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The Spring Budget 2017
Chancellor Philip Hammond used his first Budget to announce a cut in the tax-free dividend allowance from £5,000 to £2,000 from April 2018.
He told Parliament that this will reduce the tax difference between the self-employed and those working for a company.
The tax-free dividend allowance replaced the Dividend Tax Credit in April 2016. It was set at £5,000 with tax rates on dividends above that level set at 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate.
Mr Hammond said that the Dividend Allowance had increased the tax advantage of incorporation as it allows each Director/Shareholder to take £5,000 of dividends out of their company tax free, over and above the personal allowance.
He estimated that about half the people affected by the cut in the tax-free dividend allowance to £2,000 will be “Director/Shareholders of private companies”.
“The rest are investors in shares with holdings worth, typically, over £50,000 outside ISAs,” he said.
NS&I Investment Bond
The Chancellor confirmed that the new three-year government savings bond offered by NS&I will pay interest of 2.2%.
The new bond will be:
- Available for 12 months from April 2017
- Open to those aged 16 and over
- Subject to a minimum investment limit of £100 and a maximum investment limit of £3,000
Money Purchase Annual Allowance (MPAA)
Following a consultation process, the Government still intends to reduce the money purchase annual allowance to £4,000 from April 2017. This restricts the amount of tax relieved contributions an individual can make in a year into a money purchase pension, if they have flexibly accessed their pension savings. A full response to the consultation will be published on 20th March 2017.
Adult social care
Mr Hammond announced an extra £2 billion over the next three years to help “councils provide high quality social care to more people and ease pressure on the NHS”.
There are now half a million more people aged over 75 than there were in 2010 – and there will be two million more in ten years’ time, according to the Chancellor.
He said the extra money will allow local authorities to commission new care packages, but the long-term challenges of sustainably funding care in older age “requires a strategic approach”.
The government will therefore set out its thinking on the options for the future financing of Social Care in a Green Paper to be published later this year.
As previously announced, the personal allowance will rise in April 2017 by £500 to £11,500 alongside a £2,000 increase to the higher rate threshold.
- The personal allowance will increase from £11,000 in 2016-17 to £11,500 in 2017-18.
- The higher rate threshold will increase from £43,000 in 2016-17 to £45,000 in 2017-18
National Insurance Contributions
The Government had previously announced that Class 2 NICs, that are currently only paid by the self-employed, will be abolished from April 2018.
However, Mr Hammond announced that when the Class 2 NIC is abolished, the main rate of Class 4 NICs for the self-employed will increase by 1% to 10%, with a further 1% increase in April 2019.
He said that this will “reduce the unfairness in the NICs system” where the self-employed contributed “significantly less” for the same benefits than those in employment.
- Currently, Class 2 NICs are paid on profits of £5,965 and Class 4 NICs at 9% are paid on profits between £8,060 and £43,000.
- From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019.
Mr Hammond announced extra support for small businesses hurt by the revaluation of business rates relief.
He announced a new cap that 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.
On top of that, local authorities will be given £300 million funding for discretionary relief to provide help to businesses most affected by the revaluation.
And from April 2017, pubs with a rateable value up to £100,000 will be able to claim a £1,000 business rates discount for one year.
Making Tax Digital
The Government has previously announced new rules that mean businesses must use digital software to keep tax records and update HMRC quarterly.
Mr Hammond announced that Small Businesses and landlords under the VAT threshold will have an extra year to prepare for the process, called Making Tax Digital (MTD)