- Class 4 National Insurance paid by the self-employed to rise to 11% by April 2019.
- Dividend allowance to fall from £5,000 to £2,000 in April 2018.
- Corporation Tax decrease to 19% in April 2017 and to 17% in 2020 confirmed.
- Some small businesses and landlords given extra time to prepare for Making Tax Digital.
- Pubs with a rateable value of less than £100k will get a £1,000 a year rates discount.
Class 4 National Insurance paid by the self-employed was announced to increase from 9% to 10% in April 2017 and to 11 in April 2018. Class 4 National Insurance is paid on profits earned over £8,060. The change will affect 2.84 million people with an average annual increase of £240.
The newly announced change in Class four also coincides with an announcement in an earlier budget that class 2 is to be abolished in April 2017. Class 2 was a flat rate of £145.60 annually in 2016/17 and was payable where profit exceeded £5,965.
The net effect is that the self-employed with profits of more than £16,250 will see an increase in the National Insurance they pay.
The government have sold the tax rise on a platform of fairness as the employed pay Class 1 National Insurance at a current rate of 12%. But the employed are entitled to more government benefits and there has been no talk of making this equal.
A new tax on dividends was introduced in April 2016 and it came with a £5,000 dividend allowance. It was announced in the budget that from April 2018 the dividend allowance will be reduced to £2,000. For small company owners who receive most of their income as dividends this will cost them an extra £225 in tax per year.
Most small company owners have yet to prepare a tax return and see the effect of the new dividend tax. This announcement is clearly aimed at increasing the tax take from small business owners even more.
The chancellor has committed to the decreases announced on Corporation Tax meaning a reduction from 20% to 19% in April 2017 and further decrease in 2020 to 17%. This goes someway to offsetting the Dividend Tax and the reduction in the Dividend Allowance.
Making Tax Digital
Making Tax Digital is the government programme to abolish tax returns and replace them with automatic data collection and a quarterly reporting structure. The plans are highly controversial and have been criticised by the accounting profession and small business groups.
There was a bit of relief announced for the smallest businesses and landlords in that they will be delayed by a year to April 2019. This is welcome news to help the smallest businesses prepare for the change from an annual tax return to quarterly reporting of their profit.
Pubs with a rateable value of less than £100k are to get an annual discount of £1,000 on their rates. The net effect of the rates rise and the discount could still see some pubs paying an increase in rates but the impact will be reduced and some pubs could even see a fall in rates.
A cap in rate rises has been introduced for those losing small business rate relief they will see their rates increase by no more than £50 per month.