises on working people would harm our economy, reduce living standards and cost jobs
*UPDATE: In the following days after the Spring Budget, the controversial NI increase has now been delayed until after the Autumn following a Tory revolt.
**UPDATE to the UPDATE: Following on from the announcement of a delay to the NI increase, this has now been delayed indefinitely.
Tax Bands
For the 7th consecutive year running, the personal allowance increases by more than inflation from £11,000 in this tax year to £11,500 from 6 April 2017.
The basic rate tax band (20% band) also increases from £32,000 to £33,500 from next month. Therefore, the higher rate tax threshold goes from £43,000 to £45,000 in the new tax year.
| Tax year 2016-17 | Tax year 2017-18 | |
|---|---|---|
| Basic rate | £0-32,000 | £0-33,500 |
| Higher rate | £32,001-150,000 | £33,500-150,000 |
| Additional rate | Over £150,000 | Over £150,000 |
If you live in Scotland you will find your tax bands and allowances no longer follow the rest of the UK, with the Scottish Parliament now able to set their own (although importantly not their own bands for NI or dividends, which will make your tax computations interesting to say the least).
Dividends
The current tax free dividend allowance of £5,000 allows each shareholder to receive up to that amount from of their company free of income tax, in addition to being entitled to their personal allowance of £11,000. Mr Hammond believes this to be “also an extremely generous tax break for investors with substantial share portfolios”. Going on to address the “unfairness around “Director/Shareholders’ tax advantage” he thus reduced the tax free dividend allowance to £2,000 with effect from April 2018.
In summary, there wasn’t anything exceptional announced in the Budget aside from increases in the usual tax rates and allowances, and the surprise NI hike for the self-employed. The dividend allowance decrease from £5,000 to £2,000 may also have surprised a few people but on the whole, ‘Spreadsheet Phil’ maintained his reputation for analysis and delivered a promised “boring” budget which was strung out for almost an hour. They do say boring is good!
You can read the Spring Budget 2017 on HMRC’s website.
Please note that this blog is intended as an overall summary to the subject matter, and should not be taken to be exhaustive or specific advice. You should discuss your individual personal circumstances with your own professional adviser before taking any action.