The Spring Budget 2017 was the first announcement delivered by the Chancellor, Phillip Hammond.
Reduce your tax bills
This will, in fact, be the last Budget announcement to take place in the Spring, as from now on Budgets will feature in the Autumn.
What can we expect this year?
The purpose of the Budget announcement is to deliver the financial and economic position of the UK, based on information by the Office for Budget Responsibility, which also present forecasts for spending plans in the year ahead.
On the whole, there were no real surprises. A few things though will affect contractors, freelancers and small business owners, both self-employed and operating through a limited company. This blog summarises the key points for personal and business tax.
Personal Tax
Income tax
The personal allowance will increase to £11,500 to 2017-2018. The basic rate of tax remains at 20%, the higher rate at 40% and the additional rate at 45%. The basic rate band is up to £33,500 in 2017-2018. As a result, taxpayers are hit with the 40% rate if their income exceeds £45,000 (up from £43,000 in 2016-2017).
The personal allowance is restricted by £1 for every £2 of an individual’s adjusted net income above £100,000. Taxpayers with income over £123,000 (2017-2018) will not receive a personal allowance.
New allowances from April 2017
From 6 April 2017, two new annual allowances will be introduced. The first will apply to selling goods and services and the second to income property. The allowance for both of them is set at £1,000. This means when the allowance covers all of an individual’s relevant income (before expenses) they will no longer need to declare or pay tax on the income to HMRC.
The new allowances will not apply to the following:
- Partnership income from carrying on a trade, profession or property business in partnership.
- Relief given under the Rent-a-Room relief legislation.
Dividend income
The old system of dividend tax credits was replaced in April 2016 with a rate of 7.5% above £5,000pa, 32.5% for higher rate taxpayers and 38.1% for income above £150,000pa. However, the £5,000 tax-free dividend allowance will reduce to £2,000 from April 2018.
National insurance contributions’ (NICs) rates for employees remain the same, ie, 12/2% but the self-employed rates (Class 4 NICs) will increase to 10% from April 2018, with a further increase to 11% due in 2019.
Capital Gains Tax
Tax rates were reduced to 20% for higher rate taxpayers and 10% for basic rate taxpayers from 6 April 2016, with the exception of 28% for residential sales.
Entrepreneurs’ relief continues with tax rate of 10% for lifetime gains of £10 million per individual with 10% relief extended to individuals on private trading company shares held for over 3 years.
Inheritance Tax – Nil rate band frozen at £325,000 until 2021 but the exemption extended from April 17 2017 for family homes.
Property and pensions
Property income
Interest relief is to be restricted for buy-to-lets (excluding furnished holiday lettings) from April 2017 and down to basic rate (20%) from April 2020. Rent-a-room relief has been increased to £7,500pa (the previous limit was £4,250) and “wear and tear” allowances were abolished from 6 April 2016.
Savings for first home or retirement
The Chancellor has confirmed the ISA limit has been increased by almost a third to £20,000 a year.
The Lifetime ISA will be introduced in April 2017, where anyone aged 18 to 40 will be able to save up to £4,000 a year and receive a 25% bonus from the government towards their first home or retirement. Savers can contribute to the ISA up until the age 50.
When this is used to buy a first home, the conditions for the bonus are:
- the account is open for at least 12 months
- the home acquired does not cost more than £450,000
Where it is used to save for retirement, the funds can be withdrawn from the age of 60.
Help to Save scheme
This scheme will be introduced no later than April 18 2017, which will encourage adults in receipt of universal credit to save. The 50% bonus will be paid on savings of up to £50 a month paid into a “Help to Save” account by the government. The bonus will be paid after two years, with the option to save for a further two years. This will allow members of the scheme to save up to £2,400 (including a government bonus of £1,200).
Pensions tax relief
No further changes to pension tax relief were announced.
Relief has been restricted for income in excess of £150,000pa since April 2016. At income above £210,000 the £40,000 AA is reduced to the minimum of £10,000. The Lifetime Allowance for tax-relieved pension savings was also cut from £1.25m to £1m.
State Pension
The chancellor confirmed the new flat-rate pension will rise by 2.5% in April 2017, seeing weekly payments increase to £159.55 (from £155.65), while the old state pension will rise to £122.30 (from £119.30).
Business Tax
Corporation tax
Rates for all companies will decrease to 19% (from 20%) in April 2017. The previously announced reduction to 18% from April 2020 has been lowered to 17%.
Standard rate VAT
Standard rate VAT will be maintained at 20% and the registration threshold will be increased to £85,000.
For businesses below the VAT registration threshold, there will be a one-year delay in the introduction of quarterly reporting so they have more time to adjust to the changes.
Capital allowance for cars
Until April 2018, businesses acquiring a new company car with CO2 emission below 75g/km are able to claim a 100% first year allowance. The 100% first year allowance for low emission cars is to be extended for another three years, until April 2021. However, the qualifying emissions threshold for the first year allowance will fall to 50g/km from April 2018.
The threshold for cars eligible for the 18%pa rate of capital allowances will be reduced from 130g/km to 110g/km from April 2018. Cars with emissions above this threshold are only eligible for 8%pa rate of capital allowances.
Cobia Accounting specialises in helping individuals and small businesses make the most of the tax savings available to them. To learn more about how we do this or the fixed monthly rate accounting services we offer, contact us today.