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News

April 2017 Newsletter

Overview

"Spreadsheet Phil" Hammond's first and only Spring Budget was as boring as we tax professionals wanted. This was probably necessary because there were a number of matters announced by his predecessor that are still bedding in.

The key announcements for small businesses were:

  • Making Tax Digital (MTD) deferment for businesses with turnover under VAT threshold to April 2019
  • VAT thresholds increase to £85,000 (£83,000 deregistration) from 1 April 2017
  • Dividend allowance cut from £5,000 to £2,000 from 6 April 2018
  • Class 4 NIC increases from 9% to 10% from 6 April 2018, and to 11% from April 2019
  • CGT: Annual exemption increases from £11,100 to £11,300 on 6 April 2017

Otherwise, the budget was very thin on tax measures

Making Tax Digital

This is HMRC's programme to get everyone submitting their tax return information electronically, four (possibly five) times a year. Under the original announcement (which lacked detail on many aspects of the plan) all unincorporated businesses, including landlords, would have had to start applying MTD from 6 April 2018. It has now been revised and only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to Income Tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018.

VAT Threshold increases

These are self-explanatory and about in line with inflation.

Dividend allowance cut

The dividend allowance was introduced last year as part of a package to change how dividends were taxed. The aim was to stop a perceived abuse where directors / shareholders of private companies were taking money from their company by way of dividend to avoid national insurance charges on salaries. The Treasury has obviously decided that even the new basis was too generous and has reduced the tax free element. For a basic rate taxpayer this will increase the tax charge by £225.

Whilst it was intended to prevent entrepreneurs abusing the system, it will also affect anyone with a share portfolio of around £50,000 who relies on the dividend return for their income.

Class 4 NIC increase

The increase in the rate of Class 4 national insurance paid by self-employed individuals has probably been the announcement in the budget that has got the most press reaction and had small business representatives making statements about the unfairness of the increase. Most commentators seem to have missed the fact that from April 2018 Class 2 national insurance contributions for self-employed individuals are to be abolished (announced by the previous Chancellor in his final budget last year). Taking this into account, from April 2018 a self-employed person with profits below £16,250 will actually pay less national insurance than under the present rates.

Increasing the capital gains tax annual exemption

Like the increase in the VAT thresholds this is straight forward and in line with expectations.

Other matters

There has been plenty of discussion about relief for rate increases etc. but my view is that most of this is more relevant to the south and south east of the country where the large increases in property values have brought about the high increases in annual rates charges. Certainly in the Wakefield area this would appear to be less of a problem.

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