In the chancellor’s final spring budget, there were few giveaways and big changes particularly for businesses and self-employed people. From tax contributions and business rates to pensions and VAT, there are important changes coming into effect soon and you will need to be ready as many of them are likely to affect your business in some way.
Self-employed and National Insurance (NI)
Currently, self-employed people pay NI at a flat rate of 9% on any profits between £8060 and £43,000 (Class 2) and at 2% for profits totalling £43,000+ (Class 4). From April 2018, Class 2 will be abolished and Class 4 NI will rise to 10%, rising again to 11% in 2019; this 1% rise in NI is thought to equate to £350 a year on average.
Employees of companies currently pay 12% NI a year and it is thought that these new measures will see self-employed people brought in line with employees. As NI contributes towards a person’s state pension, it should help plug the gap at a later date when self-employed people come to their retirement.
Although, many have criticised these rises in NI contributions which will see the self-employed paying 60p more a week towards this; it is thought that only those with profits above £16,250 will end up paying more.
*As of 15th March 2017, the chancellor Philip Hammond delivered a u-turn on the rise of NI contributions for those who are self-employed, for more information the BBC put together a story on this as soon as the news broke.
Tax-free dividend allowance
This will impact the self-employed, director-shareholders and those with a big portfolio of shares alike due to a big drop in the amount of dividend which will remain tax free. This allowance was originally introduced in April 2016 allowing dividends of £5000 and less to be tax free. Also, an individual could receive £5000 by way of dividend income tax free.
However, from April 2018, the threshold will drop to £2000 which will be particularly damaging to business owners who pay themselves with dividends from their business alongside a small salary. For those with a large portfolio of shares, they are likely to earn over £2000 in dividends in a year from all shares combined and this will have a big effect on their tax bills from April 2018.
Personal tax allowance
Sticking with tax, the personal tax allowance will rise from £11,000 to £11,500 on April 6th and it will again rise to £12,500 by 2020. So from April 6th, anyone earning £11,500 or less with not have to pay any income tax on their earnings.
State and workplace pensions
In the budget, the government announced that there will be a review into future rises of the state pension to be published in May while spending on the state pension is expected to rise from 5% of GDP in 2021-22 to 7.1% by 2066-67.
In terms of the workplace pension, the government has said they will be improving consumer protection by amending the registration process.
Work and wages
After introducing the National Living Wage (NLW) last year, the chancellor yesterday confirmed that it will be rising from £7.20 to £7.50 in April this year. In terms of getting people back to work after a career break, for looking after their children or being a full-time career for a family member, the government is going to try and make it easier for people. They are making £5 million available to increase the number of people who can return to work in the private and public sector.
Business – rates, tax and VAT
After so much controversy surrounding the changes to business rates which are due to come into effect in April, there was some relief in the form of transition measures given to the smallest businesses and pubs who have a rateable value of up to £100,000.
Currently the threshold for a business to have to register for VAT is £83,000, this will rise from April 1st to £85,000. The government’s flagship ‘Making Tax Digital’ scheme is going to be delayed until April 2019 for small business and landlords with a turnover below the new VAT threshold.
The state of the economy
Alongside cuts, changes and funding announcements, the chancellor also gave us an idea of the current state of the economy going into Brexit and triggering Article 50 this month. In 2016, the UK was the second fastest growing economy in the G7 and as a result, our growth forecast for this year has been upgraded from 1.4% to 2%.
Gross domestic product (GDP) has fallen to 1.6% for this year and inflation is set to rise this year from 2.3% to 2.4%, moving further away from the government’s ideal rate of 2%. In terms of households, official government figures released yesterday suggest that 53% of households have less than £3000 in savings which could become a problem the higher inflation and the cost of living rises.
With most of these changes coming into effect next month or within the next year, there are plenty of new developments which could affect your business over the coming months, alongside Brexit. As this is the final spring budget, it is worth looking forward to the autumn budget and how that will play out 6-7 months after Article 50 has been triggered.