Philip Hammond delivered what would be the last spring budget on 8 March 2017. This budget held few tax announcements, and we have summarised below what we believe to be the highlights. Many of the details are still to be set out in the coming weeks and as the exact tax implications will always be specific to your individual circumstances, we would recommend that you contact us to consider the implications for you in detail.
Please do not hesitate to contact us if you wish to discuss any of these issues in more detail.
Income Tax & National Insurance
Personal Allowance Increase – The personal allowance will be increased from the current rate of £11,000 to £11,500 for 2017-18 and the government have confirmed its commitment to increase this to £12,500 by 2020.
Basic Rate Band Increase – The basic rate band will rise to £45,000 from 6 April 2017 except in Scotland where it remains at £43,000.
UPDATE Change of Heart on Class 4 NIC Increase – It was announced on 15 March 2017 that the intended increases to Class 4 NIC will not proceed according to a letter sent to members of parliament from Chancellor Phillip Hammond. This letter states that the planned rises go against the government’s original 2015 manifesto where it advised that there will be no increases in rates in this parliament. As a result the government has now advised that it will not go through with the class 4 NIC increases announced in the recent Spring Budget 2017.
Dividend Allowance Reduction – The dividend allowance that was introduced in April 2016 is to be reduced from £5,000 to £2,000 from 6 April 2018.
Capital Gains Tax Increase – The capital gains tax annual exemption has been increased from £11,100 to £11,300 an increase of £200.
Tax Rate Change – It was confirmed that the rate of corporation tax will reduce to 19% from April 2017, and as previously announced the corporation tax rate will reduce by a further 2% to 17% by 2020.
Research & Development (R&D) – Changes are to be made to the R&D expenditure credit to increase certainty and simplicity around claims. The government will also take action to improve awareness of R&D tax credits among Small and Medium Enterprises.
Relief for Carried Forward Losses – Changes are to be made to the rules for corporate losses carried forward from earlier periods. These changes will allow more flexibility for losses arising after 1 April 2017, so that carried forward losses can be relieved against the profits of other group companies.
However, these losses carried forward will be restricted, so that any profits above £5 million can’t be reduced by more than 50%.
Changes to Business Rates – The government announced the following measures to help small businesses facing significant increases in their business rates as a result of the rates revaluation in England in April 2017:
- Support for small businesses losing small business rate relief to limit increases in their bills to the greater of £600 or the real term transitional relief cap for small businesses each year.
- A £1,000 business rate discount for pubs with a rateable value of up to £100,000, subject to state aid limits for businesses with multiple properties, for one year from 1 April 2017.
Appropriations into Stock – A measure was introduced to alter the way in which businesses are taxed when fixed assets are taken into trading stock from 8 March 2017. The purpose of this measure is to prevent businesses converting losses attributable to a period for which the asset was a capital asset into more flexible trading losses. The legislation will only permit this election to be made where the appropriation at market value into trading stock would give rise to a chargeable gain and not where it gives rise to an allowable loss.
Trading & Property Allowances – From 2017/18 the government will introduce two new income allowances of £1,000 each. Each allowance of £1,000 can be deducted from trading income and property income separately. These allowances can be used in place of expenses. This means that individuals with income from either trading or property, below £1,000 will no longer need to declare or pay tax on this income.
Pensions & Savings
Money Purchase Annual Allowance Reduction – The money purchase annual allowance will be reduced to £4,000 from April 2017. This will restrict the amount of tax relieved contributions an individual can make in a year, into a money purchase pension, if the individual has flexibly accessed their purchase pension previously.
Overseas Pension Transfers – Transfers to a Qualifying Recognised Overseas Pension Scheme (QROPS) that are requested on or after 9 March 2017 will now be subject to a tax charge. The tax charge for these transfers is 25% and will be applied before the transfer is made.
This will not apply if the QROPS is provided by the individual’s employer or is transferred to another pension in the same country in the European Economic Area.
ISA’s – From 6 April 2017, the new limits for tax-free savings accounts have been increased as follows:-
- ISA – Increased from £15,240 to £20,000 per year
- Junior ISA – Increased from £4,080 to £4,128 per year
- Child Trust Fund – Increased from £4,080 to £4,128 per year
Lifetime ISA – A new Lifetime ISA will be available to individuals aged between 18 & 40 from 6 April 2017. This new ISA allows for savings of up to £4,000 per year up to the age of 50. There will be an entitlement of up to 25% each year from the government up to a maximum of £1,000 per year.
An individual can withdraw the money from this ISA if it is being used to buy their first house or for any reason after they are 60 years old.
New NS&I Bond – NS&I have announced that a new savings bond with a “market leading” rate of interest of 2.2% over 3 years on investments up to £3,000, is available for one year from April 2017.
Salary & Benefits
Salary Sacrifice – From 6 April 2017, 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.
Free Childcare Benefits – From September 2017, free childcare for three to four year olds will increase from 15 to 30 hours, worth up to £5,000 for each child.
There will also be a tax-free childcare policy introduced from April 2017, which will allow working families to receive up to £2,000 a year towards childcare costs for each child under 12 years old.
Making Good on Benefits in Kind – The government have confirmed that they will legislate in Finance Bill 2017 to align the dates for employees who make a payment for the benefits in kind they receive in order to reduce the taxable value of the benefit in kind to nil. The government have confirmed that employees will need to makes this type of payment by 6 July following the tax year.
This will take effect for the tax year 2017/18 onwards.
Off-payroll Work in the Public Sector – The government will legislate in Finance Bill 2017 to reform the off-payroll working rules in the public sector. The responsibility for operating the off-payroll working rules, and deducting any tax & NIC due, will move to the public sector body, agency or other third party that pay an individual’s personal service company. This change will come into effect from 6 April 2017 and will be applied across the UK.
Registration & Deregistration Thresholds – From 1 April 2017, the taxable turnover which requires an entity to register for VAT will increase from £83,000 to £85,000 per year.
The threshold below which a VAT-registered entity can apply to deregister has increased from £81,000 to £83,000 per year.
Making Tax Digital (MTD) – It has been announced that unincorporated businesses and landlords that have an annual turnover below the VAT threshold will now have until April 2019 before MTD becomes mandatory. This is a delay of one year compared to the government’s original plans.
MTD will require businesses & landlords to use digital software to report their tax records to HMRC on a quarterly basis.
As it stands, businesses & landlords will need to use MTD from the following dates:-
- April 2018 – If turnover and profits chargeable to income tax & class 4 NIC are above the VAT threshold.
- April 2019 –If turnover and profits chargeable to income tax & class 4 NIC are below the VAT threshold (As above).
- April 2020 – If they pay corporation tax.
Businesses & landlords with turnover less than £10,000 per year are exempt from MTD.