Spring Budget 2017—Summary of key announcements and background

A summary of the key business tax announcements made in the Chancellor’s Spring Budget on 8 March 2017.

CONTENTS

KEY BUSINESS TAX ANNOUNCEMENTS

Key announcements that were new for the Spring Budget 2017 include:

  • the increase in class 4 National Insurance contributions (NICs) paid by the self employed from 9% to 10% in April 2018 and to 11% in April 2019
  • the reduction in the dividend allowance from £5,000 to £2,000 from April 2018
  • the introduction of a new withholding tax exemption for interest on debt traded on a Multilateral Trading Facility
  • the introduction of a new criminal offence for the evasion of the soft drinks industry levy

Government responses to the recently closed consultations on VAT grouping and 'Tackling offshore tax evasion: A requirement to notify HMRC of offshore structures' were not published, but might be expected alongside the introduction of the Finance Bill 2017 into parliament, which will be on 20 March 2017.

For the key Private Client announcements, see: Spring Budget 2017— Private Client analysis.

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Measures with immediate effect

New measures with effect from 8 March 2017:

BACKGROUND

The Chancellor of the Exchequer, Philip Hammond, delivered his first and last Spring Budget on Wednesday 8 March 2017.

The Chancellor continued his focus on measures to increase productivity and building an economy that 'works for everyone', announcing or confirming measures relating to living standards such as tax-free childcare and increased free childcare hours; increased funding to be provided to local councils for social care and to the NHS to support its A&E services; and the trailed commitment to technical education for young people.

In line with the proposals for changing the budget timetable announced at Autumn Statement 2016, the Chancellor used the Spring Budget 2017 to announce a number of consultations on future reforms. However there were some significant policy announcements, all of which could be classified under the heading of 'ensuring that the tax system is both fair and sustainable'. The particular targets of that challenge were the differences in taxation that can arise from the choice of business structures. In that context the government has announced increases to NICs for the self-employed and a decrease in the amount of the dividend allowance (thereby increasing the income tax suffered by individuals who operate through companies and pay themselves dividends, among others).

The two successive increases to Class 4 NICs mean that, from April 2019, they will be paid at 11% (compared with a 12% rate for class 1 NICs for employed earners). There has been a government and media focus on the treatment of workers in the gig economy, who are usually treated as self-employed and this announcement may have been fuelled by the growth in that sector. The measure (after offsetting the loss from the abolition of class 2 NICs) is expected to raise nearly £500m over the next four tax years, although the forecasts suggest a peak of Class 4 NICs in 2019–20, followed by drops in the next two years, perhaps predicting that the self-employed will change their working practices in response to this change. Although when most people consider a self-employed person, they will think of individuals working on their own, these changes of course extend to those who work in partnerships, many of whom employ a large number of staff themselves, and are therefore responsible for paying the employer NICs. This rate rise is unlikely to be much softened by the government's commitment to consult on the disparities between parental benefits for employed and self-employed individuals.

The Conservative manifesto in 2015 committed: 'no increases in VAT, National Insurance contributions or Income Tax'. The Class 4 NICs changes could be considered to have breached that manifesto pledge. However, when enacted into the National Insurance Contributions (Rate Ceilings) Act 2015 the lock was applied only to Class 1 NICs, so the change proposed does not at least require a change to that enacted lock.

Despite these increases in tax, it has been hailed as a 'business friendly budget', mainly due to the lack of significant change in the corporate tax sphere and confirmation of the business tax roadmap measures such as the cuts to corporation tax to 19% from April this year and again to 17% in 2020 and further support for businesses who are facing increases in business rates.

Definitions

The following abbreviations are used in each piece of analysis:

  • Spring Budget 2017: the main document published by HM Treasury
  • OOTLAR: overview of tax legislation and rates
  • FB 2017: the Finance Bill 2017
  • FB 2017–18: the Finance Bill 2017–18 (meaning the finance bill that will be introduced into parliament following Autumn Budget 2017)
  • AS 2016: Autumn Statement 2016

Further reading

Further analysis on this Spring Budget:

LexisPSL subscribers can access all analysis and insight on the Spring Budget 2017 here. If you are not a subscriber, you can take a free trial here. For further free content on the Spring Budget 2017, sign up to this blog using the sign-up box on this page.

Filed Under: Budget

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