UK Spring Budget 2017 – personal tax changes focus on bridging the self-employed tax gap

Mar 13, 2017

Previous Budgets have been focused on tax changes designed to encourage savers. This time around the emphasis was on measures designed to bridge the “tax gap” between employees and the self-employed.

There were no further announcements towards achieving the government’s election manifesto promise of increasing the higher rate tax threshold to £50,000 by the end of the current parliament.  The government also proposes to increase the personal allowance to £12,500 in that timescale.  Perhaps the Chancellor plans to pull this out of his hat later this year in his first Autumn Budget.

The planned increased in the personal allowance for 2017/18 to £11,500 and a corresponding rise in the higher rate threshold to £45,000 will both proceed as previously announced.  However, Scottish taxpayers will find themselves paying the higher rate at £43,000 which was confirmed in a recent vote in the Scottish parliament.

Dividend allowance

The £5,000 dividend allowance introduced just last April will fall to £2,000 from April 2018. This measure was badged as another way of reducing the tax differential between the employed and self-employed and those working through a company.

National insurance

The government had already announced that it will abolish Class 2 NICs from April 2018 and this planned change will proceed.  As this change further increases the differential between the rates of NIC paid by employees and the self-employed, class 4 NICs will increase from 9% to 10% in April 2018, and to 11% in April 2019.  This expected to increase tax revenues by over £2 billion between 2018 and 2022.

Alongside an ongoing review into employment practices, the government is to consider whether there is a case for greater parity in parental benefits between the employed and self-employed.

Different forms of remuneration

Employers can choose to remunerate their employees in a range of different ways, but the tax system some treats these different forms of remuneration inconsistently. The government is considering how the tax system treats benefits in kind and employee expenses. Consultation is to be launched on the following aspects:

• Taxation of benefits in kind

The government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind.

• Accommodation benefits

A consultation containing proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date is to be launched.  This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition.

• Employee expenses

A call for evidence will be made aimed at better understanding the use of the income tax relief for employees’ expenses, including those that are not reimbursed by an employer.

Property and trading income allowances

From April 2017, the new £1,000 allowances for property income and trading income will be introduced.  Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income.  Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance (Finance Bill 2017).