The Chancellor of the Exchequer, Phillip Hammond, delivered his first Budget on Wednesday.
There were few surprises in respect of the taxes you’ve been studying in this Module; most of the changes for 2017-18 had been announced some time ago.
However, two significant changes were announced:
- an increase in Class 4 NICs for the self-employed (to coincide with the abolition of Class 2 NICs which had already been planned)
- a decrease in the Dividend Allowance from £5,000 to £2,000
The Dividend Allowance is part of the new scheme for taxing dividends which was introduced on 6 April 2016. You can find details of the current rules on page 3 of your Tax Tables.
The Chancellor justified the increase in Class 4 NICs on the basis that it reduced disparity between the amounts paid by the self-employed comapred withemployees and their employers.
However, increasing liabilities for the self-employed would encourage more of them to incorporat their businesses so that they only paid corporation tax on their profits rather than income tax and NICs. This was one reason why he also reduced the new Dividend Allowance – so that director/shareholders would pay more tax when they withdrew those lower-taxed profits from their companies.
Question 6 in the exam (if you choose to answer it) will give you the opportunity to demonstrate your understanding of the tax benefits of incorporating a business. You will be able to obtain good marks by illustrating your answer with computations based on the rates, allowances and thresholds in the Tax Tables. If you are aiming for first class grades then one of the ways you can achieve this is to demonstrate your appreciation of the impact of proposed changes on tax planning.
On Thursday afternoon, I was in London to hear the analysis of the Budget from the Institute for Fiscal Studies (IFS).
Helen Miller is the head of tax research at the IFS gave a presentation on the NIC and dividend reforms