1. The main rate of National Insurance contributions (NICs) for the self-employed will increase Currently, the self-employed may have to pay both Class 4 and Class 2 NICs:
- Class 4 NICs at 9% are paid on profits between £8,060 and £43,000
- Class 2 NICs are paid on profits of £5,965 or more
From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019. Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes. This better reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016. In the summer, the government will also consider whether there is a case for greater consistency in parental benefits between the employed and self-employed.
2.Tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018
This will reduce the tax difference between the self-employed and those working through a company. At Summer Budget 2015, the government announced that dividend taxation would be reformed from April 2016 by replacing the Dividend Tax Credit with a £5,000 dividend allowance, and increasing the rates of tax paid by 7.5 percentage points in each band, to 7.5% for basic rate, 32.5% for higher rate, and 38.1% for additional rate. AT Spring Budget 2017 it was announced that the tax-free allowance for dividend income will be reduced from £5,000 to £2,000. Legislation will be introduced in Finance Bill 2017 to change the amount of dividend income that is charged at the nil rate by section 13A to £2,000 from tax year 2018 to 2019.
3. Changes to VAT registration threshold
From 1 April 2017 the VAT registration threshold will increase to £85,000 from £83,000 and the deregistration threshold will rise from £81,000 to £83,000, announced by Chancellor Philip Hammond as part of the Spring Budget 2017 The UK’s VAT registration threshold (above which persons making taxable supplies are required to register and account for VAT) is currently set at £83,000 and is the highest in the EU. Those trading below the threshold can choose to register voluntarily. The deregistration threshold for taxable supplies is currently £81,000. It is set lower than the registration threshold to avoid businesses trading around the threshold level having to frequently register and deregister. Normally, the VAT registration and deregistration thresholds are revalorised annually in line with inflation through the use of the Retail Price Index (RPI). Revalorisation of the threshold will prevent around 4,000 small businesses from having to register for VAT by the end of the 2017 to 2018 financial year. The changes to the thresholds will have effect from 1 April 2017.
4. Small Businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD)
Unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will have until April 2019 to prepare before MTD becomes mandatory. Under MTD, businesses will use digital software to keep tax records and update HMRC quarterly.
5. National Minimum and National Living Wage:
Employers need to get ready for the increase on 1 April 2017 The hourly minimum wage a worker is entitled to depends on their age and whether they are an apprentice. The National Living Wage for those aged 25 and over will increase from £7.20 to £7.50 per hour. The National Minimum Wage will also increase: • for 21 to 24 year olds - from £6.95 per hour to £7.05 • for 18 to 20 year olds - from £5.55 per hour to £5.60 • for 16 to 17 year olds - from £4.00 per hour to £4.05 • for apprentices - from £3.40 per hour to £3.50* (*This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year)
6. Construction Industry Scheme (CIS) Subcontractor Verifications
From April 2017 HMRC will no longer accept any telephone calls to verify subcontractors. This change is one of a series of improvements we have made to CIS to increase efficiency and accuracy, and to reduce administration. These have also included the ability to amend returns online, and the addition of an online message/alert service.