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On 8 March 2017 the chancellor Philip Hammond announced his first (and last) Spring Budget.

Post Brexit vote, the Chancellor stated that this budget aimed to build the ‘‘foundations of a stronger, fairer, more global Britain’’. He stated that despite higher employment levels, Britain’s productivity remained low. Therefore, with these opening comments, it was initially expected that the Chancellor would be incentivising businesses (and business owners) who operate in Britain, whether they trade through limited companies, partnerships or sole trader entities. 

Some announcements in the budget did this, in terms of potential reliefs available on business rates, lower administrative burdens for the research and development scheme, and more incentives for childcare costs. However, these advantages were significantly outweighed by the increase in Class 4 National Insurance contributions for the self-employed (sole traders and partners of partnerships), and by the reduction of the dividend allowance to £2,000 (which has an impact on owner managed director-shareholder companies).

We have summarised the key changes as follows:

Personal Taxation

  • The main rate of Class 4 National Insurance contributions (which are based on profits for self-employed sole traders and partners) are to increase from 9% to 10% in April 2018 and to 11% in April 2019
  • Class 2 National Insurance, a separate flat rate contribution paid by self-employed individuals making a profit of more than £5,965 a year, will be abolished (as previously announced) in April 2018
  • No changes to National Insurance paid by the employed and employers or to income tax or VAT
  • Personal tax-free allowance to rise (as previously announced) to £11,500 for the 2017/18 tax year and increase to £12,500 by 2020
  • The higher rate threshold to be set at £45,000 for the 2017/18 tax year (as previously announced) and increase to £50,000 by 2020
  • Reduction in the tax-free dividend allowance from £5,000 to £2,000 (effective from April 2018)
  • Dividend income paid on shares held in a stocks and shares ISA will remain tax free
  • Measures to tackle abuse of overseas pension schemes will be introduced

Businesses

  • Administrative requirements for the research and development scheme are to be reduced (measures to be announced)
  • The effect of the 2017 business rates revaluation is to be mitigated by a potential reform of the revaluation process. Thresholds will be raised on rates so that 600,000 small businesses are excluded from having to pay rates
  • No business (losing small business rate relief) will see their rates bill increase next year by more than £50 per month, and subsequent increases will be capped at either transitional relief cap or £50 per month (whichever is higher)
  • Pubs with a rateable value of less than £100,000 to get a one-year £1,000 discount in 2017 on rates they would have paid (according to the Chancellor this will affect 90% of pubs)
  • The Chancellor has advised that the government will find a way of taxing the digital economy
  • Measures to be introduced to stop businesses converting capital losses into trading losses
  • Introduction of UK VAT on roaming telecoms services outside the EU
  • Privately-owned SMEs with turnover below the VAT registration threshold will get extra year to prepare for tax digitisation and quarterly reporting
  • Review of taxation of North Sea oil producers
  • No increases in alcohol or tobacco duties on top of those previously announced
  • A new minimum excise duty on cigarettes based on a packet price of £7.35
  • Tobacco will rise by 2% above Retail Price Index (RPI) inflation, with a packet of 20 cigarettes costing 35p more
  • Duty on beer, cider, wine and spirits will increase in line with RPI inflation. This will equate to 2p on a pint of beer, 1p on a pint of cider, 36p on a bottle of whisky and 32p on a bottle of gin
  • Fuel duty frozen for a further year
  • Vehicle excise duty rates for hauliers and the HGV Road User Levy frozen for another year
  • Most sugary soft drinks to be taxed at 24p per litre as part of plans to reduce childhood obesity

Other Announcements

  • Parental benefits for the self-employed to be reviewed this summer. Presently self-employed fathers cannot receive paternity pay/allowance and it is thought this may change
  • Next month the introduction of the Tax Free Childcare Policy will allow working families to receive up to £2000 per year in childcare costs for each child under 12 (for eligible parents only)
  • From September, working parents with 3 and 4 year olds will have free childcare entitlement doubled to 30 hours per week
  • Regarding the funding of care for the elderly, the Chancellor will set out the options for this funding in the Green Paper this year. He has confirmed that those options will not include an additional death tax (Labour had previously proposed an additional 15% death tax levy to the 40% inheritance tax rate to fund social care for the elderly)
  • From July 2017 financial penalties will be imposed on professionals who enable a tax avoidance arrangement that is later defeated by HMRC
  • £300m to support 1,000 new PhD places and fellowships in STEM (science, technology, engineering and maths) subjects
  • Free school transport extended to all children on free school meals who attend a selective school
  • £320m of funding for 110 new free schools and grammar schools
  • Number of hours of training for technical students aged 16 to 19 increased by more than 50%, including a high-quality, three-month work placement
  • £100m to place more GPs in accident and emergency departments for next winter
  • Additional £325m to allow the first NHS Sustainability and Transformation Plans to proceed
  • Transport spending of £90m for the North of England and £23m for the Midlands to address pinch points on roads
  • £690 million competition fund for English councils to tackle urban congestion
  • £270m for new technologies such as robots and driverless vehicles
  • £16m for 5G mobile technology and £200m for local broadband networks
  • £250m in funding for Scottish Government, £200m for Welsh Government and £120m for Northern Ireland Executive
  • Funding of £5m to support people returning to work after a career break

Should you have any queries on the above, please do not hesitate to contact a member of the Spirare team.