Whilst the chancellor largely kept his powder dry on the day, perhaps the biggest Budget surprise was that the dividend allowance is set to be slashed by 50% from April 2018 to £2,000 from £5,000, only a year after it was introduced. The £5,000 limit itself was introduced to soften the impact of increases in the headline rates of tax applying to dividend income. Whilst aimed at directors and shareholders, the reduction is limited to these individuals, but anyone who receives dividend income will be affected. While the ISA allowance and personal allowance are going up, this new move from the chancellor could see an additional bill of over £1,000 for many shareholders who are guilty only of making provisions for a secure financial future.
With regard to business rates, businesses up and down the country had been squealing at the prospect of significant increases under the upcoming revaluation. Ultimately, 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 therefore be welcomed by many ratepayers. However, 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.
On the other hand, some businesses will be buoyed by the introduction of the new R&D tax credit regime, which will provide welcome tax bonuses to many dynamic businesses. Indeed, the news that the complexity of the scheme is set to be reduced will be a great relief to some of the UK’s fastest growing companies.
Other interesting nuggets included proposals regarding digitalisation and the gig economy. As the nature of the UK economy continues to change apace, the chancellor gave an insight into his strategy for tackling the challenges the gig economy poses from a tax collection perspective over the long term. According to Hammond, the difference in National Insurance Contributions (NICs) is no longer justified by the benefits these contributions buy. In the age of the gig economy, the lower NICs paid by self-employed people is arguably unfair on the 85% of UK workers who are employed traditionally. When it is also considered that this status quo costs £5bn a year, it is perhaps unsurprising the chancellor opted to close the loophole.
From April 2018, when Class 2 NICs are abolished, the main rate of Class 4 NICs will increase by 1% to 10% and by a further 1% a year later. However, many observers expect further action on the gig economy and the future of work following the conclusion of the Taylor Review – anticipated this summer. The knock-on effects of this reform could be widespread, potentially hitting the take-home pay of a large number of higher earners. The chancellor may be reckoning that this relatively small group will not receive much sympathy from those who are just about managing.
Despite not being implemented until 2018, many were also hoping for greater clarity over their Making Tax Digital (MTD) compliance obligations. Although the proposed delay on the implementation of MTD for small businesses is a welcome announcement, a greater degree of education for taxpayers would be desirable. As a result, many are calling on the government to educate taxpayers that those who let out properties are deemed to be businesses and will therefore need to comply with quarterly compliance procedures.
Although there may not have been too many surprises, there are some considerable tax changes on the very near horizon which shouldn’t be lost sight of in the Budget furore. These include a lower rate of corporation tax, restrictions on mortgage interest relief and inheritance tax allowances for main residences. There is also the changes in the non-dom regime set to be implemented next month.
On the whole, then, the last Spring Budget can be viewed somewhat as a pre-Brexit tinker, albeit with a few twists and turns (and unexpected jokes form this usually serious chancellor). The uplifted GDP forecasts and increased employment rates should mean that “Spreadsheet Phil” will have more tax coming in over the next couple of years than had previously been forecast. While the rabbits were largely absent this time around, they may bound out of the hat later in the year – possibly at the new-fangled Autumn Budget.