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The dust is settling on George Osborne’s 2016 budget. The fine print has been combed and the soundbites have faded away. As usual it’s a mixed bag of positive, not so good and uncertain implications. Here’s my personal take on what kind of budget it was for the micro-business community.
The plans to keep cutting Corporation Tax down to 17% by 2020 will benefit those micro-businesses which are incorporated as limited companies. Additionally everyone who earns enough will benefit from the increased Personal Allowances and higher rate threshold.
In fact for owner-directors of incorporated micro-businesses, these changes will almost completely offset the additional costs of the planned increase in the dividend tax. Which raises the question of why the government persists with planning such a harsh transition for lower earning directors as the dividend tax comes in. Just a year’s deferral in dividend taxes would see the blow softened as corporation tax reductions come in.
The reductions in business rates and expanded exemptions for smaller properties will benefit many, particularly small retailers. The clearly explained long term plans for the business rates system as well as the corporation tax roadmap to 2020 are helpful. It’s a shame more of the measures announced couldn’t also be set in such a strategic context.
For the self-employed who aren’t incorporated the abolition of Class 2 National Insurance Contributions (NICs) and reform of class 4 NICs is a welcome giveaway and administrative simplification. However the absence of any reforms to what benefits the self-employed are eligible for, in particular around sickness and maternity / paternity leave is disappointing.
Continued support for modernising tax collection including digital tax and a pay as you go option, are all very welcome indeed. If delivered, then the promises that HMRC will offer 7-days a week service, reduced call waiting times and dedicated support for startups and the self-employed are very welcome recognition of the micro-business community.
Finally it was good news that the Chancellor responded positively to the Office of Tax Simplification’s reports on small business taxes and National Insurance reform. He commissioned new work from the Office to further understand how their proposed reforms could be implemented. We will be actively contributing to those studies and the wider debate about how to improve our tax and benefits system for the new economy.
Firstly the government showed no intention of changing their minds on increasing dividend taxes nor on their planned changes to travel and subsistence claim rules. These are all still scheduled to be part of the Finance Bill 2016 due in Parliament later this year. That means we still have time to campaign for amendments to the bill.
We saw a partial answer on the government’s many consultations and discussion papers around IR35. The Chancellor announced plans to make rules around contracting and agency working much stricter in the public sector. Essentially the changes ensure that the contractor’s client takes responsibility for their employment status and deducting payroll taxes directly.
This is a big shift in the system, if ringfenced to the public sector only for now. But I fear the unwritten implication of this move is that, if proven workable, it will be expanded to cover all engagements in the private sector too. It’s a shame this wasn’t explicitly presented in that context and as a response to the IR35 discussions which have gone on for some time. We can all read between the lines, but I think a more direct approach would earner greater respect, if not support.
The announcement of the new Lifetime ISA struck me as an unnecessary and complex addition to the crowded ISA market. If the political columnists are to be believed then this is perhaps a building block for future major pensions reform which was felt too radical to include in this critical pre-referendum budget.
However the growth in ever more savings products and tax-free allowances is confusing the picture for most savers. The lack of a wider strategy evident means this is a difficult measure to judge. How long will the proposed 25% government credit last? Many will recall previous promises from government around savings products and bonuses, such as with the Child Trust Funds, were not long lasting.
Over the last few months of 2017 and the whole of January, client managers are busy reminding people of upcoming deadlines and things they’ll need to do to make it easy for them to keep on top of their Self Assessments.