The main changes announced in the budget affecting small business are as follows:
Changes to National Insurance
Currently, the self-employed, operating either as sole traders or as partners in a partnership, have to pay both Class 4 and Class 2 NICs as follows:
- Class 4 NICs at 9% are paid on profits between £8,060 and £43,000
- Class 2 NICs at a fixed rate of £145 per annum if profits are £5,965 or more
It was announced in the 2016 budget that from 2018, Class 2 NICs will be abolished. It has now been announced that Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019. Taken together, these measures mean that a self-employed person with profits over £16,250 will have to pay more.
Changes to the Taxation of Dividends
Businesses which are incorporated (limited companies) saw the introduction of a new dividend tax of 7.5% and at the same time introduced a tax-free dividend allowance of £5,000. Before that change, basic rate taxpayers did not pay any additional tax when receiving income from dividends. This change resulted in basic rate taxpayers paying 7.5% income tax on dividends received above £5,000 per annum. In this budget the Chancellor announced that the tax-free dividend allowance will be reduced from this level of £5,000 to £2,000 from April 2018.
Making Tax Digital (“MTD”)
The MTD proposals, the exact nature of which are unknown but which will include quarterly reporting to HMRC, affect all landlords and unincorporated businesses with a turnover of £10,000 or more. Originally, these measures were to be introduced from April 2018. It has now been announced that unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will have an extra 12 months until April 2019 to prepare before MTD becomes mandatory.
Business Rates
Businesses face a rates revaluation, and the resultant changes in rates payable, from April 2017 and this was expected to increase the rates of many businesses significantly. For these businesses there is some relief introduced in the budget meaning that 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. Also, funding for local authorities will allow them to provide £300m of discretionary relief to provide help to businesses most affected by the revaluation.
From April 2017, pubs with a ratable value up to £100,000 will be able to claim a £1,000 business rates discount for one year.
To see what we can do to help your small business.