The past year has been one of flux for the British economy, with Brexit concerns leaving many business owners uncertain about where their financial future lies. This announcement sheds a little more light on the new measures that will affect employees, employers, entrepreneurs and self-employed people alike.
With major changes to tax allowances and contributions announced across all sizes of business, the budget left us with some serious financial food for thought.
Business Rates Fund
The government will offer £435 million in funds to support businesses set to lose their rate relief. This will include a £3 million hardship fund for local authorities to allot to businesses at their discretion.
This impending loss of rate relief comes as a result of an update to business rates coming into effect in April, with heavy increases meaning that many smaller businesses will struggle to maintain their premises.
Mr Hammond also announced a blanket cap on rates for businesses set to lose relief. This means that there will be no increase over £50 a month for the first year out of relief.
He noted that the increasing number of digitally-based businesses called for a reassessment of how businesses without set premises could be fairly taxed.
Tax Avoidance Clampdown
A total of £820 million will be invested in a tax avoidance clampdown, highlighting Hammond’s commitment to a “fair, stable” tax system.
Measures will include stopping businesses from converting capital losses into trading losses, combating the abuse of foreign pension schemes, and introducing stronger penalties for professionals who enable tax avoidance systems.
This latter move will place the onus on financial advisers and lawyers who assist wealthy clients with avoiding tax, and encourage investors to use more transparent solutions such as stocks and shares ISAs.
Delaying Making Tax Digital
Mr Hammond touched on the topic of a digital tax system, stating that it was an increasingly necessary measure, but announcing that fim firms with turnover under the VAT threshold of £83,000 a year will be given a year’s delay before adherence to the new system becomes mandatory.
This will give smaller firms until April 2019 to transition into Tax Digital, although the program is still due to complete in 2020. The government will also further consult on the design of the new system, simplifying the process as much as possible.
NICs for the Self-Employed
The Chancellor also commented on self-employment and those who work through their own businesses, suggesting that in some cases, this could be seen as a method of tax avoidance in itself.
While he stated his support for entrepreneurs, Mr Hammond stated that the tax gap between employees and self-employed workers was unrepresentative of the equal ways in which they benefit from public services.
As such, self-employed people will see significant changes to their National Insurance contributions this year. As of April 2018, Class 2 NICs for the self-employed will be abolished.
Meanwhile, Class 4 NICs will be increased from 9% for the self-employed to 10%, with a further increase to 11% in April 2019.
Mr Hammond was quick to point out that as these NICs will be charged at a flat rate, self-employed workers earning under £16,250 will still see a reduction in their overall NICs.
Decreased Dividend Tax Allowance
Likewise, the government is keen to stop workers from starting their own limited companies for tax reasons. Director shareholders will therefore see a reduction in dividend tax allowance from £5,000 per year down to £2,000 per year.
At the basic tax rate, this will cost company directors an additional £225 a year in tax. To temper the effect of this, Mr Hammond announced a £4,760 increase in Cash ISA allowance to £20,000, offering this as a transparent way for investors and director shareholders to maximise their savings.
For a full round up of the Spring Budget get in touch with the office and we can send you the full summary.