On March 8, 2017, the Chancellor Philip Hammond strode along Downing Street, red briefcase in hand, to deliver his first Spring Budget.
Here we take a brief look at what he included, and how it will likely affect you and your business.
But before we dive in, we’re happy to report that there were no major and immediate changes to tax or pensions in this Budget.
So, with that good news in mind, let’s start with Personal Taxation:
- It was announced by the Chancellor that the main rate of National Insurance contributions for self-employed individuals (otherwise known as Class 4 contributions) would increase from 9 per cent to 10 per cent in April 2018, and then rise once again to 11 per cent in April 2019. This particular change lasted around one week, as it was met with an outcry from MPs and the press. It has since been pulled, with Hammond admitting it broke a Conservative Party manifesto pledge.
- The Class 2 National Insurance contribution – a flat rate contribution paid by self-employed individuals making a profit of more than £5,965 a year – is to be scrapped by April 2018, as planned.
- The personal tax-free allowance is to rise, as planned, to £11,500 this year, and to £12,500 by 2020.
- And there were no changes to National Insurance contributions paid by employees and employers, nor were there changes to income tax or VAT.
How does this affect you? Well, if you’re self-employed, you can breathe a sigh of relief as the Chancellor’s U-turn means your Class 4 National Insurance contributions won’t be increasing anytime soon.
This will be the last year you’ll have to pay Class 2 National Insurance contributions and you’ll also be saving £145.60 a year.
From April 2017, the personal allowance (the amount you can earn without having to pay income tax) rises to £11,500, with the next £33,500 in income taxed at the basic rate of 20%
This moves the higher rate threshold to £45,000, keeping the government on track to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this parliament.
Next, let’s take a look at the changes to Pensions & Savings:
- The tax-free dividend allowance for shareholders and directors of small private companies has been reduced from £5,000 to £2,000. This will come into effect in April 2018.
How does this change impact you? If you currently run a business, and you pay yourself in dividends on top of a small salary, you will soon see an increase in the amount of tax you have to pay.
Previously, you could take £5,000 tax-free, however from April 2018 this will be cut to just £2,000.
If you receive income from share portfolios, you will also be affected by the change to the dividend allowance. However, there are ways to mitigate dividend tax, so it’s a good idea to speak with a professional when it comes to effective tax planning.
Are you concerned with the changes made in the Spring Budget? If so, we’re here to help. Contact us today to speak with one of our friendly tax advisers.