Autumn Statement 2016 - Tax changes for small businesses
Steve Sims looks at the 2016 Autumn Statement changes for small businesses and how the new laws could impact SMEs.
Chancellor Philip Hammond resisted the temptation to tinker too much with tax for small businesses and the self-employed in his first Autumn Statement.
Most of the measures in his hour-long speech to Parliament were in his predecessor George Osborne's Spring Budget 2016 or preannounced.
Small business owners should see a little more cash in their pockets from the changes as individuals will pay a little less personal tax. Plus, companies will see a small fall in the amount of corporation tax they are required to pay.
The main points that impact small businesses are:
- The personal income tax allowance will rise to £11,500 in April 2017 and to £12,500 by April 2020. The personal allowance is the amount anyone can earn tax-free. When the personal allowance hits £12,500, the rise will be inflation-linked unless the Chancellor at the time wishes to set the allowance higher.
- The threshold where higher rate tax starts will go up to £45,000 next April and then to £50,000 by the end of this Parliament in 2020. The higher rate threshold is the total someone can earn before paying higher rate income tax (40%).
For the earnings that sit between the personal allowance and higher rate threshold, the basic rate tax will remain at 20%.
- Corporation tax for small companies will continue to fall as promised by George Osborne in the 2016 Budget. It will be eventually cut to a rate of 17%, which will be the lowest level in the G20 group of developed nations.
The schedule is:
- 19% from April 1, 2017
- 18% from April 1, 2020
- 17% from April 1, 2020
- Insurance Premium Tax (IPT) increases to 12% for businesses and individuals. IPT is collected and passed on by insurers as part of the premium paid for a policy, in the same way a trader collects and pays VAT to HM Revenue and Customs (HMRC)
- National Insurance Contributions (NIC) will align for employees and employers from April 2017, with a starting point for payment of £157 a week.
- If you're self-employed then you will no longer be able to pay Class 2 NIC and will have to choose between Class 3 or Class 4 contributions. Any self-employed trader with profits below the Small Profits Limit (£8,060 for 2016-17) can apply for tax relief. At the time, HMRC has yet to set the charging rate for NIC for April 2017 onwards.
- Scrapping fuel duty for the seventh year in a row will keep down costs for drivers and van owners. The saving is estimated as £130 a year for cars and £330 a year for vans. Some claim this is spin rather than a saving as no one has had to pay fuel duty since 2011.
- Off-payroll or IR35 rules for contractors and consultants working in the public sector will change so they pay the same tax as employees. The move aims to stop celebrities and contractors working for public organisations, such as the BBC and government departments, through a personal service company. The arrangement allows them to manipulate the tax and national insurance they pay on earnings. HMRC argues this is tax avoidance. Now, anyone working for a personal service company should pay the same tax and national insurance as a salaried employee.
- There is a new property and trading income allowance of up to £1,000 coming in from April 2017. This means anyone earning a small income from buy to let, holiday home rents or income from trading, such as eBay, car boots or a hobby, has no need to declare or pay tax on the income under that amount.
- Some small rural businesses will save up to £2,900 a year on business rates as rural rate relief increases. The incentive can apply to a business in an area where fewer than 3,000 people live. But they must be a trader who runs the only village shop or post office with a rateable value of up to £8,500, or the only public house or petrol station with a rateable value of up to £12,500.
- New tax rules are on the way for partnerships to make sure profits are fairly allocated - more details will follow in a consultation document from HMRC.
- Tax on salary sacrifice schemes that allow employees to exchange some of their pay for non-cash benefits will change from April 2017. Pension contributions, pension advice, cycle to work and ultra-low emission cars remain exempt, but other benefits will be taxed in the same way as salaries. Current arrangements are protected for up to four years. The measure affects perks like gym membership, private health cover and mobile phones provided by an employer.