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March 22, 2017


On  the 8th March Chancellor Phillip Hammond announced his plans for the 2017 spring budget. Whilst the main focus was on the UK’s plans to exit the European Union, we took a closer look at the government’s plans for businesses both big and small.


The first bit of good news affects small business who now have an extra year to prepare for the government’s proposals for Making Tax Digital (MTD). The plans for MTD were first announced in the 2015 budget where the government set out its strategy for a reformed tax system which would commence in 2018. The new digitalised tax system requires unincorporated businesses and small and medium-sized enterprises (SME’s) to file their tax returns on a quarterly basis rather than the current annual filing system with the intention that this would make the filing of tax returns easier and would reduce the number of filing errors. However, the proposals were not well received with many arguing that the timescale for implementation was unrealistic and would place unnecessary burdens on many SME’s.


The Inland Revenue has advised that there will still be a requirement for year-end accounts to be submitted reconciling the data submitted throughout the financial year. The financial implications of moving over to this new system are unclear as it may require the use of accountancy services up to five times a year. There is also a cost element to those businesses who do not currently hold electronic equipment or the software necessary to submit the returns. The decision to defer the implementation of this new system is, therefore, a welcome announcement for many. Unincorporated businesses with an annual turnover below the VAT registration threshold of £83,000 will now have until April 2019 to put systems in place before MTD becomes a mandatory requirement. Businesses and self-employed individuals with an annual turnover of less than £10,000 will remain exempt from the changes.


A further positive note is in relation to the recently revised business rates. The revised business rates will come into force in April and are likely to have a significant impact on SME’s who may see their tax rates rise significantly. In response to the revised rates announcement, the Welsh Government pledged £10 million in funding to go towards a new Targeted Relief Scheme which will help SME’s in Wales to cope with the revised rates. The Chancellor has also tried to soften the blow by pledging that those businesses which will no longer be eligible for small business rates relief will have the increase in rates capped at no more than £50-a-month. There will also be a £1,000 grant available to many pubs in an attempt to prevent widespread closures as a result of the revised rates.


In the budget Chancellor announced big changes to self-employed national insurance contributions (NICs). The current system requires that the self-employed pay two classes of NICs which are calculated based on annual profits. Class 2 NICs are currently payable at a rate of £2.80 per week on profits of over £5,965. Class 4 NICs are then also then payable at 9 percent on any profits between £8,060 and £43,000. The Chancellor proposed a new system whereby Class 2 NICS would be abolished and Class 4 NICs would be set to increase to 10 percent in 2018 and to 11 percent in 2019. The new rules would mean that a self-employed individual with over £16,250 profits would be liable to increased NIC payments. The changes were intended to bridge the gap between the amount of income tax paid between the employed and the self-employed. However in a surprise political U-turn the chancellor has since abolished these proposals and the current system will remain in force for self-employed individuals for the foreseeable future.


Slightly less welcome news from the spring budget comes in the form of a reduction in dividend allowances for incorporated businesses. The current rules allow company directors to receive up to £5,000 in dividends tax-free. The chancellor has however announced plans to cut the dividend tax allowance threshold to £2,000 which will come into force in 2018 under the Finance Act 2016. The rationale behind this decision was again to try and bridge the gap between the self-employed and other workers, however, it is argued that this new measure could significantly affect small business owners, many of whom are currently able to utilise the tax allowance as a means of supplementing their income.


Good news for large companies comes in the form of a reduction of corporation tax. The Chancellor has pledged that the corporation tax main rate will be cut to 17 percent by 2020. The tax cut which will see the UK with the lowest tax rate in the G20 was implemented as a means of putting the UK on the market as a global competitor in business.


Overall the spring budget brings a mixed bag of news. It will be interesting to see how the implementation of MTD gets put into practice over the next 18 months and whether the government will do more to assist SME’s with the transition where necessary. The government assistance for revised business rates looks to be a positive step which will hopefully alleviate the shock of what would otherwise have been a steep jump in the cost of rates for SME’s. The most interesting topic to come from this year’s budget is undoubtedly with regard to national insurance contributions for the self-employed. I’m sure this will continue to be a hot topic of conversation in the media in the following months and it will be interesting to see whether the government come back to their initial plans in the future.



This article was first published on Insider Media on the 22nd March 17.

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