Budget 2017 -Key points affecting incorporated businesses

March 9, 2017

Corporation tax rates

From April 2018,  the corporation tax rate will be cut to 19%.

The government confirmed its commitment to reduce the level of Corporation Tax to 17% by 2020.

The UK now has the lowest corporate tax rate in the G20 (the international forum for the governments and central bank governors from 20 major economies).

The strategy of reducing corporation tax is designed to attract inward investment particularly in the light of the Brexit environment.

Extraction of cash for owner-managed companies:

Dividend Nil rate band reduced

The current dividend nil rate band of £5,000 will be reduced to £2,000 from April 2018.  This will result in a higher level of dividends attracting the dividend income tax rates (7.5% within the basic rate  income band, 32.5% and 38.1% – for earned income over £150,000).

The government has been clear that its aim is to reduce the tax difference between the self-employed and those working through a company.

National Insurance contributions (NICs) on salary

No changes were announced to employee NIC rates.  The employment allowance (for the first £3,000 of Employer NICs) remains in place for companies employing two or more staff (i.e. not available for sole director companies).

Tax free allowances and higher rate band

From 6 April 2017 the Income Tax personal allowance will increase to £11,500.

The government has committed to raising the Income Tax personal allowance to £12,500, and the higher rate tax threshold to £50,000, by 2020.

From 6 April 2017, the higher rate tax threshold will rise to £45,000, except in Scotland where it will remain at £43,000 (savings and pension income will however still be subject to the £45,000 threshold).  The 0% starting rate band for savings income will also remain at £5,000.

Lothian Accounting will be  looking at the benefits of operating as a limited company as opposed to an unincorporated business (sole trader or partnership) as a result of the changes to both the self-employed and company tax environment.

If you would like to talk more in more depth about the 2017 Budget and how it might affect you, please call or drop me an email.