On Wednesday 23 November 2016 our new Chancellor of the Exchequer, Philip Hammond, delivered his first (and last) Autumn Statement.
“No other major economy makes hundreds of tax changes twice a year, and neither should we” – this is perhaps the most welcome measure announced in the Autumn Statement. In recent years the Autumn Statement has been a mini-Budget, meaning that many, sometimes significant, tax changes were being announced twice a year. This has been problematic in terms of giving taxpayers a reduced degree of certainty regarding planning their tax affairs (plus it means I have to write an extra blog each year) so for this announcement alone, Philip Hammond gets a ‘thumbs up’ from me!
Following the spring 2017 Budget, the Budget will be delivered each autumn – spring will be reserved for a statement from the Office of Budget Responsibility to respond to their previous forecast. The odd tweak of fiscal policy may be made each spring, if economic circumstances require it – personally I think this option has been retained so the Government are able to be more flexible in response to the future impact of Brexit (you can infer from that what you will…I’m taking it as that they have no idea what the impact will be). I’m also hoping that an autumn Budget will give more time for us all to absorb the changes before they come into force the following April.
Our full Autumn Statement roundup can be found on our website here, but below are the main points that I think are relevant to our clients and their businesses. A lot of the announcements aren’t new, but are instead Philip Hammond confirming that he plans to keep some of his predecessor’s policies.
Personal Tax Rates and Allowances
The personal allowance is currently £11,000 and will increase to £11,500 from April 2017. The reduction in personal allowance for those with higher income (‘adjusted net income’ over £100,000) remains so that, from April 2017, there will be no personal allowance available where ‘adjusted net income’ is over £123,000.
The higher rate threshold will increase from £43,000 currently to £45,000 from April 2017, for those who are entitled to the full personal allowance.
Philip Hammond confirmed his intention to keep George Osborne’s policy to increase the personal allowance to £12,500, and the higher rate threshold to £50,000, by the end of this Parliament.
Corporation Tax Rates and Allowances
The new corporation tax rates from April 2017 to March 2021 were announced at the Budget and have now been enacted – the rate will be reduced from 20% to 19% from April 2017 and a further 2% to 17% from April 2020, which will be welcomed by small and large businesses alike.
Again, this was announced in the Budget but has been kept by the new Chancellor – corporate losses (excluding capital losses) arising after 1 April 2017, when carried forward, will be able to be used against future profits from other streams. Currently there are restrictions on how the losses can be relieved, which is restrictive for certain types of business.
National Insurance Contributions (NIC)
Previously payable by the self-employed, Class 2 NIC is being abolished from April 2018 – we knew this was coming, however what we didn’t know was how self-employed taxpayers would get entitlement to basic state pension and other contributory benefits and allowances, as payment of Class 4 NIC (also paid by the self-employed) has not in the past been ‘contributory’. From April 2018, Class 4 NIC will become ‘contributory’ and those paying it will be entitled to state pension etc. Those with income below the Small Profits Limit (£5,965 in 2016/17) will be able to pay Class 3 NIC, currently £14.10 per week to ‘top-up’ their entitlement. There will no longer be the option for these individuals of voluntarily paying Class 2 NIC, for which the current rate is a mere £2.80 per week!
The Office for Tax Simplification are tasked with – you guessed it – making tax simpler. One of their recommendations that is being implemented is the alignment of the thresholds at which employees and employers pay Class 1 NIC.
Other Payroll Matters
Having only been increased in October 2016, The National Living Wage is increasing from £7.20 to £7.50 from April 2017 and smaller increases to the National Minimum Wage are also coming in – full details on our website here
I mentioned in a blog post on 11 October 2016 that the Government have been consulting on the use of salary sacrifice schemes and on Wednesday, the Chancellor outlined the changes to be introduced from April 2017. Salary sacrifice arrangements (other than relating to pensions, childcare, cycle to work and ultra-low emission cars) entered into after this date will no longer enjoy tax and national insurance savings – however agreements entered into before this date will remain tax and NI-free until April 2018, so subject to the administrative hurdles that have to be jumped for an effective salary sacrifice, there’s still some mileage left in them yet!
Philip Hammond continues George Osborne’s assault on company car drivers with a further 2% increase in the percentage applied to each band of company car from April 2018, and a further 3% from April 2019. From April 2017, pure electric cars will be charged at 9%, rising to 13% in April 2018 and 16% in April 2019 – a huge increase from the 7% benefit in kind in the current year. I can only assume this is a reaction to the amount of employers who have provided these cars to employees, and benefited from the low rate. I do find it a little disappointing that tax incentives are introduced to encourage certain behaviours (such as the provision of electric cars) and then as soon as people actually take the Government up on their offer, it effectively gets withdrawn – this is especially harsh when it relates to company cars as many of these will be leased over a number of years and therefore the business and employees are stuck with the cars that no longer afford them the low tax charges that were in place when the vehicles were first provided.
VAT Flat Rate Scheme Anti-Avoidance
Businesses registered for VAT under the flat rate scheme pay over VAT at a specific rate (currently between 4% and 14.5%) as determined by their type of business – it simplifies the accounting for VAT as these businesses pay VAT over to HMRC at a lower rate than the 20% they charge to customers, but do not reclaim VAT on most expenses. For many small businesses, this can be both time-saving and money-saving. From April 2017 a new 16.5% rate will apply to businesses with limited costs (i.e. labor-only businesses) using the flat rate scheme. The details on which businesses will be affected by this are on our full Autumn Statement update here
Making Tax Digital
HM Revenue & Customs are consulting on various measures intended to bring the UK tax system into the digital age. A major change is that from April 2018, most self-employed taxpayers and landlords will be required to keep their records digitally, update HMRC at least quarterly, plus submit a year end declaration. While HMRC are keen to emphasis that this does not mean five tax returns per year, we eagerly await the details on how the proposals will work in practice when HMRC issue their response to the consultations in January 2017.
If you want to discuss any of this further then please get in touch here.
Katie Kettle, Chartered Certified Accountant