Chancellor Philip Hammond delivered his first – and last – Spring Budget on March 8 as the tax policy-making process will move over to a single main Autumn Budget later this year with a Spring Statement expected in 2018, writes Pearson May partner Nick Oliver. 
Possibly as a result of this, and with one eye on the Autumn Budget, the Spring Budget didn’t include an awful lot of changes to tax policies, although other changes have already been planned and two Budgets in one tax year have the potential to impact on our household finances.
Perhaps the most surprising aspect of this Spring’s Budget came a couple of weeks after the Budget itself, with a dramatic U-turn as far as Class 4 National Insurance Contributions (NICs) for the self-employed are concerned. It was announced that Class 4 NICs would increase to 10% (from 9%) from April 6, 2018 with a further increase to 11% from April 6, 2019.
This followed on from the abolition of Class 2 NICs for the self-employed from April 6, 2018. However, the overwhelming negative publicity and accusations that the Conservatives had broken one of their key manifesto pledges, resulted in the Chancellor having a change of heart and backing down on the planned increases, with a statement making it clear that there would be no further increases to NICs for the duration of the current Parliament.
I have summarised a few of the more relevant tax announcements below. There is more detail in our 2017 Budget Report which is available free of charge from any of our offices or you can email us at mail@pearsonmay.co.uk and we will be pleased to send a pdf of the report to you.
National Insurance for Employees/Directors
The threshold below which no National Insurance is paid has increased from £155 per week for the 2016/17 tax year to £157 per week from April 6 this year, as previously announced. Employees (including Directors) earning between £113 per week and £157 per week in the 2017/18 tax year will have no National Insurance liability but should still be entitled to the same benefits as those paying National Insurance, such as State Pension on retirement, Jobseeker’s Allowance, Employment and Support Allowance, Maternity Allowance and Bereavement benefits. Company directors may wish to consider this when determining the level of salary/dividends to be taken from their company and we would be happy to provide advice in this connection.
Salary Sacrifice
With effect from this April 6, most salary sacrifice arrangements for providing benefits to employees have ceased. However, the following benefits can continue to be provided via salary sacrifice, thus tax and NIC savings will continue to be available:
- employer pension contributions and advice;
- employer-provided childcare and workplace nurseries;
- cycle-to-work schemes;
- ultra-low emission company cars.
Transitional provisions apply where the employees were in contractual arrangements before 6 April.
Dividend
Introduced last April, the dividend allowance taxes the first £5,000 of dividend income received by individuals per annum at 0%, irrespective of the individual’s marginal rate of tax. From April 6, 2018, the dividend allowance will be reduced to £2,000. Individuals and particularly married couples and civil partners should consider arranging their finances in order to make use of the current £5,000 allowance.
It is important to note that the £5,000 is added to taxable income so can affect the rate of tax paid on other income. It is also added to income for the purposes of determining whether the High Income Child Benefit Charge (for incomes exceeding £50,000) and abatement of the personal allowance (for incomes above £100,000) apply.
Those who operate their business through a limited company can also benefit from the dividend allowance and there are tax planning opportunities when considering the extraction of profits from the limited company. Please contact us if you would like to discuss your particular situation.
The above is for general guidance only and no action should be taken without obtaining specific advice.
