The Chancellor Philip Hammond presented the last Spring Budget on Wednesday 8 March 2017. In his speech the Chancellor was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals. In this article, we look at how the Chancellor’s Spring Budget impacts the leisure and hospitality sector.
In the Budget speech the Chancellor announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. Also, the Budget included changes to NICs and the Dividend Allowance.
In December and January the government issued a number of clauses, in draft, of Finance Bill 2017 together with updates on consultations.
The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2017 and some take effect at a later date.
Our summary focuses on the issues likely to affect you and your business.
Main Budget tax proposals
Our summary concentrates on the tax measures which include:
- increases to the Class 4 National Insurance rates – Update 15/03/17 – Chancellor withdraws plans to increase NI.
- a reduction in the Dividend Allowance from £5,000 to £2,000
- changes to the timing of Making Tax Digital for smaller businesses.
Previously announced measures include:
- increases to the personal allowance and basic rate band (a decreased band for Scottish residents)
- the introduction of the Apprenticeship Levy
- changes to corporation tax loss relief
- the introduction of an additional inheritance tax residence nil rate band
- changes for non-UK domiciled individuals.
Main Budget announcements (leisure & hospitality specific)
- Small businesses under VAT threshold have extra year (until 2019) to prepare for Making Tax Digital (MTD)
- Increase in National Insurance Contributions (NICs) – Update 15/03/17 – Chancellor withdraws plans to increase NI.
- Tax-free dividend allowance for individuals of limited companies to reduce from £5,000 to £2,000 from April 2018.
- £435m to support businesses affected by the increase to business rates from April 2017
- No business losing business rate relief will see their bill increase by more than £50 a month next year
- Pubs with a rateable value of less than £100,000 will get a £1,000 discount on their business rates bill
- £300m funding allocated to local councils to help the harder-hit businesses
- Beer and cider tax will rise at the rate of inflation – currently at 3.9%
- Sugar levy to go ahead as planned
2017 Budget impact
Mixed reaction to this years Budget
The biggest headline for the sector without a doubt has to be the rise in businesses rates. Many businesses in the sector are going to hard-hit by the increase, but it seems the Chancellor has responded to the backlash and announced measures for those who are most affected. The delay to the Making Tax Digital (MTD) project until 2019 is also welcome news. Understandably, many small businesses were and still are, quite anxious about the introduction of Making Tax Digital.
Local councils will be given £300m funding to help those businesses who are hardest hit by the increase. Therefore, any small business coming out of business rates relief will not pay any more than £600 more in business rates this year, than they did in the previous year. No business losing business rate relief will see their bill increase by more than £50 a month next year.
Both beer and cider tax is no longer frozen and will rise alongside inflation which currently stands at 3.9% from 12 March. Therefore, the price of a pint is set to increase by 2p which is the first rise in five years since the abolition of the Beer Duty Escalator.
National Insurance Contributions (NICs) increase
Now for the not so good news; the increase to National Insurance Contributions. Class 2 NICs are currently paid on profits of £5,965 or more and Class 4 NICs at 9% are paid on profits between £8,060 and £43,000. Class 2 NICs are to be abolished from 2018, but Class 4 NICs are going to increase by 1% to 10% in April 2018, and then by a further 1% in April 2019. Only the self-employed will be affected by the new rates, which apply if you have profits above £16,250.
Update 15/03/17 – The Chancellor, Philip Hammond, has withdrawn plans for the proposed National Insurance increases which will come as very welcome news to the self-employed.
Scott Sanderson, Partner at Hawsons, had this to say: “It’s been a mixed bag one for the sector this year. While the delay to MTD is certainly a positive, as is the £435m to support the businesses with the business rates increase, the increase to the alcohol tax is certainly disappointing.”