In April 2017 the personal allowance will rise to £11,500, from the current level of £11,000. At the same time, the higher rate threshold will increase to £45,000 from the current level of £43,000
The government have committed to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament.
This will have a positive effect on all individuals because by reducing their Income Tax bill, they will be able to keep more of their money.
Class 2 National Insurance
Class 2 national insurance is to be abolished from April 2018 and access to self-employed contributory benefits will be through class 3 (voluntary) and class 4 contributions.
Currently, self-employed individuals with profits above £5,965 pay class 2 national insurance at a flat weekly rate of £2.80, via their self assessment tax return. As the current annual payment is only £145.60, this does not represent a major change and no doubt the rate of class 4 national insurance will be increased to compensate for the loss of revenue.
£1,000 Tax Allowance for property and trading income
As announced in the 2016 Budget, there will be two new income tax allowances of £1,000 each, for trading and property income.
Individuals with trading income or property income below £1,000 will no longer need to declare or pay tax on that income which has the potential to save up to £400 in tax on each source for a higher rate tax payer, cutting red tape for affected taxpayers.
Making Tax Digital (MTD)
This will represent a major change in how businesses keep their financial records. For many businesses, they will be forced to use accounting software from April 2018 onwards. While some benefits could arise from such a system, more than 3,000 responses were submitted in respect of consultation documents issued by HMRC on the proposed changes, and many responses either asked for a delay in implementation or for the proposal to be scrapped.
The extent of the responses is evidenced by the fact that although responses to other consultation documents are to be issued on 5 December 2016, responses for the MTD consultation will only be issued in January 2017.
We will wait to see if HMRC take account of the responses or simply push ahead with their plans. We are engaging with HMRC so that we fully understand how the new regime and we will be keeping our clients and our contacts up to date, as this matter plays out.
For further information or advice, please contact Dorothy Johnston.