UK Chancellor Philip Hammond announced the 2017 Autumn Budget. The Budget was hailed as business friendly by the Federation of Small Businesses with favourable announcements on business rates and the decision to hold the VAT registration threshold at £85,000 being the main highlights for small business owners. The budget also centred around housing with first time buyers benefiting from a stamp duty exemption on the first £300,000 when purchasing their first home.
The most significant changes announced in the 2017 Budget are detailed below:
Income tax Personal Allowance
The income tax Personal Allowance will rise from £11,500 to £11,850 in 2018/19. This is forecast to reach £12,500 by 2020.
The 20% basic rate band will increase from £33,500 to £34,500 in 2018/19.
Higher rate Threshold will increase from £45,000 to £46,350 from 6 April 2018.
The nil rate band for savings income will remain in line with 2017 at £5,000.
Dividends
The tax free dividend allowance of £5,000 will reduce to £2,000 from 6 April 2018. The dividend tax rates will remain at 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate taxpayers.
National Insurance
From 2018/19, Class 4 National Insurance will apply from £8,424 to £46,350 at 9% for the self employed and 12% for employees.
Class 2 National Insurance contributions for the self employed to be abolished from 6 April 2019.
Directors Loans
The Section 455 tax on Directors’ loans will remain at 32.5%.
Corporation tax rates and bands
The main rate of corporation tax to continue at 19% in April 2018. It is forecast to be cut to 18% in 2019 and 17% in 2020.
From 1 April 2017 the utilisation of corporate tax losses will be restricted where profits are above £5m. Losses can be offset against the first £5m per annum. For the portion of profits over £5m, the losses will be subject to a 50% restriction.
From 1 April 2017 new rules were introduced over the deductibility of corporate interest. Interest can be deducted up to the higher of £2m or 30% of tax EBITDA.
Indexation allowance on companies’ chargeable gains frozen from 1 January 2018.
Disincorporation relief will be discontinued after 31 March 2018.
Annual Investment Allowance
The Annual Investment Allowance for companies will continue at £200,000.
Business Losses
From 1 April 2017 any unused losses arising from one trade may be carried forward and set off against profits from other trades in later years. If the accounting period of your business spans 1 April 2017, the loss will need to be apportioned to take advantage of the new rules.
Royalties
It is proposed that from April 2019, digital companies will be subject to a tax on royalties paid to low tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located.
Research and development
R&D tax credits for large companies increased from 11% to 12% from 1 January 2018.
Business rates
From April 2018, Business rates will rise by 3% instead of 4% as initially proposed. Non domestic property valuations will take place every 3 years rather than 5.
The controversial staircase tax on small businesses has been removed. Prior to the changes, businesses operating over several floors within the same property were assessed separately to business rates for each occupied floor, rather than billed for their premises as a whole.
Capital Gains tax
The annual exemption for capital gains tax will increase from £11,300 to £11,700 from 6 April 2018.
The main rates of capital gains tax will continue at 10% basic rate and 20% for the higher rate with the exception of gains on residential property which are taxed at 18% and 28% respectively.
VAT
The VAT registration threshold will remain at £85,000 and will be frozen for 2 years to 2020. The deregistration remains unchanged at £83,000.
Property
Landlords can claim mileage at 45p per mile from 6 April 2017.
From April 2020 non-resident companies with UK property income will be liable to corporation tax and gains arising on the disposal of UK property will be charged to corporation tax rather than capital gains tax.
From 6 April 2017 a restriction will be applied to the tax deductibility of mortgage interest against landlords’ profits. In 2017/18, interest can be deducted up to 75% of rental income. This will reduce to 50% in 2018/19.
Annual Tax on Enveloped Dwellings (ATED)
The ATED charge will increase by 3% from 1 April 2018. The ATED applies to properties above £500,000.
Entrepreneurs’ relief for investors
Proposals are in place to enable Entrepreneurs’ relief for individuals whose shareholding falls below the 5% qualifying limit.
National Living Wage
The National Living Wage will increase in April 2018 from £7.50 an hour to £7.83 for the over 25’s.
Proposed changes to IR35 and Intermediary Rules
HMRC is consulting on the possibility of extending the amended IR35 rules for intermediaries in the public sector to those in the private sector.
Stamp Duty
A stamp duty exemption will be available to first time buyers who will pay no tax on the first £300,000 when purchasing their first home. The exemption is available for houses up to a value of £500,000. The potential saving for taxpayers is £5,000. The stamp duty exemption will apply to property transactions effective from 22 November 2017.
Pensions
The pensions lifetime allowance will increase from £1,000,000 to £1,030,000 from 6 April 2018.
The annual pension allowance will remain at £40,000. Individuals who have withdrawn money from their pensions will only be able to contribute £4,000 per annum in line with prior year.
Individual Savings Accounts (ISA’s)
The ISA Allowance will remain at £20,000 which can be apportioned between cash and share ISA’s.
The annual subscription limit for junior ISAs will rise from £4,128 to £4,260 in 2018/19.
Savings allowance
The personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers will remain in line with prior year.
Vehicle Excise Duty
A Vehicle Excise Duty (VED) diesel supplement will be introduced for diesel cars registered after 1 April 2018. The first year rate of VED for a new diesel car will go up by one band.
Making Tax Digital
Government proposals to introduce quarterly reporting for all businesses under Making Tax Digital have been postponed till 2020. Quarterly digital reporting will be required for VAT registered businesses from April 2019.
Summary
In summary, there are no major surprises in the Budget. Overall, the budget provided some favourable changes for small businesses. Contractors and self employed will continue to be impacted by higher tax rates following the change in taxation of dividends last year and the tightening of IR35 tax rules in the public sector. Landlords continue to be worse off.
Belsize Accountancy are specialist accountants for contractors and small businesses.