Spring Budget Statement 2017: RM2 review
As might have been expected, given the Chancellor’s switch to the Autumn Budget Statement as the “main course” in the government’s budgetary planning, there was little in the Spring Budget that could be classed as even a “starter”. Perhaps the Chancellor did not wish to overwork his “just about managing” civil servants as they attempt to deal with Brexit.
Tax-free dividend allowance
The tax-free dividend allowance (introduced in Finance Act 2016) is being reduced from £5,000 to £2,000 from April 2018. The Chancellor notes that this change is required to level the tax playing field between the self-employed and those who work through a company. For owner-managers of private companies, this is not particularly great news if the director-shareholders pay themselves via a mix of salary and dividends, which is very commonly the case. It may also be a blow for employees who may receive dividends on shares acquired under a government-recognised share plan such as Share Incentive Plan, to the extent that their dividends exceed that amount. Nonetheless, the dividend taxation rates remain significantly lower than income tax rates on salary.
Nonetheless, a share scheme involving direct shareholding can still be designed to provide an effective tax-free payment of up to £2,000 p.a. to participants – an amount which is unlikely to be sniffed at by anyone, and certainly not more junior employees. This figure does not on the face of it seem to compare favourably with the tax-free bonus of £3,600 p.a. per employee for companies employed by an Employee Ownership Trust ("EOT") – but it should be remembered that those bonus payments are subject to NICs, even though income tax does not apply, and there are of course very specific requirements that must be met to establish an EOT.
National Insurance Contributions rate rise for self-employed
The self-employed will be paying more National Insurance Contributions(“NICs”). The Chancellor announced in his Spring Budget that he will legislate to increase the main rate of Class 4 NICs from 9% to 10% from 6 April 2018 and from 10% to 11% from 6 April 2019. The Government had already announced that it would abolish Class 2 NICs from April 2018 (which would on its own have increased the differential between the rates of NI paid by employees and those paid by the self-employed). Doubtless the Chancellor is looking to increase the tax-take from the self-employed particularly in the light of the rise of the “gig” economy and perceived abuses in that area by household names (like Uber and Deliveroo) which the government is already looking at in a separate consultation on self-employed status.
Consultation on Entrepreneurs’ Relief and Venture Capital Schemes
The government intends to open a consultation process aimed at looking at the tax reliefs associated with investment and entrepreneurship during Spring 2017. This is likely to involve a review of Entrepreneurs’ Relief and the absurdly complicated Venture Capital schemes regime (as part of the wider Patient Capital Review announced by the government at the end of January 2017). The interaction of the latter (i.e. Venture Capital schemes) can often be extremely troublesome when attempting to encourage employee incentivisation through the use of employee share schemes. We would not welcome any attempt by the Government to reduce the availability of these reliefs. However, simplification is long overdue particularly for Venture Capital schemes.
EMI state aid approval
And finally, the government has confirmed that it will be seeking state aid approval from the EU for the Enterprise Management Incentives (“EMI”) regime (as the current EU state aid approval expires in April 2018). Could this be a Brexit “bargaining chip”?