While this week’s budget was otherwise light on content, small business owners were the big targets and were left feeling like they are shouldering rather more than their fair share of the UK’s financial burden. Here are the major changes and our concerns as we see them:
Company Directors – Dividend Tax Allowance
The £5,000 tax-free allowance for dividends, introduced in 2016, will be reduced to £2,000 from 2018. This measure is aimed squarely at small company director shareholders.
While it was confirmed that the rate of corporation tax rate will drop to 17% by 2020 and the tax-free personal allowance will increase (£11,500 in 2017-18), many small business owners will be left feeling let down by the proposals.
It would seem, more than ever, that business owners are having to make tax their primary concern when deciding how to structure their business over other more commercial considerations.
Self-employment – NICs
The abolition of Class 2 NIC will go ahead in April 2018 but this will now be coupled with an increase in Class 4 to 10% in 2018 and 11% in 2019.
The increase will initially cost every self-employed person on average 60p more a week in NICs.
The intention is to reduce the gap between employed and self-employed. It seems the many non-tax benefits to being an employee appear to have been overlooked by the Chancellor.
Making Tax Digital (MTD)
Last year, it was announced that by 2018, all businesses would be required to keep their records online and report quarterly to HMRC. Making Tax Digital is a key component of the Government’s plans to implement a fully digital tax system
In yesterday’s budget, however, it was announced that businesses with turnover below the VAT registration threshold – currently £83,000 – will have this requirement postponed until April 2019, giving them more time to prepare.
Plans to implement Making Tax Digital will now be as follows:April 2018 – if they have profits chargeable to Income Tax and pay Class 4 National Insurance contributions (NICs) and their turnovers are in excess of the VAT threshold
April 2019 – if they have profits chargeable to Income Tax and pay Class 4 NICs and their turnovers are below the VAT threshold
April 2019 – if they are registered for and pay VAT
April 2020 – if they pay Corporation Tax (CT)
Note: Businesses, self-employed individuals and property landlords with turnovers of less than £10,000 per annum will be exempt from the Making Tax Digital system.
The intended 1% increase in Class 4 NIC in 2018 and again in 2019, coupled with the reduction in dividend tax free allowance from £5,000 to £2,000 from 2018, will increase the tax burden on entrepreneurs and the self-employed despite the abolition of Class 2 NIC in 2018.
Yesterday’s Budget suggests a Government taking business support for granted in the face of a weak and ineffective Opposition.
While deferring Making Tax Digital compliance for the smallest businesses is welcome, with no new incentives to encourage investment in jobs or capital expenditure, we will be hoping to see greater support for growth and entrepreneurship in the autumn Budget.
As always, if you have any questions about the implications of this Budget for you or your business, please contact us at firstname.lastname@example.org or by calling the office on 0141 333 1852.