Philip Hammond MP unveiled his first Budget as Chancellor of the Exchequer on March 8 2017. The speech was widely reported as being a ‘cautious’ Budget, containing substantially fewer measures than in previous years.
Many of the headlines regarding the speech concern a tax rise for the self-employed. Class 4 National Insurance contributions are payable by any self-employed sole trader or partnership with annual profits above £8,060, and these contributions will rise by 1% to 10% from April 2018, and then to 11% from April 2019. Mr Hammond however stopped short of bringing self-employed NI contributions in line with the 12% paid by employees.
The Government is still proposing to scrap Class 2 NI contributions for the self-employed from April 2018. Together, the two measures are said to equate to an increase of £240 in the annual tax bill of the average self-employed worker. However, those with earnings of below £16,250 will pay less tax.
Since the speech, the Government has announced it will not introduce the legislation for the NI tax hike until the autumn, when it has completed a review of the state benefits provided to the self-employed.
There was no action taken against companies that use self-employed workers to gain tax advantages, but when touring the news studios after the speech, the Chief Secretary to the Treasury, David Gauke MP, put companies on notice that the Government was looking into this issue.
Mr Hammond confirmed the Government’s plans to reduce corporation tax to 19% from April 2017, and to 17% by 2020.
He also confirmed the rise in the National Living Wage – the mandatory legal minimum pay rate for those aged 25 or over – to £7.50 per hour from April this year. The Government plans to increase the living wage to £9 per hour by 2020.
The personal allowance – the amount of an individual’s earnings that is not subject to income tax – will rise to £11,500 from April this year and to £12,500 by 2020. The higher rate threshold – the level above which earnings are taxed at 40% – will rise to £45,000 from April this year and to £50,000 by 2020.
The tax-free dividend allowance – the amount of dividend income an investor can receive before being subject to tax – will fall from the current level of £5,000 to £2,000 from April 2018. This will affect anyone with direct investment in shares; or with a unit trust or OEIC or similar that is held outside the ISA wrapper.
The economic growth forecast for 2017 has been upgraded to 2%, with growth of 1.6% forecast in 2018.
Inflation in 2017 is expected to remain fairly high, at 2.4%, reducing slightly to 2.3% the following year. Wages in real terms will not rise this year, but are projected to rise in each of the next four years.
£435 million was pledged to help firms hit by increases in their business rates, with an additional £300 million for small businesses who are amongst those affected most severely by the revamped rates system, while it was also promised that no company losing its existing small business rate relief would see an increase of more than £50 in their monthly bill.
A new 25% tax charge was announced, targeting pension savers who seek to reduce their tax bill by moving their pension wealth overseas into Qualifying Registered Overseas Pension Schemes (QROPS).
Any financial adviser or other professional involved in designing, marketing or managing a tax avoidance scheme that is subsequently defeated by HMRC will be fined the higher of 100% of the total tax bill they helped evade, or £3,000. The Government can also name and shame any professional involved with this practice.
There was no rethink on controversial proposals to reduce the money purchase annual allowance from £10,000 to £4,000. From April this year, individuals who have already flexibly accessed their pension benefits will be subject to this significant new restriction on the level of contributions they can make.
Under a new timetable, there will be a further Budget speech in November this year, followed by a Spring Statement in 2018.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.