Here are the key points from the Spring 2017 Budget – including news that the dividend allowance will be reduced from April 2018.
- This is the final Spring Budget. Future Budgets will take place each Autumn – starting later in 2017, with ‘Statements’ each subsequent Spring.
- The economy is predicted to grow by 2% in 2017-18 (up from the 1.4% previous estimate). However, GDP will fall to 1.6% in 2018 before recovering from 2019 onwards.
- The UK’s national debt now stands at £1.7 trillion.
- Corporation Tax will be cut to 19% from April 2017 (from 20%).
- The Government is very keen to create a ‘fairer balance’ between the way different business structures are taxed – so that there is less of a disparity between the tax paid by employees, the self-employed, and limited company director-shareholders.
- As a result, the the main rate of Class 4 National Insurance (for the self-employed) will increase from 9% to 10% from April 2018, and further increase to 11% from April 2019. Please note – this does not affect limited company contractors – directors and employees pay Class 1 NICs.
- The Government has confirmed that the Public Sector IR35 changes will go ahead, as planned, from April 2017. See this dedicated announcement on the Budget site. However, following recent feedback, HMRC has announced that “it will be optional for the agency or public sector body to take account of the worker’s expenses when calculating the tax due.”
- To make tax-motivated incoporation less attractive, the dividend allowance, which currently applies to the first £5,000 of dividend income, will be reduced to £2,000 from April 2018. The dividend allowance doesn’t reduce your overall income levels for tax purposes, it means that dividends falling within the allowance are not taxable. You can see examples of how the current £5,000 dividend allowance works during the 2016/17 tax year. So, if your first £5,000 of dividend income falls within the basic rate band during 2018/19, when the allowance is reduced to £2,000, then you will pay an extra £225 in tax (7.5% basic rate dividend tax x £3,000). Read more in our dedicated dividend allowance cut article.
- From 1st April 2017, the VAT registration threshold will increase from £83,000 to £85,000. The deregistration threshold will also rise by £2,000 to £83,000.
- From April 2017, small limited companies which have low annual costs will face a higher VAT liability if they use the Flat Rate (FRS) scheme – this is a pre-announced measure.
- The starting thresholds (‘Primary’ and ‘Secondary’) before Employers’ and Employees’ National Insurance Contributions are payable will be aligned from April 2017 at £157 per week.
- Firms with a turnover below the prevailing VAT registration threshold will be given more time to comply with the Making Tax Digital (MTD) changes which take effect in stages from April 2018 onwards.
Personal Tax / Other Measures
- The personal allowance will rise to £11,500 from April 2017 (pre-announced). This is expected to rise to £12,500 by 2020.
- The higher rate income tax threshold rises to £45,000 from April 2017 (pre-announced), a rise of £1,500.
- No significant changes to alcohol, tobacco or fuel duties.