How does the 2017 Spring Budget affect you?
Monday, 10 April
Much has changed since last year’s Budget, when we were anticipating the EU Referendum and very few people would have predicted that Donald Trump would become US President. We might also have anticipated that George Osborne would still be controlling the purse strings, and that ‘Remain’ had won the day in the Referendum.
It was Philip Hammond’s first Budget as Chancellor. It was also the last Spring Budget, to be followed by a second Budget this year in the autumn, and a Spring Statement in 2018. The Chancellor was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals. He said:
“A fair system will also ensure fairness between individuals, so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax.”
In his speech, the Chancellor stated that he has requested a report to be delivered in the summer on the wider implications of different practices. We can expect, therefore, to see further announcements relating to this.
There appeared to be no mention of ‘Brexit’, but Mr Hammond said the economy “continued to confound the commentators with robust growth”. Growth was higher than expected, and borrowing lower than forecast in November 2016.
As has become common in recent years, the Budget updates some previous announcements as well as proposing further ones. However, Budget proposals may be subject to amendment in a Finance Act.
Other previously announced measures include:
- The personal allowance will increase to £11,500 for 2017/18
- Apprenticeship levy – larger employers will pay a set rate of 0.5%, i.e. employers with a payroll of over £3 million
- Corporation tax loss relief
- Introduction of an additional inheritance tax residence nil rate band
- Changes for non-UK domiciled individuals
- In 2017/18, the basic rate band will rise to £45,000. i.e. £11,500 plus the basic rate band of £33,500. In Scotland, however, the basic rate band will be reduced to £31,500 so that higher rate threshold will remain at £43,000.
- National insurance
- Class 2 NIC for the self-employed will be abolished from 6 April 2018.
- Class 4 NIC main rate was due to increase from 9% to 10% with effect from 6 April 2018, and from 10% to 11% with effect from 6 April 2019. However, subsequently the Chancellor has bowed to political pressure and withdrawn this proposal; whilst many said that it seemed fair, the deciding factor seems to be the manifesto promise not to increase tax, national insurance or VAT.
- The ISA investment limit will increase to £20,000 from 6 April 2017.
- The Lifetime ISA, (LISA) will be introduced from April 2017. It can be opened by anyone aged 18 to 40. The annual limit will be £4,000 and savers will receive a bonus from the Government of 25%. Funds can be used to either buy a first home or to save for retirement at 60.
- From April 2017, an NS&I Investment Bond will be available to everyone aged 16 and over with the flexibility to save between £100 and £3,000 over three years with an interest rate of 2.2%.
- In April 2016, dividend taxation was reformed, and the dividend tax credit was replaced with a £5,000 Dividend Tax Allowance, and thereafter increasing rates of tax paid from 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate.
- From April 2018, the tax free dividend will be reduced from £5,000 to £2,000.
Presently, losses from a trade can only be relieved against profits from the same trade, potentially causing the losses to be trapped and unusable. From 1 April 2017, those restrictions will be lifted, allowing losses from a particular trade to be relievable against profits from other trades.
All companies now pay corporation tax at 20%. This rate will drop to 19% on 1 April 2017. The Chancellor confirmed that the Government remains committed to reducing the rate to 17% by 1 April 2020.
The VAT registration threshold will rise from £83,000 to £85,000 and de-registration will increase to £83,000, to take effect from 1 April 2017.
Making Tax Digital
The Chancellor responded to concerns raised during recent consultations about the timescale for introducing Making Tax Digital for Business.
Summary of change
The Government has decided to provide 3.1 million small businesses with more time to prepare for Making Tax Digital. Businesses, (including the self-employed and landlords) that have annual turnover below the VAT registration threshold, will have an extra year before they are required to keep records digitally and send HMRC quarterly updates, although they will be able to start doing so voluntarily from April 2017.
Those with annual turnover above the VAT threshold will still be required to keep digital records and send HMRC quarterly updates from April 2018, and the public beta testing will start, as planned, from April 2017. The exemption threshold, previously announced, will remain at £10,000.
Why the change?
Businesses that have annual turnover below the VAT registration threshold are currently less likely to keep digital records than larger businesses. In contrast, businesses that are VAT registered already engage with HMRC on a quarterly basis online and so are better placed to make the transition to keeping digital records and updating HMRC quarterly. This was recognised by a number of respondents to the recent consultations.
The extra year will also allow HMRC to deliver targeted support for small businesses such as guidance and online training.
Britain has a debt of nearly £1.7 trillion, around £62,000 per household, and in 2009/10 the UK borrowed £1 in every £5 spent. However, this year borrowing is set to be £1 in every £15, and the Office for Budget Responsibility now forecast the economy will grow by 2% in 2017.
Whilst there will be lots to absorb from the small print, there were some good news announcements:
- £2 billion for adult social care over the next three years
- £435 million to support business affected by the business rates relief revaluation
- £425 million investment in the NHS in the next three years, aimed at Sustainability and Transformation Plans (£325m) and helping A&E departments in 2017/18 to manage demand (£100m)
- Investment in technical education for 16 to 19 year olds
Please take professional advice before making any decisions. You can download a copy of our full Spring Budget 2017 briefing here.