Business Tax Changes – Budget 2017

The final Spring Budget is over, with the annual announcement now set to take place in the autumn, meaning just one period of major tax change each year and greater advance notice of any new legislation changes – but was it good news for businesses?

Changes to Self Employed National Insurance from April 2018

Many self employed traders will be seeing National Insurance increases from April 2018. As expected, flat rate Class 2 national insurance – applicable to those with profits above £5,965 a year – will be abolished from April 2018. This is set to save the self-employed a stonking £146 a year, but this was always set to be a simplification measure rather than a tax reduction.

To pay for this, the Chancellor is increasing the rate of Class 4 National Insurance by 1% from April 2018, and by another 1% from April 2019.

Taking into account the net effect of the Class 2 and 4 changes, only a self-employed person with profits over around £16,250 will have to pay more as a result. Our table below illustrates some winners and losers.

Self Employment Profit Increase/(decrease) in annual NI costs by 2019/20
 10,000 (118)
 20,000  82
 40,000  482
 80,000  762

 

The government is saying that this does not break its 2015 Election pledge not to raise the main rates of taxes – “no increase in VAT, no increase in National Insurance, no increase in income tax” – as that promise did not apply to self-employed National Insurance.

Research and Development Tax Relief

This is a hugely valuable tax relief for many companies’ research and development (R&D) activity, worth up to 46% in Corporation Tax relief. Around 1,300 companies in the Yorkshire and Humberside area alone claimed the relief in the 2014/15 tax year.

The government has now announced that its review of R&D relief as part of the Industrial Strategy green paper has found it is an effective and internationally competitive element of the government’s support for innovation.

That means that R&D will be here to stay. No changes are announced other than some streamlining of the Research and Development Expenditure Credit for Large Companies.

VAT

The VAT registration threshold increases from £83,000 a year to £85,000 a year from 1 April 2017.

Minor Changes

The following points are commented on by way of comfort to the majority of businesses who may worry when they see the name of the measure and whether it hits them or not. The following could come under a heading of ‘minor technical adjustments; not many affected; unless of course you are in fact one of those affected’:

  • ‘Appropriations to trading stock’ – the transfer of a capital asset to trading stock can currently give rise to a gain or loss. The change in the Finance Bill 2017 means that it will no longer be possible to rebase a property standing at a loss on the transfer into trading stock, and so the loss will remain a capital loss rather than one that can be used against trading profits.
  • ‘Disposal of land in the UK’ – this simply builds on a measure introduced last year for non-resident property developers. It states that all profits from dealing in – or developing – land in the UK that is recognised in the accounts on or after 8 March 2017 will be taxed. The new measure removes an exception where the contract for disposal was entered into before July 5th

To find our whether your business will be affected by the Budget and for advice on a range of other tax matters, please contact Rob Durrant-Walker or Garbutt + Elliott’s dedicated team of business tax experts at enquiry@garbutt-elliott.co.uk.