With continued uncertainty about the future of the UK economy following Brexit and the US presidential election results, the OBR is forecasting lower than anticipated growth. This means tax receipts will be lower and borrowing higher, and this was the challenge facing the new Chancellor, Phillip Hammond in his first autumn statement. Mr Hammond has therefore acknowledged the inevitable and abandoned the target of balancing the budget by 2020. Given the uncertainty his strategy appears to be to try to make the economy more resilient by encouraging house building and other infrastructure spending.

The other much heralded changes related to helping the ordinary working class by increasing the minimum wage to £7.50 per hour from April 2017 and changing Universal Credit rules so that the people keep more of their benefits as their work income rises. However these changes do not go far enough to reverse the benefit cuts made previously by George Osborne.

A summary of the major changes includes:

For Individuals –

• Personal allowance to be increased to £11,500 from April 2017
• Higher rate threshold to be increased to £45,000 from April 2017
• Annual ISA allowance to be increased to £20,000 for 2017/18
• Introduction of a new investment bond

For Employers –

• The National Living Wage for employees over the age of 25 is to be increased to £7.50 from April 2017
• Removal of tax & NI benefits of salary sacrifice schemes with the exception of pensions, childcare vouchers and cycle to work
• From April 2018 termination payments in excess of £30,000 will also be subject to national insurance

For Business –

• Commitment to cut corporation tax rate to 17% by 2020
• Reform of trade loss relief

Until quite recently the options for financing a business were limited to banks and high wealth individuals. The introduction of Crowdfunding through websites such as Zopa, Ratesetter and Funding Circle, has changed everything, allowing business owners to contact thousands of potential funders to each make a small contribution.

With historically low interest rates many individuals are finding that this is giving them better rates of return. The finance can take the form of business loans or equity funding, but because of the risks potential lenders need to know what they are investing in, so may want more information about the business, the reason for the loan and any explanations about anything unusual in your accounts.

Crowdfunding is a relatively new concept and it has yet to be seen what lenders attitudes will be if there is a downtown in the economy and a rise in bad debts.

Whilst not necessarily for everyone, as you may not meet the lenders criteria, it is rapidly becoming a serious alternative to the traditional sources of finance and should be considered.

The change to the taxation of dividends announced last year was bad news for individuals who operate as limited companies. Until 6th April, the most tax efficient strategy was to take a small salary and the remainder as dividends as there were no NI contributions and no tax on those dividends unless you were a higher rate taxpayer.

The new 7.5% tax on dividends in excess of £5,000 has reduced the tax advantage substantially but a business with profits of £30,000 would still be about £700 better off than an equivalent unincorporated business. At £60,000 the tax advantage is about £3,500, however above that the advantage tails off and is effectively lost by businesses earning more than £130,000 per year.

This assumes that all post-tax profits are extracted from the business. If the profit is left in the company then it will not be subject to the dividend tax and can be taken when the financial position makes it more tax efficient.

If profits exceed £130,000 business owners may be tempted to disincorporate, but just because profits are that high in one year it does not necessarily mean they will be in future years so the timing of dividends can be arranged to minimise tax paid. They also need to consider whether the loss of limited liability is an issue.

For most businesses a limited company is still the best structure but for those with high profits, it is advisable that detailed profit projections are prepared before making any decisions. For further advice, please contact us.