Widely received as a safe, no frills budget, against a background of mildly encouraging news about the UK economy, today’s announcements nevertheless included some unwelcome – if widely predicted – news, especially for businesses. The picture overall is one of targeted spending announcements, with two significant tax raising measures.
In reality, most businesses, and the stock markets, are probably more interested in what happens to the economy as Brexit becomes a reality, and in particular whether the UK’s unexpectedly buoyant economic performance will be sustained.
There are some further clampdowns on tax avoidance schemes, but less than in previous budgets, perhaps an indication of that a tightening up of rules for those who devise and market such schemes is working.
And there is no mention of potential tax implications of the recent crop of employment cases brought by those seeking worker status in the so-called “gig economy”. This is potentially a source of significant amounts of VAT and PAYE if sub-contractors are reclassified as employees.
Income tax rates and allowances
For 2017/18 the personal allowance will be £11,500 (up from £11,000) and the basic rate threshold £33,500 (up from £32,000).
The capital gains tax annual exemption will increase from £11,100 to £11,300.
National Insurance hike for the self employed
The disparity between the rates of NIC payable by the self employed, and those of employees and company directors, had been identified as a potential target for a tax grab. The chancellor obliged, increasing the rate from 9% to 10% for 2018/19 and then 11% for 2019/20.
This applies to profits between £8,060 and £43,000 so the cost for a sole trader or partner earning at or above this level will be £349 for 2018/19.
At the same time, Class 2 NIC – a remnant of the old weekly NI stamp – will be abolished, a saving of £145 per annum.
Lowering of dividend tax threshold
When the 7.5% dividend tax was introduced for the 2016/17 tax year, it applied to dividends of over £5,000. It was a concern at the time that this threshold could be lowered in future and this has been done after just two years. In fact, not so much lowered as slashed, from £5,000 to just £2,000, to take effect for the 2018/19 tax year.
This could cost a basic rate taxpayer £225 per annum, a higher rate taxpayer £975, and someone on the top rate up to £1,143.
All of which makes it more important than ever to review dividend policy for owner managed companies, and for savers to maximize their use of the ISA allowances.
Some relief was announced for businesses facing big increases in their rates bills following the revaluation in April 2017, to limit annual increases in some cases, setting up a fund to allow local authorities to grant discretionary relief, and giving a one year discount to pubs with a rateable value of up to £100,000.
Making Tax Digital
MTD is the Governments ambitious program to move all tax reporting online. In response to concerns about the ability of smaller businesses to meet the proposed deadlines, the mandatory adoption of MTD by businesses below the VAT turnover limit will be deferred until 5 April 2019.
Rent a room relief
The government proposes a review of rent a room relief, which currently allows spare rooms to be let for up to £7,500 per annum tax free.
We suspect this is aimed at excluding short term online lets, to restrict the relief to its intended target, which was to encourage people to let spare rooms long term to ease strain on demand for housing.
VAT registration threshold
This is to be increased for £83,000 to £85,000.
This a summary of the key announcements in today’s Budget. As always it is for general guidance only, and you should seek specific advice before acting on any of the matters covered.