The Chancellor said that the tax system needs to be fair and sustainable in order to support critical public service. The Government says that, in order to increase the personal allowance and higher rate threshold in line with its promises, and to reduce corporation tax to 17%, it needs to take action.
The Budget contained two headline steps to deal with this, both aimed at the self-employed and owner-managers. These are the increase to self-employed national insurance contributions and the reduction in the dividend tax allowance. We view both these proposals as an attack on those who are the lifeblood of the UK economy, and the NIC changes, in particular, seem to be contrary to the Government’s 2015 Manifesto commitments.
Much will appear over the next few days, culminating in the publication of the Finance Bill in a week or so, but here are the key tax changes as we understand them at the moment.
Dividend allowance reduction
The tax-free allowance for dividend income will be reduced from £5,000 to £2,000 with effect from April 2018. It is claimed that this will reduce the tax differential between the employed and self-employed and those working through a company.
Increase in the rate of Class 4 National Insurance contributions (NICs)
The government has already announced that it will abolish Class 2 NICs from April 2018. On its own this would increase the differential between the rates of National Insurance paid by employees and those paid by the self-employed. The Budget proposes that the main rate of Class 4 NICs will be increased from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019.
Taxation of benefits in kind
The government will publish a call for evidence on 20 March 2017 on exemptions and valuation methodology for the Income Tax and employer NICs treatment of benefits in kind in order to better understand whether their use in the tax system can be made fairer and more consistent.
Research and development (R&D) tax credit review
There will be administrative changes to research and development (R&D) tax credits, following a review of the tax environment for R&D. It is intended that this will increase the certainty and simplicity around claims, and will take action to improve awareness of R&D tax credits among SMEs. It is not yet clear how this consultation (if any) will occur and when the changes will be effective. We welcome anything that encourages eligible companies to claim R&D tax credits and have more certainty over them.
As expected, there are further anti-avoidance measures announced which it is claimed will raise over £750million. As the years go by, these anti-avoidance measures become more and more specific and targeted, and few, if any, are likely to affect any of our readers.
This was a Budget apparently thin on content but rich in hyperbole. However, there is much that will emerge in the Finance Bill when it is published in the next few days, based on the various consultations that have been taking place over the past few months, and legislating for many of the changes announced in the Autumn Statement only a few months ago.
We will, of course, be monitoring this closely and will bring to your attention anything that we think will have an impact on you.