We listened to the Budget last week with a sense that it was designed to negatively impact those with their own businesses – in other words, people like our clients.
Then, just as we were spell-checking this newsletter prior to pressing “send”, the Chancellor announced a reversal of his decision to increase rates of National Insurance for the self-employed, prompting a hasty re-write and leaving us wondering whether Phil Hammond got a good telling-off from Theresa May for being so stupid in the first place. The government had justified the proposed increases by saying that the move smoothed out some of the tax benefits which the self-employed have had, especially because the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016. However, it remains that the self-employed do not benefit from the same level of support when sick or on maternity leave and it goes without saying that the self-employed don’t benefit from holiday pay. We thought the move ill-judged, especially because the government should be doing all they can to encourage enterprise. We’re pleased he’s changed his mind.
In the budget, Philip Hammond announced the usual increases in personal allowance and the basic rate bands which are good news for everyone. From 6 April 2017, the personal allowance will increase from £11,000 to £11,500 and the amount of income you can earn before starting to pay tax at the higher rates is £45,000, up from £43,000.
There is one change which will affect many of our clients with their own limited companies:
Changes to dividend tax
For those with their own companies who take advantage of the low salary, higher-dividend route of profit extraction, the news that the tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018 is unwelcome. Those with their own companies have hardly got used to paying tax on dividends at the lower rate (the first tax under that regime is due on 31 January 2018) so it was a shock that the dividend allowance is already being eroded. It will cost those taking dividend above £2,000 an additional £225 per year.