The Chancellor announced his final Spring budget today. The most talked about planned change for small businesses was the proposed change to NIC contributions. Below is a summary of changes that impact on small businesses and individuals:
- Small Businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD): Under MTD, businesses will be obliged to use digital software to keep tax records and update HMRC quarterly. Unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will have until April 2019 to prepare before MTD becomes mandatory.
- Corporation tax to fall to 17% by 2020
- Tax deductibility of corporate interest expense to be limited: The final restriction level is not yet confirmed but for smaller businesses we think it is likely to be restricted to 30% of profits before interest, tax and depreciation.
- Reform of loss relief: From April 2017 there will be a restriction as to how much losses from earlier tax periods can be offset against current year profits. It will be 50%.
- Research and Development: The Government plan to make the R&D tax credit regime application process clearer and more straightforward, in order to encourage more small businesses to utliise the regime.
- Considerations for employers: The Government will review the exemptions and valuation methodology for the tax and NIC treatment of benefits in kind.
- Confirmation of the abolition of Class 2 and increase in Class 4 National Insurance Contributions: The abolition of Class 2 National Insurance Contributions for self-employed individuals from 6 April 2018 was confirmed.
The main rate of Class 4 National Insurance Contributions for self-employed individuals will increase from 9% to 10% from 6 April 2018, and by a further 1% to 11% from 6 April 2019. [Please note that the Chancellor was forced to do a U-turn on the Class 4 NIC increase after it caused a political uproar in the days following the budget]
- Reduction in dividend allowance: The tax free dividend allowance will be reduced from £5,000 to £2,000 from April 2018 affecting many small business owners who choose to pay themselves with dividends.
- Increases to the personal allowances and higher rate threshold: From 6 April 2017, the personal allowance will increase from £11,000 to £11,500 and the higher rate threshold will increase from £43,000 to £45,000.
- Confirmation of increase in the ISA limit: The ISA allowance will rise from £15,240 to £20,000 from 6 April 2017.