I am sure that you have seen the headlines in the papers this morning about the Budget and for a detailed analysis please see the report on our website:
The items that have caught my attention and I think are relevant to most people are as follows:
National Insurance for the self-employed
At present, if self-employed, you pay class 2 National Insurance of £145.60 for a complete year, and class 4 at 9% based on your level of profits. The Government do not think that this is fair as employees pay National Insurance at 12%. To level this position, class 2 National Insurance will be abolished from 06/04/2018 and the class 4 element will increase to 10% from that date, and to 11% from 06/04/2019, thus bringing the self-employed more in line with the employed.
Dividend changes again …
From 06/04/2016 broadly the first £5,000 of dividend income is taxed at 0 % (Dividend Allowance). This will continue until 05/04/2018. However, from 06/04/2018 the Dividend Allowance will reduce to £2,000. This will mainly affect the family company shareholder and increase their tax liability as follows:
Basic rate taxpayer – additional tax of £225
Higher rate taxpayer – additional tax of £975
Additional rate taxpayer – additional tax of £1,143
Individual Savings Accounts (ISAs)
The overall limit is increasing from £15,240 to £20,000 on 06/04/2017.
Property and trading income allowances
Although this was mentioned last year it comes into play on 06/04/2017. It is as it says, so if you have property or trading income of £1,000 or less you will no longer need to declare this or pay tax on it. This could cover small amounts of rent from Air ‘bnb’ activities or trading on ebay.
New Childcare provisions
If you are taking out new childcare provisions from 06/04/2017 then, instead of opting for a salary sacrifice scheme and receiving vouchers, for every 80 pence that you contribute the Government will contribute 20 pence. The maximum the Government will contribute will generally be £2,000.
Making Tax Digital
This will be introduced on 06/04/2018 for businesses, the self-employed and landlords who have profits chargeable to Income Tax and pay Class 4 National insurance Contributions where their turnover is in excess of the VAT Threshold, which will be £85,000 from 01/04/2017.
As this is a very new area please contact us for further information.
From 06/04/2017 this is changing, but it is still beneficial for both the employer and employee to sacrifice salary in respect of employer provided pensions, childcare vouchers, workplace nurseries and cycle to work schemes.
The government are launching a consultation on 20 March 2017 to look at various areas, including the qualifying criteria for Gross Payment Status and options to combat VAT supply chain fraud in supplies of labour.
In addition to the above, certain other changes come into force on 06/04/2017 that have been mentioned in earlier Budgets namely:
Restrictions on residential property interest
Landlords will no longer be able to deduct all of their finance costs from their property income.
Inheritance Tax residence nil rate band
There will be an additional nil rate band for deaths on or after 06/04/2017 where an interest in a main residence passes to direct descendants.
As mentioned above I have only mentioned the areas that I believe will be most relevant to the majority of our clients but other areas can be found on our website.
Please contact us if you have a specific query. 0116 24243400
Julia Harrison, Tax Manager