With the 2017 Spring Budget being released earlier this year and with multiple u-turns being made since, we took the chance to talk to Vicky Parkinson of VSP Accountancy to gather up an overview of some of the biggest changes that will affect small businesses, contractors and freelancers:
KEY BUDGET POINTS FOR THE SMALLER BUSINESS, AND SUBSEQUENT U-TURNs
National Insurance
When Philip Hammond first released his budget statement he made a lot of comparisons in the tax rates of those individuals that are self-employed to those that are employed, and it is true that a self-employed individual will pay less in taxes than an employed person however the government conveniently overlooked the additional risks and reduced entitlements associated with running one’s own business.
Not that they accepted this view point but because they realised that they were going against what they originally said in their manifesto, the proposed increased in Class 4 national insurance will now not happen which is brilliant news. If these had of happened, sole traders and partners whose profit (or profit share) exceeds £16,250 a year will see their NIC bills increase overall.
Class 2 NICs are still to be abolished next year. They currently entitle individuals to State Pension and other benefits, it remains to be seen how their entitlement will be affected by the new arrangements.
Limited company directors/shareholders: reduction in dividend allowance
Currently, any individual may receive up to £5,000 in tax-free dividend income each year; however, the Chancellor announced today that this allowance will fall to £2,000 from April 2018. Thus, company directors/shareholders who take a low salary from their company and make up the rest of their income with dividends will pay more tax on that income.
Other news
Making Tax Digital
The biggest change for businesses, which has yet to coming into effect, is reporting under Making Tax Digital for Business (MTDfB). A favourable announcement of a one year deferral of MTD obligations for smaller unincorporated businesses and landlords until April 2019.
The resulting timetable for commencing quarterly reporting under MTDfB will be determined by the accounting period that starts on or after these dates:
From 6 April 2018 – businesses with turnover exceeding the VAT registration threshold, to report income and expenses subject to income tax and class 4 NIC
From 6 April 2019 – businesses with turnover exceeding £10,000, to report income and expenses subject to income tax and class 4 NIC
From 1 April 2019 – all VAT registered businesses, to report income and expenses subject to VAT
From 1 April 2020 – all businesses which pay corporation tax, to report income and expenses subject to corporation tax
Capital Gains Tax annual exemption rise
The annual exemption rises to £11,300 on 6 April 2017. This has been frozen at £11,100 since 6 April 2015.
VAT threshold increase
The VAT registration threshold will increase from £83,000 to £85,000 on 1st April 2017. The threshold for de-registering for VAT will see a corresponding increase from £81,000 to £83,000 at the same time.