Chancellor of the Exchequer Phillip Hammond delivered his first and last Spring Budget this week, announcing last November that the main budget will move to autumn.
LONDON 10th March - On the economy as a whole, Hammond stated that growth was expected to be higher and borrowing lower than he forecast in November.
Just some of the key points included in the budget were a £2bn investment in social care services in England, a £425m investment in the NHS, relief for the pubs sector and help for firms hit by the recent business rates hike.
But, perhaps the most controversial measure announced was the increase in tax for over a million self-employed people.
Here’s what small businesses need to know about the Spring Budget:
The economic forecast
Growth in the UK economy picked up last year and employment reached a record high of 31.8 million.
Phillip Hammond told MPs that Britain’s economy would grow faster than it was expected to in the next financial year, growing by 2% in 2017.
The independent Office for Budget responsibility (OBR) also forecast that they economy will grow at a slightly slower pace from 2018-2019 before picking back up to 2% in 2021.
Inflation is forecast to be 2.4% this year, 2% in 2018 and 2% in 2019, above the Bank of England’s 2% inflation target for 3 years.
Borrowing this year is expected to be £16.7bn lower than it was originally forecast to be at £51.7bn, falling to £48.3bn from 2017-2018 and then further to £40.8bn and £21.4bn and £20.6bn from 2020-2021.
There were three measures announced to business rates for small businesses, including:
Any business coming out of small business rates relief will benefit from a cap preventing the rate that they pay from going up by more than £50 a month.
Local authorities will also get access to a £300m hardship fund for the small businesses most affected by business rates.
Pubs with a relatable value of less than £100,000 will gain a £1,000 discount on the rates that they pay for the year.
National Insurance contributions (NICs)
Increase for the self-employed
Currently, the self-employed may have to pay Class 2 and Class 4 NICS.
Class 4 NICS – The main rate - 9% is paid on profits between £8,060 and £43,000
Class 2 NICS – separate flat rate contribution - paid on profits of £5,965 or more
From April 2018, all Class 2 NICs will be abolished and Class 4 NICs will rise to 10% in April 2018 nad to 11 in April 2019.
Mr Hammond stated that there has been a “dramatic increase” in the number of people working as self-employed people and that the reason for doing so should not be for “differences in tax treatment”.
Addressing the disparity between the rates paid by the self-employed he announced an increase in the National Insurance rate for the self-employed starting in April 2018.
However, by increasing National Insurance bills for self-employed people, he has been accused of breaking a manifesto pledge not to raise taxes.
People who are self-employed in Britain will face an increase in their National Insurance contributions in the Chancellors bid to tackle what he calls the “unfair burden on people in employment”.
The increases, that apply to any earnings between £8,060 and £43,000 will increase £145m a year by 2021 / 2022 averaging out at 60p per week.
All class 4 earnings will continue to be taxed 2% while those below the minimal threshold will pay nothing.
There will be no changes to the National Insurance paid by the employed or employers to income tax or VAT
Making Tax Digital (MTD)
It was announced that landlords and privately owned SMEs will receive an extra year to prepare for tax digitalisation and quarterly reporting.
Those with an annual turnover below the VAT registration threshold will have until April 2019 before Making Tax digital MTD becomes mandatory.
Under MTD, businesses will be required to use digital software to keep tax records and update HMRC on a quarterly basis.
Tax-free dividends allowance
Reduction on tax-free allowance on share dividends will reduce from £5,000 to £2,000 from April 2018.
The measure affecting SME owners and investors will come into place in April 2018, raising approximately £2.63bn by 2021-2022