Spring Budget 2017 – Budget of a Broken Promise?

Steve Maggs, Tax Partner at Robinson Reed Layton, an independent firm of Chartered Accountants and Chartered Tax Advisers, has offered his comments on what he regards as a “controversial” first Budget for Philip Hammond.

With the triggering of Article 50 imminent, most commentators were expecting a cautious Budget, with the Chancellor living up to those expectations.

The most notable announcement was the proposed rise in Class 4 National Insurance Contributions (NIC) rates for the self-employed – which will now reach 11% in 2019.

Steve explained the reasoning behind the Chancellor’s decision: “The proposed change to Class 4 NIC has been somewhat controversial given the ‘tax lock’ previously pledged by the Conservative government, which promised no such increases within this Parliament. The government has argued that Class 4 NIC was not included in this pledge, however, it certainly looks and feels like an about turn and a broken promise.

“The rationale given for this rise is the difference between the rates of NIC payable by an employee and their employer when compared with a self-employed person, with Hammond labelling this unfair. Is this true, however? Does there not need to be some incentive to be self-employed given the lack of security a self-employed person has when compared to the security enjoyed by an employee? I would certainly argue so.”

The Chancellor’s other significant announcement was the reduction in the £5,000 dividend allowance (the dividend nil-rate band) to £2,000. This allowance was only introduced on 6 April 2016, but with Philip Hammond having publically stated that he wishes to target tax-motivated business incorporations, this move was of little surprise.

The Treasury’s justification for these two measures in particular, is that they are there to fund an additional investment into social care.

Steve continued: “I had predicted some tax hikes to fund such further investment, but I can’t help feeling that the Chancellor is choosing the wrong areas to focus on, with the self-employed and owners of small and medium businesses the most likely to lose out.

“Overall, it was a dull event, which, whilst predicted, is frustrating. The economy, and particularly the Cornish economy, requires fiscal stimulus to drive growth. We continue not to get anything of the sort. We can only hope that the Budget in the autumn has more to offer.”

Other announcements of note included:

The announcement that unincorporated businesses with a turnover below the new VAT threshold (£85,000) will have a year’s grace from starting to comply with the new ‘Making Tax Digital’ quarterly filing requirements. The start date has been pushed back to April 2019 for such businesses. Whilst welcome, the tax profession have consistently requested that the proposed £10,000 turnover limit (within which a business is exempt from these filing requirements) be increased to the level of the VAT threshold. This would have been a much more welcome and practical position.

An increase to the turnover threshold that a business can use the cash basis of accounting from £83,000 to £150,000.

The proposed reduction in the 30 day Stamp Duty Land Tax filing and payment deadline to 14 days has been delayed until post April 2018.

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