What the 2017 Budget changes means to ADIs

Friday, March 10, 2017


Theresa May has stepped in and blocked Philip Hammond’s controversial raid on the self-employed, in a bid to head off a humiliating Commons defeat by furious Tory MPs.


On Wednesday, Chancellor Philip Hammond announced a £2billion hike in National Insurance on self-employed people, which has led to the Prime Minister to move in and delay legislation on the increase.


The Chancellor’s plans would mean that millions of self-employed people will pay more in National Insurance from April 2018. 


People who pay Class 4 NI contributions, which are paid by self-employed workers earning more than £8,164, currently pay a 9 per cent tax. This will rise to 10 per cent in April 2018, and 11 per cent in April 2019.


Along with the first increase comes the previously announced abolition of Class 2 NICs. 


This will still be less than what is currently paid to employees (12pc), however, it narrows the gap, with Mr Hammond stating the difference between the two is “no longer justified”.


This is bad news for some ADIs, as ones earning more than £16,250 will be paying more NI.


At the time of this news being printed, the possibility of the NI increase was being delayed.


Theresa May was forced to put a pause on the Budget blow after Tory whips warned her they “didn’t have the numbers” to push the Budget measure through the Commons.


Mrs May defended the Chancellor’s tax raid, which breaks the Tories manifesto pledge to not raise NI. She said the change made taxation “simpler, fairer and more progressive.”


The government are in a state of confusion when debating whether it wants people to trade as self-employed or via limited companies, which won’t be clear until a review happens later this year.


The most straightforward way to run a driving instruction trade is for ADIs to want to conduct their businesses as sole traderships. 


Keith Halstead, head of the DIA Tax Service, said: “It’s important to be weary that the main rate of Corporation Tax (tax on the profits limited companies) for the current financial year (2016) is 20%, and this will reduce to 19% for the years 2017 to 2019, and to 17% for 2020.


“If the US reduces its rate to 15%, it is possible that the UK will follow suit to keep our status as competitive with the G20 group of countries. At this level of tax, for a high-earning ADI, it may be worth looking at setting up a company.


But it should always be borne in mind that it is much more complicated and more expensive to run your business through a company as opposed to a sole tradership.”


The new Budget plan also means a £500 increase in personal allowance (from £11,000 to £11,500) and a higher rate threshold from £43,000 to £45,000. Mr Halstead sates that “this is another step towards the government’s aspiration that the personal allowance will be £12,500, meaning tax-free income up to this amount for ADIs by the end of this parliament.”


Small businesses are being forced to submit quarterly returns instead of only one per year, due to the Making Tax Digital (MDT) move. 


The introduction of quarterly reporting under the Making Tax Digital regime will be delayed by one year for businesses with turnover below the VAT threshold, the Chancellor announced.


This means that small businesses will not begin quarterly reporting until April 2019. This will be welcomed by ADIs, making the introduction of MDT less of a burden. 


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