Budget brings good and bad news for businesses
Funds to improve infrastructure and delays to the introduction of quarterly tax returns form will be welcomed by businesses, but there's bad news too in the form of changes to NIC and and tax-free dividend allowances.
Firstly, the good news. Small Businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD). This is the measure the Government will be introducing in April 2018, under which businesses will be required to file quarterly tax returns in a digital format.
Until the Spring Budget announcement on 8 March, this was going to affect all unincorporated business with an annual turnover above £10,000.
Additionally, unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will be allowed until April 2019 to prepare before MTD becomes mandatory.
Encouraging for businesses that have been plagued by the productivity puzzle in recent years is the announcement of funds targeted at improving infrastructure – both physical and digital.
The Chancellor has allocated transport spending of £90m for the north of England, £23m for the Midlands to address pinch points on roads, £16m for 5G mobile technology and £200m for local broadband networks.
The bad news comes in two forms. Firstly, the self-employed will pay an increased National Insurance Contribution (NICs). Currently, the self-employed may have to pay both Class 4 and Class 2 NICs:
- Class 4 NICs at 9% are paid on profits between £8,060 and £43,000
- Class 2 NICs are paid on profits of £5,965 or more
From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019.
Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes. The Government says this better reflects the fact the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016. In the summer, the Government will also consider whether there is a case for greater consistency in parental benefits between the employed and self-employed.
The second bit of bad news concerns those businesses which are incorporated (limited companies). The tax-free dividend allowance, which enables individuals to receive £5,000 of dividends tax-free will be reduced to £2,000 from April 2018. This will reduce the tax difference between the self-employed and those working through a company.
For businesses subjected to the increased in business rates from April 2017, there is some relief in the form of £435 million to support businesses affected by the business rates relief revaluation. This means no small business that is coming out of small business rates relief will pay more than £600 more in business rates this year than they did in 2016-17.
Funding for local authorities will allow them to provide £300m of discretionary relief to provide help to businesses most affected by the revaluation. From April 2017, pubs with a ratable value up to £100,000 will be able to claim a £1,000 business rates discount for one year. The impact of these changes will take time to filter down to the individual businesses.
From a business perspective, the Budget has been mixed news. The problem of growing regulatory burdens for businesses, particularly small ones, is still prevalent and will spiral out of control if not tackled head-on. The delay in MTD for those businesses with turnover under the VAT threshold was a great first step, however the Chancellor could have gone much further.