Spreadsheet Phil delivered a bitter pill to the self-employed in the last ever spring budget today, increasing Class 4 National Insurance Contributions (NICs) to raise an extra £145m a year by 2021/22. In a budget heavy on gags but light on content, the Chancellor welcomed a better than expected growth and borrowing outlook and offered some respite to the planned business rate revaluations.
Tax and duty
- The personal allowance will increase to £11,500 in 2017/18 as previously announced and up to £12,500 before the end of the Parliament.
- The higher rate tax threshold will rise to £45,000 in 2017/18 and up to £50,000 by the end of this Parliament.
- Corporation tax will still be cut to 17% by 2020.
- On 8 March 2017, at 6pm, duty rates on all tobacco products will increase by 2% above RPI inflation.
- From 13 March 2017, the duty rates on beer, cider, wine and spirits will increase by RPI inflation.
- From 1 April 2017, Vehicle Excise Duty rates for cars, vans and motorcycles registered before April 2017 will increase by RPI inflation.
- From 1 April 2017, the VAT registration threshold will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000.
- From 20 May 2017, a Minimum Excise Tax for cigarettes is going to be introduced. The rate will be set at £268.63 per 1,000 cigarettes.
Changes to Class 4 National Insurance Contributions
The rate of Class 4 NIC will climb from 9% to 10% in April 2018 and to 11% in April 2019 to reduce the gap in rates paid by the self-employed and employees. The Class 4 rate is levied on profits of more than £8,060 a year. All Class 4 earnings above £43,000 will be taxed at 2%. SCRAPPED ON 15 MARCH 2017
The borrowing forecasts have all been reduced since the Autumn Statement in 2016. The projection for 2016/17 has been reduced by £16.4bn.
Here are the latest estimates:
- £51.7bn in 2016/17
- £58.3bn in 2017/18
- £40.8bn in 2018/19
- £21.4bn in 2019/20
- £20.6bn in 2020/21
- £16.8bn in 2021/22
Britain’s debt now stands at £1.7trn, almost £62,000 for every household in the country. Each year £50bn is spent on interest payments servicing the debt, which is more than is spent on Defence and Policing combined.
The growth projections have also been revised, with an increase from 1.4% to 2% projected for this year. The forecast is downwards for 2018 to 1.6%, followed by 1.7% in 2019, 1.9% in 2020 and 2% in 2021.
Inflation at 2.4% is forecast for 2017, followed by 2.3% in 2018 and 2% in 2019.
- No business losing small business rate relief will see their bill increase next year by more than £50 a month, and the subsequent increases will be capped at either the transitional relief cap or £50 a month, whichever is higher.
- A £1,000 discount will be given to all pubs with a Rateable Value of less than £100,000.
- Local authorities will be provided with a £300 million fund to deliver discretionary relief, to target hardship cases in their local areas.
Making Tax Digital
The government has decided to provide 3.1 million small businesses with more time to prepare for Making Tax Digital (MTD).
Businesses that have an 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. The extra 12 months will cost the Treasury £280 million.
Those businesses trading above the VAT threshold will still be required to keep digital records and send HMRC quarterly updates from April 2018.
The exemption threshold for MTD remains at £10,000.
- The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018, to reduce the tax differential between the self-employed and employed, and those working through a company.
- The government will amend legislation to ensure that all profits realised by offshore property developers developing land in the UK, including those on pre-existing contracts, are subject to tax, with effect from 8 March 2017.
- To ensure that the State Pension remains sustainable and fair across generations, the government is carrying out the first statutory review of the State Pension age. A review will be published by 7 May 2017.
- The government will shortly be rolling out Tax-Free Childcare for working families with children under 12, providing up to £2,000 a year for each child to help with childcare costs. From September 2017, the free childcare offer will double, from 15 to 30 hours a week for working families with 3 and 4 year olds in England, in total worth up to £5,000 for each child.
- The NS&I Investment Bond announced at Autumn Statement 2016 will offer a rate of 2.2% over a term of 3 years and will be available for 12 months from April 2017. The Bond will be open to everyone aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000.
From spring 2018, a Spring Statement will respond to the Office of Budget Responsibility’s forecasts and will provide the opportunity to launch consultations on future reforms.
This budget has begun to adopt that approach with several consultations announced. These include:
- Taxation of benefits in kind – the government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.
- Accommodation benefits – a consultation will be published with proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition.
- Rent-a room relief – the government will consult on proposals to redesign rent-a-room relief, to ensure it is better targeted to support longer-term lettings. This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings.
- Alcohol – the government will consult on introducing a new duty band for still cider just below 7.5% abv to target white ciders and the impact of introducing a new duty band for still wine and made-wines between 5.5% and 8.5% abv.
- Large business risk review – HMRC will work with businesses and interested parties to consult over the summer on its process for risk profiling large businesses and promoting stronger compliance.
Avoidance and evasion
Since 2010, HMRC has secured around £140 billion in additional tax revenue through tackling avoidance, evasion and non-compliance, with further action planned.
Promoters of Tax Avoidance Schemes (POTAS) – New legislation will ensure that promoters of tax avoidance schemes cannot circumvent the POTAS regime by re-organising their business by either sharing control of a promoting business, or putting a person or persons between themselves and the promoting business. This will ensure that HMRC can apply the POTAS regime as intended.
Strengthening tax avoidance sanctions and deterrents – As announced during Autumn Statement 2016, the government will introduce a new penalty for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for a person or business that uses such arrangements.
Image rights – The government is aware that some employers pay image rights in respect of employees under separate contractual arrangements to employment income. HMRC will publish guidelines for employers who make payments of image rights to their employees to improve the clarity of the existing rules.
Employment Allowance – HMRC is actively monitoring National Insurance Employment Allowance compliance following reports of some businesses using avoidance schemes to avoid paying the correct amount of NICs.
Author: Guy Smith – Head of Technical Research
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