On 23 November 2016, Chancellor Phillip Hammond delivered the government’s autumn statement and announced that it will be the last of its kind.
Following the Spring Budget in 2017, the Budget will be delivered in the autumn, with the first being in autumn 2017. This will give the government more time to tweak tax reforms before they are enacted.
Following this will be a spring statement in 2018, which will be mainly for the government’s response to the Office of Budget Responsibility’s (OBR) forecast, with no major changes to any tax rules unless there are unexpected circumstances that require it.
Included below is what we believe to be the summarised highlights of the autumn statement 2016. The exact tax implications will always be specific to your individual circumstances and we would always recommend that you contact us to consider how these implications may affect you.
Income Tax & National Insurance
Personal Allowance – As had been expected the personal allowance will increase to £11,500 for the 2017-18 tax year and the government have confirmed its commitment to increase this again to £12,500 by the end of the current parliament.
Basic Rate Band – The basic rate band will increase to £45,000 in the 2017-18 tax year and as above a commitment to increase this further to £50,000 by the end of parliament.
Class 1 NI Threshold – The employee and employer thresholds will be aligned from April 2017 so that both employee and employer will start paying National Insurance contributions on weekly earnings above £157.
Class 2 NIC – As was announced in the budget 2016, Class 2 NIC’s will be abolished from April 2018 in order to simplify the current National Insurance compliance for the self-employed. The autumn statement confirmed that the self-employed contributory benefit will be accessed through Class 3 and Class 4 NICs.
Corporation Tax Rate – As was expected the government has confirmed its commitment to cut the corporation tax rate to 17% by 2020.
Restriction on Historic Losses – Following consultation, the government will legislate for reforms announced at Budget 2016 that will restrict the amount of profit that can be offset by carried forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date.
Annual Tax on Enveloped Dwellings (ATED) – The annual charges for the ATED will rise in line with inflation for the 2017/18 chargeable period.
Allowance on Low Income – As announced in the 2016 Budget, two new income tax allowances of £1,000 each for property and trading income will be introduced. Individuals with income below the level of the allowances will no longer need to declare or pay tax on that income. The trading income allowance will also apply to certain income from providing services or assets.
Partnership Taxation – The Government is to introduce legislation intended to ensure profit allocations to partners are fairly calculated for tax purposes. Draft legislation will be published for consultation.
Annual Investment Allowance (AIA) – The AIA of £200,000 which has applied to capital expenditure since 1 January 2016 is set to remain at the same level going forward.
100% First-Year Allowance – In the interests of promoting the wider uptake of electric vehicles, expenditure incurred on electric charge point equipment on or after 23 November 2016 will qualify for a 100% first-year allowance. The allowance will expire on 31 March 2019 for corporation tax purposes and 5 April 2019 for income tax purposes.
Pensions & Savings
ISA – ISA saving limits are set to increase from April 2017 from £15,240 to £20,000. Junior ISA & Child trust fund limits are also set to increase to £4,128 from April 2017.
New NS&I Bond – NS&I are to announce a new savings bond with a “market leading” rate of interest of 2.2% on investments up to £3,000. Details are due to be announced when the bond is launched.
Money Purchase Annual Allowance – Since 2015, individuals aged 55 & over have had the opportunity to withdraw a lump sum from their pensions early. However, in order to stop these individuals receiving a second round of tax relief by reinvesting this money back into a pension, HMRC put in place a “money purchase annual allowance” (MPAA) of £10,000. This MPAA acts a limit of the amount of money that an individual can reinvest in this situation. From April 2017, this allowance has been reduced to £4,000.
Foreign Pensions – The tax treatment of foreign pensions will be more closely aligned with UK pension tax rules by bringing foreign pensions & lump sums fully into tax for UK residents, to the same extent as a UK pension would be.
Salary & Benefits
Salary Sacrifice – As widely predicted, measures will be introduced, taking effect from April 2017, to ensure that benefits provided as part of a salary sacrifice scheme will be treated the same as cash income. The commonly used schemes for pensions, pension advice, childcare, cycle to work schemes and ultra-low emission cars will be exempt from the new rules. Any arrangements in place before April 2017 will be protected from the new rules for up to a year and arrangements involving cars, accommodation and school fees will be protected for up to four years.
National Living Wage (NLW) Increase – the NLW is set to increase from £7.20 to £7.50 from April 2017. The NLW is a replacement of the minimum wage for employees aged 25 & over.
Employee Shareholder Scheme Changes – The Government has concerns that some companies are not using employee shareholding status as intended. Income tax reliefs on the receipt or buy-back of shares issued to an employee under an employee shareholder agreement will be withdrawn as will the capital gains tax exemption relating to shares received for entering such an agreement. An individual who before 23 November 2016 has taken independent advice on entering an agreement has, depending upon exactly when the advice was received, until 1 December or 2 December 2016 to enter an agreement and still receive the income tax and capital gains tax advantages.
Letting Agent Fees – The government has announced plans to ban letting fees being charged by the letting agent to the tenant. These fees are currently unregulated and the chancellor stated that these fees need to be met by the landlord going forward. The government intend to ban these fees as soon as possible.
Rural Rate Relief – In order to remove the inconsistency between rural rate relief and small business rate relief, the government will be increasing rural rate relief up to 100% from April 2017. This relief is in place to protect small businesses & essential services in rural areas with a population less than 3,000 people. This increase in relief could result in a tax break of up to £2,900 per year according to the government.
Flat Rate Scheme – HMRC are making a stand against “limited cost” businesses they see as unfairly benefitting from the flat rate scheme. From April 2017 flat rate scheme businesses must determine whether they meet the definition of a limited cost trader. Limited cost traders are defined as those whose VAT inclusive expenditure on goods is either less than 2% of their VAT inclusive turnover in a prescribed accounting period or greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000). These traders will be required to apply a flat rate scheme percentage of 16.5%. Please note, that the definition of goods in this instance does not include any capital expenditure, food & drink for the business, vehicles, vehicle repairs & fuel. These exclusions are in place to stop businesses increasing their costs above 2% by buying everyday items or one off purchases.
This will affect most personal services companies, consultants, locum doctors and engineers using the flat scheme who will be forced to apply a higher flat rate scheme percentage or leave the scheme completely. Any businesses that trade below the threshold but have registered for VAT voluntarily to use the flat rate scheme because they have minimal costs could also be affected. Presumably businesses will need to apply the test on an annual basis by looking at their previous year’s purchases, although the press release does not make that clear. This may mean that small businesses on the scheme will need to keep something close to full VAT records which is precisely what the scheme is intended to avoid!
New Penalties on Avoidance Schemes – The crackdown on tax avoidance continues with new penalties which may apply to advisers who assist taxpayers in the use of failed avoidance schemes. Measures will also be introduced to limit a tax avoider’s defence against penalties in certain cases. Anti-avoidance legislation intended to counter disguised remuneration schemes will be extended to include similar schemes used by the self-employed and tax relief for an employer’s contributions to disguised remuneration schemes will be denied unless tax and national insurance is paid within a specified period.
Making Tax Digital – In January 2017, the government will publish its response to the Making Tax Digital consultations and provisions to implement the previously announced changes.