Laura Whitcombe

What the final Spring Budget means for your pocket

What the final Spring Budget means for your pocket
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With the Chancellor’s Budget moving to a single event from later this year, yesterday’s final Spring Budget went out with a muffled pop rather than a bang.

After announcing an improved forecast for economic growth throughout the rest of year and revealing that employment has reached a record high, the biggest personal finance changes set out will largely affect the self-employed and small businesses.

Both groups will be hit by rises in National Insurance Contributions and business rates. Currently, the self-employed can have to pay both Class 4 and Class 2 NICs, which are charged at 9 per cent on profits between £8,060 and £43,000 and at a flat rate of £2.80 per week on profits of £5,965 respectively.

From April 2018, Class 2 NICs will be abolished but Class 4 NICs will rise to 10 per cent, before going up again to 11 per cent the year after.

The Treasury said the change ‘better reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016’. But it acknowledged that, as a result, anyone with profits of more than £16,250 a year will pay more.

The Chancellor did offer small firms affected by the much criticised rise in business rates coming into force next month some protection. Thanks to the creation of a ‘relief fund’, no small business will pay in excess of £600 more in business rates this year than they did in 2016-17.

But the business community is less than impressed with what it sees as a token gesture. Stephen Herring, head of tax at the Institute of Directors, said: ‘The transitional “relief fund’”looks distinctly modest at first glance, and ensuring the system isn’t overly bureaucratic will be crucial. There will still be businesses forced to decide between price increases or closure.’

If you’re neither self-employed nor a small business, here’s a quick round-up of the main policy changes that could affect your finances.

  • Tax-free dividend allowance cut from £5,000 to £2,000: from next April investors will only be able to shield dividends of up to £2,000 from the taxman before having to hand over some of their income. Above the threshold, basic-rate taxpayers will pay 7.5 per cent, higher-rate taxpayers 32.5 per cent and additional-rate taxpayers 38.1 per cent. The government said the move will reduce the tax difference between the self-employed and those working through a company and that general investors would need to have more than £50,000 worth of stocks and shares outside an ISA to be affected. Richard Stone, chief executive at The Share Centre, said: ‘The Tax Free Dividend Allowance undermined part of the logic for using an ISA account, namely that all income and capital gains within an ISA are tax free. Investors should therefore continue use tax-efficient accounts, such as the ISA, for their savings and investments to ensure that tax payable on any income or gains is minimised.’ The ISA allowance will increase to £20,000 a year from 6 April.
    • Lifetime ISA launch confirmed: available from 6 April this year, the account allows those aged 18 to 40 to save up to £4,000 each year and receive an annual government bonus of up to £1,000 a year if they use the money for their first home or retirement at the age of 60 or above.
      • NS&I’s new three-year Investment Guaranteed Growth Bond will pay 2.2 per cent: it will become available for a period of 12 months, to those aged 16 and above wishing to stash away between £100 and £3,000. Richard Stone said: ‘This bond will appeal to some investors with returns on cash available elsewhere which are relatively negligible. However, for investors willing and able to take a greater level of risk with their capital it is worth noting that a basic FTSE 100 tracker is currently yielding an income of over 3 per cent per annum which can be earned tax free where the investment is held in an ISA account – albeit accepting that over the three-year period the capital is at risk.’
        • Tax-free childcare gets the go ahead: later this year working parents will be able to receive up to £2,000 a year in childcare support for each child under 12, while they will get up to £4,000 for disabled children up to the age of 17. Working parents in England will also be able to apply for an additional 15 hours of free childcare for three and four-year-olds, bringing the total to 30 hours a week. Find out more about tax-free childcare and if it could make you better off here.
          • Loans for part-time and doctoral students from 2018: the government confirmed it will provide maintenance loans for people embarking on part-time degrees, and doctoral loans of up to £25,000 to support higher-level study. Maintenance loans for students doing higher-level technical courses at National Colleges and Institutes of Technology will also be made available.
            • Tax rise on cigarettes: the Chancellor confirmed an immediate duty rate increase on all tobacco products by 2 per cent above RPI inflation, as announced in George Osborne’s 2014 Budget. As of 6pm last night, the cost of 20 cigarettes went up by 35 pence, taking the average cost from £9.91 to £10.26, according to the Tobacco Manufacturers' Association. The price of a 30g pack of rolling tobacco also went up by 44 pence last night. And from 20 May, a new minimum duty comes into force that will take the minimum price for a pack of cigarettes to £8.82.
            • For more information on changes for the new tax year starting on 6 April, click here.

              Laura Whitcombe is knowledge and product editor at