We’ve picked out some of the key announcements that will impact our clients. We’ve split these into those who are Self-Employed and those with Limited Companies.
The most significant change here is the change to Class 4 NIC.
This will rise from 9% to 10% from April 2018 and then to 11% from April 2019.
One small benefit for the self-employed is the abolition of Class 2 NIC from April 2018. This is currently at £2.80 a week and is paid via the Income Tax Self Assessment. So the last year of paying the Class 2 NIC will be 5.4.18.
I have set out below a couple of examples based on the current Class 4 NIC Threshold. In these examples we have picked 3 annual profit amounts and then calculated the additional tax charge based on the increase in Class 4 NIC rates and the abolition of Class 2 NIC.
|Annual Profit||10% (5.4.19 tax yr end)||11% (5.4.20 tax yr end)|
You can see for businesses with a profit of £16,000 they actually save £66 for tax year end 5.4.19, but then pay more in tax year end 5.4.20.
For businesses with higher profit levels there will be more NIC to be paid, so businesses should be aware of this when planning their tax savings.
HOT OF THE PRESS – THE GOVERNMENT HAVE NOW SCRAPPED THEIR PLANNED INCREASE IN CLASS 4 NICS (ANNOUNCED 15 MARCH 2017).
The main change here which will impact our owner-managed businesses is the reduction in the tax free dividend allowance of £5,000 which was introduced for 5.4.17 tax year end. This allowance will reduce to £2,000 for 5.4.19 tax year end.
For owner managers whose salary and dividends total less than £43,000 this means an extra income tax charge of £210 a year.
For owner managers whose salary and dividends total between £43,000 and £100,00 this means an extra income tax charge of £975 a year.
The other key upcoming change which had been previously announced is the reduction in the Corporation Tax from April 2017 to 19% and to 17% from April 2020.
Impacting Both Self-Employed and Limited Companies
Making Tax Digital (MTD)
MTD was announced back in March 2015 and has been subject to various consultations as to how it will work since then. The Budget announced more consultations as the ‘how and when’ are still being determined.
MTD will require businesses to keep digital records of their income and expenses and to send quarterly updates to HMRC.
As was hoped the implementation date for MTD has been deferred for smaller businesses.
The current implementation dates are as follows:
- April 2018 for income tax businesses and landlords with turnover above the VAT threshold, which is £85,000 from April 2017 (excluding some larger partnerships);
- April 2019 for income tax businesses and landlords with turnover below the VAT threshold and for VAT; and
- April 2020 for corporation tax and income tax for partnerships with turnover of more than £10m.
This means the first wave of businesses to have to comply with MTD will be the self- employed whose turnover is over the VAT threshold and also landlords with rental income over the VAT threshold. We’ll be speaking with our clients who will be in this first wave over this next year to ensure their accounting systems will be ready.
This has been the other key business hot potato recently with the business rate revaluation taking effect in April 2017.
In an attempt to soften the blow:
- Businesses which no longer qualify for small business rate relief (those whose rateable value is over £12,000) will see a cap on how much their rates bill increases at £600 a year.
- Local authorities will be able to spend up to £300m on discretionary relief for those severely affected.
- Pubs get a one year £1,000 discount.
Please do get in touch if you are concerned about how these changes will impact you.