By Garry Tetley, Tax Partner at Deloitte Scotland
In the “final” Spring Budget for Chancellor Philip Hammond, there wasn’t a raft of tax changes announced, or much news specific to Scotland – but a number of the changes made across the UK will affect Scottish businesses and taxpayers.
Undoubtedly, the biggest change across the country is the increase to National Insurance Contributions (NICs) for the self-employed and the dividend allowance cut. From April 2018 the NIC rate will increase by 1%, from 9% to 10%, on income up to the higher rate threshold (£45,000 for 2017-18), meaning that self-employed individuals will pay up to £368.36 more – a further 1% will then be added in April 2019. However, this is still lower than employees who pay NIC at 12% on the same income.
Both groups will continue to pay NIC at 2% on income above the higher rate threshold, while organisations will pay an additional 13.8% employer’s NIC on earnings paid to their employees, which is not payable on payments made to the self-employed.
Meanwhile, the dividend allowance will drop from £5,000 to £2,000 from April 2018, reducing the incentive to gain any tax advantage through the use of personal service companies. Both the NIC and dividend changes reflect the more flexible working practices that now exist – something the Chancellor was keen to emphasise.
The Chancellor confirmed the 2017/18 rates and allowances for income tax, for those outwith Scotland. The 2017/18 higher rate threshold of £45,000 in the rest of the UK versus £43,000 in Scotland creates a differential of £400 of income tax this year for higher rate earners in Scotland, compared with their counterparts in the rest of the UK.
In a break with the usual practice, the income tax rates and bands for 2018/19 for the rest of the UK were not announced in this Spring Budget. However, the Chancellor did reiterate his commitment to raising the higher rate threshold (again for taxpayers not living in Scotland) to £50,000 by 2020. We will wait to see how the Scottish government responds now that it has control over income tax rates and thresholds.
Staying in Scotland and, while there were some late reports in the media prior to the Budget of changes likely to affect the North Sea, the real detail on these did not materialise in the Chancellor’s statement. Instead he announced plans to publish a discussion paper in due course. This will review how the tax system can be used to maximise the length and productivity of fields in the UKCS.
From a public sector perspective, an additional £350 million has been made available to the Scottish Government – building on the £800 million additional allocation announced in November’s Autumn Statement. Edinburgh’s burgeoning tech sector could also benefit from the commitment made to reducing the administrative burden on those claiming R&D tax credits, although further details on exactly how this will work are still to be announced.
There were a number of other positive moves for tech companies across the board. The introduction of “T-Levels” seeks to address the disparity in the esteem associated with technical education, while a £16m investment in a 5G hub and £200m for local projects in full-fibre broadband networks will boost connectivity and help place the UK at the front of the race to the digital future.
So, there’s plenty to chew over in this last Spring Budget, even though the overall number of changes has been relatively low. But given the number of significant changes coming into effect from April 2017 perhaps that was to be expected.
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