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Reaction to the UK's 2017 Spring Budget

08 Mar 2017

At his first, and last, Spring Budget, Chancellor Philip Hammond downplayed the occasion in advance, stating that there would be no spending spree despite the fatter than expected purse at the Treasury’s disposal.
 

While there may have been few rabbits, there were some interesting nuggets from Mr Hammond, particularly on digitalisation and the gig economy. 

James Hender and Mike Hodges, partners in the Private Wealth Group at Saffery Champness, offer their reaction and analysis:


James Hender, Head of the firm’s Private Wealth Group, commented:

“As Theresa May gears up to trigger Article 50, many assumed that this would be a fairly uneventful Budget. Mr Hammond is generally cautious by nature and, with so much still up in the air and his new-fangled, post-Article 50 Autumn Budget only a few months away, this was always likely to be a statement of consolidation rather more than intent.

“While there may not have been too many surprises, there were already some considerable tax changes on the very near horizon - particularly to corporation tax, interest relief on buy-to-let properties and inheritance tax, as well as still slightly opaque changes to the non-dom regime – which help put this Budget in context.

“There certainly seems to be more to come from this Chancellor. The uplifted GDP forecasts and increased employment rates should mean that Spreadsheet Phil has more tax coming in over the next couple of years than had previously been forecast. We may therefore see some rabbits coming out of the hat later – possibly in the new Autumn Budget.”


National Insurance

Mike Hodges, Partner at Saffery Champness, commented:

“The rise of the gig economy has significantly changed the nature of the working lives of many people and the Chancellor gave an insight into his strategy for tackling the challenges this poses to tax collection. According to Mr Hammond, the difference in National Insurance contributions (NICs) between the employed and self-employed is no longer justified by the relatively small difference in the benefits these contributions buy. In the age of the gig economy, the lower level of NICs paid by the self-employed is not felt by Mr Hammond to be fair on the 85% of UK workers who are employed traditionally, and costs the Treasury £5 billion a year. From April 2018, when Class 2 NIC is abolished, the main rate of Class 4 NIC will increase by 1% to 10% and by a further 1% a year later. This will bring a degree of parity, but the biggest difference is still created by employer contributions for the employed and we expect further action on the gig economy and the future of work following the Taylor Review.”

James Hender added:

“In addition, possible changes in National Insurance for the self-employed and partners in business could hit the take home pay of a large number of higher earners, although the Chancellor may be reckoning that this relatively small group will not receive much sympathy from those who are just about managing.”


Making tax Digital

James Hender commented:

“Despite not being implemented until 2018, many were hoping for greater clarity over their Making Tax Digital (MTD) rights and obligations. The proposed delay on the implementation of MTD for small businesses below the VAT registration threshold is a welcome announcement, but much more needs to be done by the government to educate taxpayers that people who let out properties are deemed to be businesses and will therefore need to comply with onerous quarterly compliance in due course.”


Dividend Allowance

Mike Hodges commented:

“In what was perhaps the biggest Budget surprise, and only a year after it was introduced, the dividend allowance is set to be slashed by 60% from April 2018 to £2,000 from £5,000. Whilst Mr Hammond said this change is aimed at director/shareholders, the reduction isn’t limited to these individuals, but applies to all shareholders receiving dividend income. The £5,000 limit itself was introduced to soften the impact of increases in the headline rates of tax applying to dividend income. While the ISA allowance and personal allowance are going up, this new move from the Chancellor could see an additional bill of £1,000 and more for some shareholders who have done the prudent thing and made provision for a secure financial future.”


Business rates

Mike Hodges commented:

“Businesses up and down the country have been squealing at the prospect of rates hikes, and the furore meant the Chancellor couldn’t ignore the fallout. The three-pronged approach, including small business rates assistance, a helping hand for pubs, and a new fund for local authorities to deploy in special cases, will be welcomed by many business rates payers. But these are just transitional measures which will delay the pain and the prospect of yet another period of consultation may dampen the spirits, with a sustainable, long-term solution to business rates policy still seemingly a long way off.“


R&D Tax credit scheme

Mike Hodges commented:

“The R&D tax credit regime provides welcome tax bonuses to many dynamic businesses. The news that the administrative complexity which accompanies the scheme will be reduced will be a great relief to some of our fastest growing companies.”

James Hender commented:

“On the whole, this a bit of a pre-Brexit tinker, albeit with a couple of unexpected jokes and a few twists and turns. The Chancellor looks to be largely biding his time until the field is clearer to make more of a charge come the new Autumn Budget.” 

 

Further information on the Spring Budget 2017

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