As the dust settles on the last Spring Budget, we look at the key changes for small business and some reminders of changes in the 2016 Budget that take effect from 1st April.

Business Tax
Corporation Tax – Corporation Tax has reduced to 19% from 1st April 2017.

VAT – VAT registration threshold increases to £85,000 from today and the deregistration threshold is now £83,000.

National Insurance – this provided created the biggest waves on budget day with the Chancellor announcing increases of Class 4 NICs for Sole Traders.  The Chancellor has since backed down on these.  However his reasoning is that whilst it is the right thing to do, the Government belatedly wishes to respect the commitment made in the manifesto not to do this.  One must therefore assume this change is pencilled in for after the next election.

Business Rates – business rates has become a hot topic for business tax with many ‘bricks and mortar’ businesses complaining that they seem to be singled out for punishment.  The Chancellor announced a cap on rates rises to £50/month for small businesses losing their rate relief with special rates relief introduced for pubs.

National Living Wage – this now rises to £7.50/hr from April.

Making Tax Digital – Plans for quarterly reporting and paying taxes has been postponed to April 2019 for businesses with turnover less than the VAT threshold (£85k), however for the April 2018 remains in place for sole trader businesses with turnover exceeding the VAT threshold.

Personal Tax
Personal Allowance – this was increased as predicted to £11,500

Tax Bands – The Basic Rate band has been increased to £33,500 which when combined with the personal allowance of £11,500 means Higher Rate tax now kicks in at £45,000.

Dividends – there was bad news for company shareholders.  The dividend allowance will be falling to £2,000 from April 2018.  This year it remains at £5,000.

ISAs – the ISA limit increased to £20,000 per year to encourage saving.

Trading Income Allowance – anyone making less than £1,000 profit from trading will no longer be required to pay tax on that income or even declare it.

Property Income Allowance – similarly if profit from renting property is less than £1,000 in the year there will be no requirement to pay or declare this income.

Capital Gains Tax – the Capital Gains Tax Annual Exempt Amount has increased to £11,300.

Rental Income
Interest Deductions – a big change comes into effect for property income with deductions for mortgage interest being replaced over the next 4 years by a ‘Tax Reducer’.  Instead of subtracting the amount of interest from the rent, the Tax Reducer works thus: first profit is calculated on the rental income without deducting interest, then a reduction is made for the interest paid capped at 20% of interest paid.

As previously indicated the change does not come into full force immediately by is being phased in between this year and 2020-21 tax year.  It also does not apply to holiday lettings or commercial property.

The Economy
The Government is bullish on growth for this year with forecasts up from 1.4% to 2.0%.  Growth is also forecast for the next four years albeit slightly depressed figures from the 2016 budget.

This was not a budget to send shock waves through the country.  However we do note that the Government seems to be steadily chipping away at tax savings for small business owners.  Perhaps this is inevitable with the rise of the gig economy where the difference between a zero hours contract salary and freelance work is getting blurred.  The impression is that the Government is concerned to see tax receipts disappearing as more and more people end up self employed or incorporating a small business.  We suspect many small business owners would ask why more focus is not put on our large corporate cousins.