The intended 1% increases in Class 4 NIC in 2018 and again in 2019, coupled with the reduction in dividend tax free allowance from £5,000 to £2,000 from 2018 will increase the tax burden on entrepreneurs and the self-employed despite the abolition of Class 2 NIC in 2018.
There were no new incentives to encourage investment or increase capital value. It could have been worse as the Chancellor could potentially have gone further and removed or reduced the benefit of a number of existing tax incentives such as Entrepreneurs’ relief.
There are over 4.6m self-employed people in the UK and many of them will shortly need to consider the impact of mandatory electronic filing with the proposed introduction of making tax digital (MTD). Whilst the narrowing of the tax gap between employed and self-employed will be welcomed by most, there are a number of non-tax benefits of being an employee and these appear to have been overlooked by the Chancellor. It would seem, more so than ever, that business owners are having to make tax their primary concern when deciding how to structure their business, over other more commercial considerations.
Other than this, the Budget was devoid of any major tax changes for business, either for SMEs or international companies. The Chancellor may feel that existing measures such as low corporation tax rates are enough to attract and retain businesses and so little tinkering was the best option. Indeed, stability in the tax system is always welcome. It may also be that the changes announced today will not impact materially on business decisions. Whilst today’s Budget won’t be remembered for being business-friendly, we will be hoping to see greater support for growth and entrepreneurship in the Autumn Budget.
There was little in the way of newsworthy changes for individuals; the tax-free dividend allowance will result in a maximum tax increase from 6 April 2018 of £1,143 for additional rate taxpayers. Other announcements to increase the personal allowance and the higher rate tax threshold were in line with expectations. There were no significant changes to the Inheritance Tax consequences of making lifetime gifts or substantial pension changes, which were both speculated upon in the run up to the Budget.
Partner, UK Head of Tax
For more detailed analysis of the Chancellor's Budget announcements, visit our Let's Talk Tax blog.
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