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Spring Budget 2017 – What Does it Mean for Small Business in Britain?

Although the Spring Budget didn’t hold much in the way of surprises, Chancellor Phillip Hammond’s U-turn on the announcement that National Insurance Contributions would be increased for the self-employed was rather a surprise.   It came in the wake of pressure from across the board, even within his own party and the self-employed small traders across the land heaved a collective sigh of relief.

The Chancellor also announced that the tax free allowance on dividends is going to be reduced from £5,000 to £2,000 effective from 6th April, 2018.  This was partly in response to the increase in owner managed business switching to limited companies which resulted in a loss of £6 billion in taxes.  There’s been a decrease in rate of corporation tax to 19% from April, 2017 with a further decrease to 17% from April, 2020 in an effort to hold the place of the G20 country with the lowest corporation tax.  However, the rate paid by SMEs in Northern Ireland will be reduced in order to help them compete with Republic of Ireland based businesses whose current rate of corporation tax is only 12.5%.

When it comes to business rates relief, the coming increase resulting from the reassessment of property values is likely to be tempered by some transition measures.  At present there are more than 600,000 small businesses that are eligible for relief and there will be a cap on the business rates paid by small businesses coming out of the rate relief scheme which means that no small business will pay more than £600 more than they did in the last year.  Public houses will be eligible for £1000 discount on business rates for one year.

When it comes to Making Tax Digital (MTD), the government’s flagship scheme to digitise the UK’s tax system which will change the relationship between businesses and HMRC.  The 2015 Budget saw the government set out a vision for a transformed tax system and the Making Tax Digital (MTD) Roadmap was launched in December 2015, outlining what the tax system should look like by the year 2020.  However, because the timescale for making the transition from paper to online reporting have come in for criticism, the Chancellor announced during the Spring Budget that businesses with a turnover that’s below the threshold for VAT (£83,000 at the moment) will be allowed a one year deferral until April 2019.

When it comes to cash based accounting for small businesses with a turnover of below £83,000, the threshold has now been increased to a turnover of £150,000.  This will extend the choice of cash basis accounting to more small businesses in the UK.  Because they only need to declare money coming into or going out of the business, at the end of the tax year, they won’t need to pay Income Tax on money they did not receive during that accounting period.