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Spring Budget 2017 – Points

Dividend allowance reduction

In April 2016, the Dividend Tax Credit was replaced with a £5,000 dividend allowance. At the same time the rate of tax on dividends was increased to 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate).
With effect from 6 April 2018, the dividend allowance will reduce to £2,000. There are no planned changes to the rates of tax that apply to dividends in excess of £2,000.
The reduction in the allowance is aimed at director shareholders and is intended to reduce the attractiveness of operating through a company. The change will need to be factored into shareholders’ income extraction plans.

Research and Development (R&D) tax review

The Government today announced its intention to make administrative changes to R&D tax credit system with the aim of simplifying the process around making claims, as well as improving awareness of the tax credits among small and medium size businesses.
This announcement will be of interest to those businesses involved in innovation and looks to strengthen the UK’s corporate competitiveness in light of the decision to leave the EU.

Increase in Personal Allowance & Basic Rate band

It has been confirmed in the Spring 2017 Budget that there will be an increase in both the personal allowance for individuals and the basic rate tax limit.
In line with the Government’s objective to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this parliament, it was announced for 2017/18 that the personal allowance for individuals will be increased to £11,500 as well as the basic rate band being increased to £33,500 from 6 April 2017.
The measure will reduce the income tax burden for 28.9 million income taxpayers in 2017/18, encouraging more individuals to enter the workplace and also increasing disposable household income.

Increase in Class 4 NIC

For 2016/17 self-employed individuals pay Class 4 NICs on profits between £8,060 and £43,000 at a rate of 9% and 2% on any profits in excess of £43,000. The maximum payable at 9% being £3,144.60 for the year.
For the tax year 2017/18 Class 4 NICs will remain at 9% for profits between £8,164 and £45,000. The maximum payable at 9% being £3,315.24 for the year.
From 6 April 2018 Class 4 NIC will increase by 1% to 10% and from 6 April 2019 it will increase by a further 1% to 11% from 6 April 2019.
As previously announced Class 2 NIC will be abolished.
The increase in Class 4 NICs will affect approximately 2.5 million self-employed individuals who will see their annual NICs increase by approximately £240 per year from April 2018.

Rent a Room Relief

Rent a Room relief allows an individual to receive up to £7,500 (2016/17) per year tax-free from letting out furnished accommodation in their home. Currently, the relief does not stipulate a minimum length of letting for the relief to apply.
In the Spring Budget 2017, the Government announced that it will consult on proposals to amend the rent-a-room relief rules to ensure it is targeted to support longer-term lettings. This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings.
Rent a Room relief allows an individual to receive up to £7,500 (2016/17) per year tax-free from letting out furnished accommodation in their home. Currently, the relief does not stipulate a minimum length of letting for the relief to apply.
In the Spring Budget 2017, the Government announced that it will consult on proposals to amend the rent-a-room relief rules to ensure it is targeted to support longer-term lettings. This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings.
Rent a Room relief allows an individual to receive up to £7,500 (2016/17) per year tax-free from letting out furnished accommodation in their home. Currently, the relief does not stipulate a minimum length of letting for the relief to apply.
In the Spring Budget 2017, the Government announced that it will consult on proposals to amend the rent-a-room relief rules to ensure it is targeted to support longer-term lettings. This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings.

VAT threshold changes

The VAT registration and deregistration thresholds will increase in line with inflation so that:
The taxable turnover threshold, which determines whether a person must be registered for VAT, will be increased from £83,000 to £85,000;
The taxable turnover threshold, which determines whether a person may apply for deregistration, will be increased from £81,000 to £83,000; and
The registration and deregistration threshold for relevant acquisitions from other EU member states will also be increased from £83,000 to £85,000.
These changes will be effective from 1 April 2017.
These changes will affect:
Small businesses currently outside the VAT regime who make taxable supplies or EU acquisitions between £83,000 and £85,000 and who prior to these changes would have been required to register for VAT from 1 April 2017; and
Small businesses registered for VAT who make taxable supplies below £83,000 or EU acquisitions below £85,000