Budget 2017 – Key points
The new chancellor delivered his first Budget last week. So now that the dust has settled, the key question to ask should be: "Is Budget 2017 good for small businesses"?
As with previous posts, we don't propose to regurgitate the entire contents of Budget 2017, we'll simply focus on those points which are likely to affect you and your business.
Budget 2017: Changes to National Insurance
Whilst the new Chancellor appears to lack the flair of his predecessor, ironically he caused mass controversy with the proposed increases in National Insurance Contributions (NIC) to the self-employed which were annouced in Budget 2017.
For the current tax year (2016-17) the self-employed pay Class 4 NIC as follows:
- 9% on profits between £8,060 and £43,000
- 2% on profits in excess of £43,000
- The maximum payable at 9% is £3,144.60
For the 2017/18 tax year the Class 4 NIC charges will be as follows:
- 9% on profits between £8,164 and £45,000
- 2% on profits in excess of £45,000
- The maximum payable at 9% will be £3,315.24 for the year
From 6 April 2018, Class 4 NIC would have risen to 10% up to the basic rate band and from 6 April 2019 there would have been a further increase to 11% up to the basic rate band. The 2% for profits above the higher rate band would have still applied.
Class 2 NIC will be abolished, as announced previously.
However, there was a huge amount of criticism from the media and the Government's own back benchers who argued that these proposals were unfair to those individuals who form part of the 'Gig Economy' which has been fostered by this current Government in recent years.
As a result of this pressure the Government made a U-turn and stated that the proposed increases would not be going ahead. However it's a pity the Government couldn't have adopted the same approach to the VAT Flat Rate changes (see here) and the new rules for IR35 and the public sector (see here).
Budget 2017: IR35 changes
Individuals who supply their services to clients via a limited company (personal service company - PSC) or through an agency, are potentially caught by IR35 if they would be considered workers of the client they're supplying their services to if the PSC or agency didn't exist.
The decision as to whether a PSC or agency is 'caught' by IR35 has previously been made by the PSC or agency itself - rather than the client they are supplying their services to. And the PSC or agency has then been responsible for any tax and NI as a result of being 'caught' by IR35.
The changes in the Budget 2017 apply only to the public sector and effectively makes the public sector body contracting with individuals through PSCs and agencies responsible for IR35 - both deciding whether a contract is caught by IR35 and for paying over any tax and NI due.
This may lead to the public sector being a lot more cautious and assuming far more contracts are caught by IR35 than previously thought.
You can read more about this change in our blog here.
Budget 2017: NIC employer allowance
This allowance was originally introduced in 2014 to help employers reduce their Employers NIC bill.
Despite restrictions to one-person companies claiming the Employment Allowance, HMRC are concerned that some businesses are using avoidance schemes to avoid paying the correct amount of NI contributions. HMRC are keeping a close eye on this and will take further action if this avoidance continues.
Budget 2017: Making Tax Digital
Under Making Tax Digital (MTD) businesses will be required to report their profits quarterly using suitable digital software. MTD is due to come into effect for income tax and NIC purposes from April 2018, VAT from April 2019 and Corporation Tax from April 2010.
For those businesses below the VAT threshold, quarterly reporting has been postponed until April 2019.
The timescale of MTD is now as follows:
- 2018 - All unincorporated (i.e. non-limited companies) above the VAT threshold, except large partnerships whose turnover is above £10 million - so ironically this gives large firms of accountants (!) and solicitors some breathing space
- 2019 - All businesses and landlords with annual turnover in excess of £10,000
- 2019 - VAT
- 2020 - Corporation tax and large partnerships (see above!)
HMRC's implementation of MTD has been dogged by criticism so this delay introduced for smaller businesses is a welcome relief
We've deliberately avoided poring over the detail of Budget 2017 as we figure its been flogged to death by the media over the last few days. However if there are any issues that give you cause for concern, please feel free to get in touch here.