Spring Budget 2017 – Small Business impact
Here is an overview of the main points of the Budget which will effect small business owners – This is the last Spring Budget – going forward the Budget will move to the Autumn to enable businesses to plan a bit more before the amendments take place which is usually April in alignment with the Self Assessment / PAYE tax year. The points are in no particular order but please do take note of the Making Tax Digital Section – The First Section – This effects everyone running their own business – if you need more help / information around this then please feel free to contact us although the finer detail has yet to be confirmed between HMRC and the software developers.
Making Tax Digital (MTD) – Very Important for Sole Traders to Read Now
- Making Tax Digital has been discussed by the Government / HMRC for about 18 months now and this is something that will effect all businesses – The plan is for all businesses to report their income and expenses electronically via third party software (such as cloud bookkeeping software) up to HMRC every quarter (the suggestion at the moment is you will have a 1 month window to action this or incur a penalty which may be based on a points system like a driving penalty system ) the upload will in turn calculate a tax bill – the traditional self assessment tax return will drop away – at year end there will be the ability to review and make any final adjustments to the quarterly updates. You will migrate to this new tax system at different times depending on your type of business – Please do not underestimate the impact of this – this is the biggest change in tax since the PAYE was introduced in 1944, here are the timescales
- Sole Trader / Partnership business with a turnover up to the VAT Threshold – the Spring Budget has extended your start date for this from April 2018 by one year so that you do not need to start this new system until April 2019
- Sole Trader / Partnership business with turnover over the VAT Threshold (£85,000) – you need to be ready for MTD by APRIL 2018
- Limited Companies – you need to be ready for MTD by April 2020
- In essence you need to be able to record electronically your bookkeeping records every quarter – for those of you already using software for your bookkeeping systems, this should not cause too much of a problem, however for those of you that use either paper records or excel spread sheets – unless you are able to write an interface into your excel spread sheet that will link with HMRC you will almost certainly need to change your recording system by either migrating to compatible software that can upload to HMRC or by engaging a bookkeeper / accountant to process this on your behalf.
- There will only be a few exceptions to adopting this process such as no internet broadband due to location – religious reasons relating to the use of computers etc.
- Please also see the comment below under VAT re VAT filing in 2019 that will change.
National Insurance Contributions for the Self Employed UPDATED 16.3.17 – The National insurance increase has now been reversed and the increase will now not take place as originally described in the Budget –the information below was the original budget announcement.
- Self employed / Partnership business owners pay two types of National Insurance – Class 2 and Class 4 – Class 2 has historically been a set amount every year – last year this was £145.60 – this was the minimum payment required and then an additional “Class 4” National insurance payment was made which was calculated via the Self Assessment tax return on any self employment profit over £8060 at 9%. This budget has announced that from April 2018 the Class 2 National Insurance Contributions will be abolished. However Class 4 National Insurance Contributions will rise – from April 2018 it will rise to 10% and then April 2019 a further rise to 11%
- This means that any Sole Trader earning more than £16,250 per year will find an increase in their National Insurance Contributions overall.
- As you will be aware the dividend tax system changed last April so that the first £5,000 worth of dividends were tax free and then anything over that became taxable at 7.5% for standard rate tax payers and 32.5% for higher rate tax payers. This budget has reduced the tax free Dividends amount from April 2018 to just £2,000 – this will effect those that are trading as small business owners of Limited Companies taking a smaller salary but Dividends as an income.
- This means that if you are a Director taking Dividends as a portion of your income then your personal tax bill will increase further due to these changes.
- The government are committed to reduce corporation tax down to 17% by 2020. The current corporation tax rate is 20% and has been at that level since 2011. The budget has announced that the corporation tax rate will drop to 19% from April 2017 with a further drop to 17% in April 2020
- This means that if you are running a small Limited Company, you will pay less in corporation tax going forward under the new lower rates.
Employers National Insurance Allowance
- Although this technically was not in the budget it is worth reminding those that employ staff that they will receive an employers National Insurance allowance of £3,000 to help offset any employers NI which is calculated as 13.8% of an individuals pay over £8060-
- This is refreshed every April in your PAYE / NI calculations therefore if you had used up last years allowance, this will be re-instated again in full in April 2017 to help you reduce your liability to HMRC until you have used up the full allowance
- The VAT threshold for compulsory registration has risen from £83,000 to £85,000 from April 2017
- Deregistration can only occur if the turnover has reduced to below £83,000 (was £81,000)
- Also please be aware that under Making Tax Digital from 2019 VAT returns will no longer be able to be submitted via HMRC login system – you will only be able to file VAT returns via third party software such as cloud bookkeeping / pc based bookkeeping software.
- Flat Rate Scheme – Historically for many businesses using the flat rate scheme it could be beneficial if you are a business with few expenses to use the flat rate scheme to pay a little less vat across to HMRC, this is typically business such as consultants where income is high but costs are minimal. From April 2017 any business that is on the Flat Rate Scheme and has less than 2% attributable expenses will be force to move to a flat rate of 16.5% which – as it is calculated on the gross sales invoice equates to 19.8% VAT to be paid across to HMRC with no ability to reclaim vat on purchases unless the purchase is over £2,000 in value. Therefore if you fall within this category there is very little or no point in you being in the Flat Rate Scheme from April 2017 – it would be worth speaking to your bookkeeper / accountant to see how this change effects you to see if you can / should remain in the scheme.
Insurance Premium Tax
- This has increased to 12% and starts from 1st June 2017 (was originally 5% up to 2011, then various increases followed bringing the tax to its current rate of 10% which was introduced in October 2016)
Personal Tax Allowances
- From April 2017 the Personal Income Tax Allowance increases to £11,500 (£11,000 for the tax year 2016-17) and the higher rate tax limit increases to £45,000 (£43,000 2016-17)
- The Government are aiming to raise the Tax free threshold to £12,500 and higher rate tax limit to £50,000 by the end of parliament
- Interest savings allowance has been increased up to a maximum £5,000 tax free for the 2017-18 tax year
- ISA Allowance has been increased to £20,000 from April 17
Cash Based Income reporting for Sole Traders and Unincorporated Landlords
- If you use the cash based system to report your income and expenditure then the entry threshold has been increased and this form of reporting is now available to businesses that turnover up to £150,000. If your turnover then subsequently reaches £300,000 then you have to come out of this scheme and revert to standard accounting procedures (accrual accounting based on invoice dates, not dates when money was paid and received) This scheme has also now been opened to Unincorporated Landlords
Small Business Rate Relief
- Business rates were re-valued April 2017. Councils will have the ability to provide discretionary relief to those businesses hardest hit – the commitment is that no business will see an increase of more than £50 per month in their business rates for this coming year.
- 90% of Pubs will receive a £1000 discount on their business rates if they have rateable value up to £100,000