Last Spring Budget brings new proposals

This year’s budget updated some previous announcements and proposed some new measures. Some of the proposals apply from April 2017, some take effect later and there may be proposals which will not obtain parliamentary approval and may be amended or not implemented at all.

With regard to Making Tax Digital, the mandatory commencement date for sole traders, partners in a partnership and landlords with annual turnover below the VAT threshold (£85,000 from 1 April, 2017) will be deferred from April 2018 to April 2019. However, the commencement date to start the new digital service is April 2018 if the business has annual turnover in excess of £85,000.

Businesses, self-employed people and landlords with turnover under £10,000 are exempt from implementing digital record keeping. The Making Tax Digital proposals are likely to have a significant effect on self-employed persons who are in receipt of Tax Credits.

Sole traders and trading partnerships can avail of the simplified cash basis of accounting. The entry threshold for these types of business is increased to £150,000 turnover from 6 April 2017 and the exit threshold is increased to £300,000 of turnover.

It is optional for sole traders and trading partnerships to adopt the cash basis of accounting, and the decision should only be made in consultation with professional advice as there are significant disadvantages for some businesses in adopting the cash basis.

Individuals or partners in a partnership who are in receipt of rental income from property may face increased tax liability. Firstly the annual Wear and Tear Allowance has been abolished.

However, a claim can be made for repair and replacement expenditure actually incurred provided the claim is supported by appropriate evidence.

Secondly, property owners will no longer be able to deduct all of the finance costs from the property income in calculating taxable income. The restriction will be phased in with 75 per cent of finance costs being allowed in 2017-18, 50 per cent in 2018-19, 25 per cent in 2019-20 and none thereafter.

For businesses who trade as a limited company the current dividend allowance of £5,000 tax free is an important ingredient in tax planning. This allowance which gives a zero percentage rate of tax on dividend income is to be reduced to £2,000 from 6 April 2018. This reduction will have a significant effect on farming family company shareholders who take drawings from the company by way of dividends.

Dividends received above the £2,000 allowance will be taxed at 7.5 per cent for basic rate taxpayers, 32.5 per cent for higher taxpayers and 38.1 per cent for additional rate taxpayers.

The budget proposals, if implemented, require family farms to revisit their business structure to ensure tax efficiency. It is now an appropriate time to take professional advice. The change in the dividend allowance has consequences for investments and saving decisions. It brings into focus a debate about investing in pensions or in ISA’s. From 6 April 2018, the amount you can invest in an ISA annually increases to £20,000 and there are five types of ISA‘s available.