Britain is preparing its exit from the EU, which calls for reforms focusing on economic stability. Chancellor Philip Hammond presented his first Budget to the parliament, and here are the top three features that accountants and businesses can take away from the Spring Budget.
1. Making Tax Digital (MTD)
Everyone had been looking forward to the new updates on Making Tax Digital (MTD) after the consultation results were published in th end of January this year. As was confirmed in the consultation, the government will continue moving towards the implementation of MTD, but has agreed to some concessions. The Spring Budget documents that the businesses owned by one or more people (unincorporated businesses) whose annual turnover is below the VAT registration threshold will have full two years (till April 2019) to prepare for MTD. After April 2019, MTD will become mandatory for all, and every business would be required to use their digital tax accounts to keep the records and update HMRC every quarter.
2. Business Tax
“I am listening to the voice of business…My ambition is for the UK to be the best place in the world to start and grow a business.”—Philip Hammond
As was mentioned in the Autumn Statement 2016, and outlined in the business tax roadmap, the government has agreed to cut the tax to 19% from April 2017. In 2020, the tax would be slashed to 17%.
This reduction would encourage businesses to flourish in the United Kingdom and continue as one of the most open economies around the globe. And in order to maintain this highly competitive business tax regime, the corporate tax rate in the UK is the lowest in the G20.
The figure below represents the corporate tax in G20 countries. The ones highlighted in black are the G7 countries.
The government has also allotted £435 million for the organisations affected by the increase in business rates, and includes a hefty hardship fund worth £300 million for worst hit.
3. Problems for the Self-Employed
The Chancellor claimed that the registered “self-employed” individuals are not paying enough tax, and has increased the national insurance contributions (NICs) for those who earn more than £16,250 a year. He justified it on the grounds that the fairness levels should be improved between the employed and the self-employed. He said:
“As our economy responds to the challenges of globalisation, shifts in demographics and the emergence of new technologies, we’ve seen a dramatic increase in the number of people working as self-employed or through their own companies...Indeed many of our most highly paid professionals work through limited liability partnerships and are treated as self-employed...[People should have choices over their employment status] but those choices should not be driven primarily by differences in tax treatment.”
Hammond’s focus on the top 1% of the British earners may cause a huge backlash. That one percent is currently paying 27% of UK’s tax, and Philip maintains that this is fair, because they earn more. Increasing the tax for the self-employed can be a huge burden, as 91% of self-employed people have an earning threshold of £20,000 or less. This is in contradiction to the Chancellor’s claim of building the country to be “the best place in the world to start and grow a business.” As Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said:
“In a time when we are trying to encourage innovation and create a Britain that is ‘open for business’, we should not be creating barriers to entrepreneurship and self-employment.”
The tax increase on the self-employed has potential to be the bone of contention with traditional Conservative supporters.