For many small business owners, the 2017 Budget will have cast more gloom than it did sunshine. Listening to Chancellor Philip Hammond will have left many small firms worried about the impact the budget will have on their bottom line, but it’s important to stay abreast of any changes so that you can plan accordingly.
These are the main points from this year’s Budget that will affect small businesses in the coming period.
National Insurance Contributions
This year’s Budget will likely be remembered for the Chancellor’s U-turn on his decision to increase Class 4 National Insurance contributions for the self-employed.
Class 4 National Insurance Contributions for the self-employed were due to rise by 1 per cent, to 10 per cent in April 2018, and then to 11 per cent in April 2019. However, the Chancellor reneged on this move shortly after its announcement. This is something that has been seen as a positive move by those who work for themselves and believe the fact they cannot claim the same benefits as employed workers, such as holiday pay, sick pay and maternity / paternity pay means they should not be classed in the same category.
The Chancellor announced a reduction in the tax-free dividend allowance for directors and shareholders from £5,000 to £2,000 with effect from April 2018. This will in part be offset by the reduction in Corporation Tax that came into effect this month. The reduction will see the rate drop to 19 per cent from 1 April 2017, then 18 per cent from 1 April 2020.
The effort to mitigate the impact of business rate increases was the only silver lining for many small businesses in this year’s Budget. There were previously fears that this tax would push many small traders out of business entirely.
The Chancellor announced that companies which are losing their business rate relief will receive an extra cap, which will stop rates from increasing by more than £50 a month. Furthermore, public houses will receive a £1,000 discount provided that they have a rateable value of less than £100,000, and there will be an additional £300 million fund for councils to allow them to provide discretionary relief to businesses which are deemed as struggling.
Delay to Tax Regime Digitalisation
The other relief for many small business owners was the news that there will be a delay of one year to the Making Tax Digital (MTD) initiative for all incorporated businesses with turnover below the VAT threshold.
MTD will digitalise tax returns and call for quarterly reporting, which has caused some alarm amongst small firms. As the biggest change to UK tax reporting in a generation, many small businesses have been asking for more details in order to comply with the legislation, yet the details have not been as forthcoming as they may have hoped. The delay will therefore be a welcome relief to many.
If you’re unsure of what you need to be doing planning wise over the coming year, or how the changes introduced by the latest Budget will affect your small business, talk to your local bookkeeper who will be able to assist you with every aspect.