Key business tax changes for the new tax year

What changes to the UK tax system will affect businesses across the country from April onwards?

With the new tax year for 2017/18 beginning from 6th April, there is a host of new rules and tax rates that small business owners should be aware of.

Chancellor of the Exchequer, Philip Hammond confirmed in both his first and only Autumn Statement and the recent Spring Budget 2017 a number of important tax changes to UK businesses; in some cases, affecting the amount employers pay their workers.

Corporation Tax reduction

From April 2017, UK corporation tax will go down to 19%, with a further reduction pencilled in to 17% in 2020. It’s important to note that the government is reducing the tax-free Dividend Allowance for directors and shareholders from £5,000 down to £2,000. This change will take effect from April 2018.

The tax rates for dividends above the allowance are still taxed at the following rates:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate taxpayers
  • 38.1% for additional rate taxpayers

Dividend tax allowance

The culling of the Dividend Tax Credit in April 2016 brought an end to tax-free dividends for basic rate taxpayers. Once this latest reduction to the Dividend Allowance is made it will make it more expensive to take income from owner-managed companies despite paying less Corporation Tax.

National Minimum Wage and National Living Wage increases

As many as 1.7 million UK workers are set for a pay rise in April 2017, with the UK government rolling out increases to the National Minimum Wage and the National Living Wage.

Business owners will be required to pay workers aged 25 and over the National Living Wage, which is set provisionally at £7.50 per hour. Meanwhile the National Minimum Wage, which increased in October 2016 and has done so again in April 2017, guarantees pay rates for the following age brackets:

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  • £7.05 – 21 to 24-year-olds
  • £5.60 – 18 to 20-year-olds
  • £4.05 – 16 to 17-year-olds
  • £3.50 – Apprentices

2017/18 Personal Allowance

UK individuals’ tax-free Personal Allowance for the 2017/18 financial year is £11,500. The basic rate tax band of 20% is also increasing to £33,500, with the higher rate 40% tax band covering income over £45,000.

Plans are afoot during the current Parliament to increase the Personal Allowance to £12,500 and the basic rate tax band to £37,500.

The tax thresholds will be slightly different for Scottish-based businesses for 2017/18. North of the border, Scottish taxpayers start to pay higher rate tax sooner as the basic rate tax band has been set at £31,500 by the Scottish government for 2017/18.

IR35 regulations for public sector organisations

HM Revenue and Customs (HMRC) has implemented new regulations that will affect immediately up to 250,000 contractors who work on behalf of the UK public sector; either directly or via an intermediary e.g. a personal service company.

In previous tax years, it has been up to the individual contractor to establish whether the intermediaries rules are applicable to their circumstances. However, from 2017/18 onwards it will now be the duty of the relevant public sector organisation to establish whether IR35 is applicable and ensure the necessary income tax and National Insurance deductions are made to pay.

Benefits in kind

From 6th April 2017, salary sacrifice arrangements will be scrapped, apart from childcare vouchers, pensions, pension advice, cycle-to-work schemes, ultra-low emission cars and more intangible benefits e.g. buying additional annual leave.

The core benefits that will be affected in 2017/18 include:

  • Vehicles
  • Car parking
  • Health assessments
  • Accommodation
  • Mobile phones and tech
  • Provision of own products, goods and services

Increase to statutory pay and sick pay for families

For pay weeks beginning on or after 2nd April 2017, the weekly rate of statutory maternity, paternity, adoption and shared parental pay rose to £140.98.

There is also an increase to the weekly rate of statutory sick pay from 6th April 2017, up from £88.45 per week to £89.35 per week.

Jo Nockels FCCA, is Senior Training and Communications Managers at TaxAssist Accountants, the UK’s largest network of accountants catering for more than 65,000 small businesses and individuals.

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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