Spring Budget 2017 Summary
Update – the proposed changes to class 4 National Insurance for self-employed individuals have now been dropped. See here for further details.
A summary of some of the changes anounced by the Chancellor of the Exchequer in the 2017 Spring Budget, published on 8 March 2017.
Income and Personal Tax
Personal Allowance and Higher Rate Threshold
The personal allowance is increasing from £11,000 in 2016/17 to £11,500 in 2017/18. The basic rate band will increase from £32,000 for 2016/17 to £33,500 in 2017/18.
Individuals will therefore be able to earn up to £43,000 before paying higher rate tax.
Dividend Allowance Reduction
The current tax free allowance of £5,000 for dividend income is to be reduced to £2,000 from April 2018. This is to reduce the tax differential between the employed/self-employed, and those working through a company.
Class 4 National Insurance – NO LONGER APPLICABLE (SEE ABOVE UPDATE)
The main rate of Class 4 National Insurance will increase from 9% to 10% in April 2018 and then again to 11% in April 2019.
This could represent an additional cost of up to £730 to self employed individuals, however it should be noted that as class 2 NI has been abolished from April 2017 as well, the real cost is around £590 for those who pay tax at the higher rate.
Changes to Qualifying Recognised Overseas Pension Schemes (QROPS)
A new 25% charge on transfers to QROPS is being introduced from 9 March 2017, targeted at those aiming to reduce their tax payable by moving their pension wealth to another jurisdiction. Exemptions will apply under certain circumstances.
Cash Basis of Accounting for Small Businesses
From April 2017, the entry threshold for the simplified cash basis of accounting for unincorporated businesses will be increased from £83,000 to £150,000. The exit threshold will remain at double the entry threshold, set at £300,000.
Corporation tax is to be cut to 19% from April 2017.
Making Tax Digital
An extra year is being provided to landlords and unincorporated businesses with turnover below the VAT threshold, before they will be required to use the new digital service. The timetable for how Making Tax Digital is to be mandated is as follows:
April 2018 for those that have profits chargeable to income tax, pay Class 4 NIC and have turnover above the VAT threshold;
April 2019 for the same individuals but who have turnover that is below the VAT threshold, or if they are registered for and pay VAT;
April 2020 for partnerships with a turnover in excess of £10m and for those that pay corporation tax.
Taxation of Offshore Property Developers
For contracts entered into before 5 July 2016, where the profits from a trade in UK land are recognised for accounting purposes on or after 8 March 2017, those profits will now be chargeable to UK tax if not already chargeable previously. This will affect situations where the profits arising from the sale have not yet been recognised for accounting purposes.
Converting Capital Losses into Trading Stock (Tax Avoidance)
From the 8 March 2017, business will no longer be able to convert capital assets into trading stock where the transaction would result in an allowable loss.
VAT registration threshold to increase from £83,000 to £85,000. De-registration threshold to increase from £81,000 to £83,000.
Changes to salary sacrifice schemes will apply from April 2017, 2018 or 2021 depending on the benefit in question. Exemptions will apply for certain benefits (Pensions, Childcare etc.) however the changes aim to ensure that employees participating in such schemes pay the same tax as those who do not.
Off-Payroll Labour in Public Sector
The responsibility for operating the off payroll rules (deducting tax and NICs) in the public sector now lies with the public body/agency/third party that is paying an individual’s personal service company. This change will come into effect from April 2017.