Simon Littlejohns, Partner and Head of Tax at Birmingham accountants and business advisers Friend Partnership Limited, assesses what the Budget 2017 means for you and your business.
This was Mr Hammond’s first and last Spring Budget. He started with a joke about the demise of Norman Lamont who was the last Chancellor to announce a switch to an Autumn Budget only to be sacked ten days after his announcement.
Mr Hammond confirmed that the economic growth in the UK in 2016 was second only to Germany of the developed countries and that the UK was in a strong position to move towards an uncertain future. He added that there will be no complacency with an acceptance that debt is too high and, whilst employment levels are high, productivity is still poor.
The measures that were announced were trailed as laying the foundations for a stronger, fairer and global UK economy, with Mr Hammond describing the measures he was to announce as ‘the next step for a global future’. His stated aim is to create an economy which works for everyone.
Mr Hammond stressed that the Budget measures were ‘self-funding’ with all investment initiatives financed by tax rises and not additional borrowing.
Whilst there was humour in his speech, there were few positive tax measures, little in the way of new initiatives, and a number of disappointments.
We set out the headline measures below and will be delving into these with more detailed analysis and recommendations over the coming weeks. For help or advice on any of the points discussed, you can contact Simon on 0121 633 2000 or click here to email.
Business taxation – and another blow for the entrepreneur
Mr Hammond made it plain that his aim is to ensure that the UK remains the number one destination for business.
He is sticking with the business tax measures which have been announced with the aim of creating a taxation regime which is certain and stable.
He confirmed that the rate of corporation tax would fall to 17% in 2020.
One of the major announcements was the reduction in the ‘tax-free’ dividend allowance from £5,000 to £2,000 with effect from April 2018.
Mr Hammond suggested that those gaining most from this measure were directors in private companies and those individuals with sizeable non-ISA investment portfolios. It is a shame that he could not use the correct terminology – shareholders receive dividends and not directors. I accept that they may be one and the same individuals but……
This measure is something I had feared, a lot of OMBs have put in place planning to make best use of the allowance. The shareholding structures which have been put in place are still appropriate – it will simply be the case that the future tax savings will not be as great as had been expected. This is perhaps another blow for the entrepreneur.
Anti-avoidance measures and new penalties
Mr Hammond had the usual comments in connection with anti-avoidance. He reminded us that the tax gap, the difference between what is paid and should be paid, is one of the lowest in the world. However, further measures are still necessary.
The Government are continuing with their push on this front and have indicated in the Budget policy paper that they will legislate for over 35 measures to tackle avoidance, evasion and aggressive tax planning.
New penalties will be introduced for those enabling others to avoid tax with an https://www.acheterviagrafr24.com/viagra-definition/ arrangement that is later defeated by HMRC.
This should only be of concern to those on the ‘dark side’ of the tax planning industry. However, many tax professionals are concerned that they may become embroiled in the legislation as a result of carrying out their ‘normal’ tax planning activities for their clients.
There were no headline announcements affecting international companies.No doubt once the detailed press releases have been reviewed issues will come to light as is always the case.
Mr Hammond reminded us of the government’s commitment to raise the personal allowance to £12,500 and the basic rate band to £50,000. He expects this to be achieved by the end of the current parliament.
It is a shame that Mr Hammond couldn’t do better than confirm what has already been announced, particularly given the Brexit uncertainty and current inflationary pressures.
Mr Hammond spent a considerable amount of time talking about the inequality between employees and those who are self-employed.
He explained that the self-employed currently pay a lot less in National Insurance contributions than do the employed. In order to address this he announced an increase in the rate of National Insurance contributions for the self-employed.
Class 4 contributions will increase from 9% to 10% in April 2018, with a further increase to 11% in 2019. This is in addition to the abolition of Class 2 contributions from next month. Those who are self-employed, sole traders and partners, will need to pay heed to this and make sure that they plan accordingly.
Update as of 15 March 2017: the government announces a U-turn on the proposed National Insurance increases. Read more here.
Whether this will encourage any of those affected to change their business structures I suggest not as there are many other aspects of being self-employed that need to be considered. However, for many, being self-employed it is not a choice but a necessity as employment may not be available/possible, and this is potentially an unwelcome extra cost.
With one in seven people now being self-employed and women making up the largest proportion of the growth in self-employment, this may have been one of Mr Hammond’s least welcome announcements on International Women’s Day.
Mr Hammond confirmed that there will be consultation in the summer on the subject of business structures. This may be the death knell for the ‘one man company’ – we will have to wait and see.
Making Tax Digital (“MTD”)
This is an issue I have been commenting on repeatedly in recent months.
It is heartening to learn that Mr Hammond has been listening. Unincorporated businesses, sole traders and residential landlords with turnover below the VAT threshold (£85,000) will now have until April 2019 before MTD becomes mandatory.
It is only a shame that he did not go further and delay the whole project by a year for all individuals and unincorporated businesses.
A number of investment initiatives were announced to deal with a range of issues:
- Adult social care (£2 billion)
- NHS (£425 million)
- Technical education for 16 to 19 year olds (£500 million)
- New academic research placements (£300 million)
- New free schools (£536 million)
- Industrial strategy challenge (£260 million)
The further investment in the NHS and free schools were measures heavily trailed in the lead up to the Budget.
Consultations were announced on:
- Taxation of benefits in kind
- Accommodation benefits
- Employee expenses
It will be interesting to see what comes from these consultations.
A number of measures were announced to deal with the business rates burden especially for smaller businesses losing the small business relief. A fund of £300 million will be available to local councils for discretionary relief.
Guidelines will be issued to address the taxation of image rights. This presumably is to tackle, no pun intended, the planning undertaken by football clubs and their foreign players.
As always with such announcements there were a number of disappointments:
- Despite the talk about innovation and productivity there was no increase in the tax relief available for expenditure on research & development, simply a reference to reducing the administration burden with the relief;
- There was no further reduction in the rate of corporation tax beyond 17%. I am surprised that he did not go a little further given the current post-Brexit economic uncertainty;
- I have my usual gripe that there was no suggestion of any measures to deal with the simplification of what is a horrendously complicated UK tax code. It is very difficult to explain to clients why the tax rules are as they are. As an example it is not a tax free dividend of £2,000 but a £2,000 dividend taxed at 0% – a subtle difference for us tax professionals!
There was nothing in the announcements that requires immediate action.
Over the next few months I suspect that a number of individuals and businesses will be considering their business structure and how best to extract profits in a tax efficient manner.
Even though there has been a delay for some with regard to Making Tax Digital, all taxpayers should give thought now to what the new rules will mean for them. They should engage with their professional advisers at an early stage so that a MTD plan can be formulated to avoid any problems when it does go live.
It has to be said that there was little good news in the Budget.
It is a great shame that Mr Hammond didn’t announce further measures to support business and encourage investment.
I think if I were being cynical this was a typical mid-term Budget, as the measures announced would not appeal to a good proportion of the electorate who traditionally vote for the Conservatives.
We will have to wait until the autumn to see whether or not Mr Hammond can do better than this!