In his first (and in fact last) spring Budget, the chancellor Philip Hammond came down hard on the self-employed and those who take dividends from limited companies.
Within hours of announcing tax rises in the form of national insurance contributions for the self-employed – dubbed a ‘tax on ambition’, the prime minister was quick to push formal proposals back to the Autumn.
One week later, amid a backlash from both sides of the political divide, the plans were scrapped all together.
Small business owners who are running their business as a limited company will still have to pay more tax as plans to dramatically reduce the new dividend tax allowance were announced, just one year after it was created.
From April 2018, the new allowance will be cut from £5,000 to £2,000 affecting company owners who pay themselves in the form of dividends as well as investors who hold shares outside of ISAs or pensions. The Government estimates that this will impact around 2.27m individuals in 2018-19.
Currently dividend income above the £5,000 threshold is taxed at 7.5 per cent for basic-rate taxpayers, 32.5 per cent for higher-rate taxpayers and 38.1 per cent for additional-rate taxpayers.
Mr Hammond said investors will benefit from the increase in the ISA allowance from April to £20,000. Limited company owners will be thankful for the modest 1 per cent cut in corporation tax previously announced to start in April 2017.
Despite the country being on the brink of leaving the EU, Mr Hammond did not mention the word Brexit during his speech but did state that he ‘wants to make Britain the best place in the world to do business’.
From autumn, a new National Savings & Investments bond will be available, paying 2.2 per cent on deposits up to £3,000. However, Mr Hammond had earlier announced that inflation is forecast to rise to 2.4 per cent this year – already above the bond’s return. The bond is still likely to be popular given the poor returns available on other cash accounts and the security of a government-backed product.
The income tax personal allowance will rise from £11,000 to £11,500 from April. The higher rate tax band will rise from £43,000 to £45,000 and the additional rate tax band will remain unchanged, at £150,000.
The Chancellor will no longer prepare a spring Budget, preferring to declare his financial intentions in the Autumn Statement.