With so much change afoot, we take a look at how the Spring Budget will affect Public Finances.
In an Autumn Statement, the Chancellor has announced that after the Spring Budget 2017, there will only be a single major fiscal event each year. That is, the Budgets will be delivered only once a year in the autumn. The first one will happen in autumn 2017.
He also announced major changes to the Spring Budget 2017, which is in preparation of the public finances for Brexit. The move will also cover measures for paying the £2bn long-term social care over the next 3 years, and for strengthening consumer rights.
How will the 2017 Budget affect income taxes, National Insurance Contributions (NIC) for self-employed workers, savings, family finances, and business and corporation tax?
According to Phillip Hammond, from April 2017, everyone will get a personal allowance of £11,500 before the basic 20% payable tax will be deducted. By 2020, the personal allowance will increase to £12,500.
The tax rate of 40%, on the other hand, will be payable on income above £45,000 in April of this year. Come 2020, the higher tax rate will be payable on income above £50,000.
From April 2018, self-employed workers will see a rise in their NI Class 4 contributions, from 1% to 10% and another increase of 1% a year after. Their Class 2 NIC, on the other hand, will be abolished.
Hammond explains that these changes are due to the fact that the current tax system favours the self-employed over employed individuals with a 3% NIC difference. While employees currently pay NIC of 12%, self-employed only pay 9%. With the increase of NIC, contributions for self-employed will be in line with the rates that employees have to pay. This also means access to state benefits, what with NIC on a similar rate. Inheritance tax, stamp duty and pension tax relief remains the same.
From April of this year, everyone will see a £4,760 increase in their annual ISA allowance. From £15,240, the amount will be at £20,000, which is paid into shares ISA, cash ISA, stocks, or other combination. All these while maintaining tax efficiency.
While the national living wage will increase to £7.50 an hour after April 2017, inflation is set to rise even further from the 31-month high of 1.8% that it manifested last January. This means more pressure will be added on family finances, especially on living costs.
It is expected that before the Bank of England will hit its 2% target by 2019-20, the inflation rate will reach 2.4% first in 2017-18. Good thing there are factors that help counter the rising pressure, such as a freeze on fuel duty, £2,000 yearly support towards childcare cost for children under 12, and twice the current amount of free childcare for employees with children 3 and 4 years old for 30 hours a week.
Proceeds from the Sugar Tax levy will also be used to fund sports facilities in school, which is at 18p per litre for drinks containing 5% sugar and 24p per litre for those that contain 8% or more.
Business and corporation tax
From April of this year, business rates will increase, but the tax-free dividend allowance for directors will be reduced come April 2018. From the current £2,000, the allowance will be at £5,000.
Corporation tax, on the other hand, will be cut to 19% from April 2017, and then further reduced to 17% come 2020.
Think you may have been overpaying tax? Find out here