Budget 2017

Below are the most pertinent posts announced by the Chancellor in his Budget speech yesterday:-

Dividend Allowance

From April 2016, HMRC introduced a tax-free dividend allowance of £ 5000 to compensate for the increased tax charge on dividends.

This allowance is now being reduced to £ 2,000 from April 2018. For a basic rate taxpayer, this would mean additional tax of £ 225; for a higher rate taxpayer, there would be additional tax of £ 975.

Those who are able to control the timing of their dividends should ensure that the full £ 5000 dividend allowance is utilised for 2016/17 and 2017/18.

National Insurance for the Self-Employed – UPDATED 15th March 2017

Self-employed persons currently pay 9% of their taxable profits as Class 4 National Insurance (on profits above £ 8060).

This rate drops to 2% on profits over £ 43,000.

In his original Budget announcement, The Chancellor announced the 9% rate increases to 10%, and then a further increase to 11% from 6 April 2019.

This increase has since been ‘scrapped’ as announced on 15th March 2017

Making Tax Digital (“MTD”)

HMRC are in the process of making businesses file their accounts online every three months (rather than just once a year).

In yesterday’s Budget, it was announced some delay to this being implemented:-

– unincorporated businesses (sole traders/partnerships/landlords) with annual turnover of more than £ 85,000 will need to comply with ‘MTD’ from April 2018.

– unincorporated businesses (sole traders/partnerships/landlords) with annual turnover of less than £ 85,000 will need to comply with ‘MTD’ from April 2019.

– unincorporated businesses (sole traders/partnerships/landlords) with annual turnover of less than £ 10,000 will not need to comply with ‘MTD’.

– incorporated businesses (limited companies) will need to comply with ‘MTD’ from April 2020.

Limited Companies working in the Public Sector

Individuals who currently work for a public sector body via their own company or other intermediary, are potentially within IR35 if, ignoring the intermediary they would be workers of the public sector body. Under existing rules the income tax/NICs risk remains with the intermediary who is responsible for deciding whether IR35 applies.

As previously announced, with effect for contracts entered into or payments made, on or after 6 April 2017, the responsibility for deciding whether IR35 applies is transferred to the public sector engaging entity.

The specific changes are as follows:

  • the public sector engager or agency is treated as an employer for the purposes of taxes and Class 1 NICs;
  • the amount paid to the worker’s intermediary for the worker’s services is deemed to be a payment of employment income, or of earnings for Class 1 NICs for that worker;
  • the public sector engager or the agency is liable for secondary Class 1 NICs and must deduct tax and NICs from the payments they make to the intermediary in respect of the services of the worker;
  • the public sector is defined using the definitions in the Freedom of Information Act 2000 and the Freedom of Information (Scotland) Acts;

the person deemed to be the employer for tax purposes is obliged to remit payments to HMRC and to send HMRC information about the payments using Real Time Information.

Contractors working within the public sector should be reviewing their contractual and working arrangements to gauge whether they are potentially caught within these new rules.

Other Points

Personal Allowance rises to £ 11,500 from 6 April 2017.

The taxable turnover threshold, which determines whether a person must be registered for VAT, will be increased from £83,000 to £85,000 – this is effective from 1 April 2017.