Autumn Statement 2016
24 November 2016 09:32
There were very little surprises in what was Philip Hammond’s first (and last!) Autumn Statement.
The Chancellor has relaxed his fiscal targets, which he says will allow for increased infrastructure spending. This increased spending, and a weaker outlook for the economy and tax revenues due to uncertainty due to leaving the EU, will mean that there will be no “surplus” as originally planned in 2020-21.
Some information was announced prior to the Autumn Statement, including the reform to compensation payments for whiplash claims in order to help reduce motor insurance premiums.
It was also previously announced that up-front fees imposed by Letting agents will be banned.
So, what were the main Tax announcements?
Income Tax / National Insurance
As previously announced, the government have stated that they will meet their commitment to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020.
The personal allowance will rise to £11,500 in April 2017, and also the higher rate threshold will increase to £45,000 from 6 April 2017, up from the threshold of £43,000 in April 2016.
Once the personal allowance reaches £12,500, it will rise in line with CPI along with the higher rate threshold.
Those with earnings over £100,000 will continue to lose £1 of their personal allowance for every £2 of earnings over £100,000. This threshold of £100,000 will remain the same in 2016/17 and 2017/18.
The band of savings income that is subject to the 0% starting rate will remain at £5,000 for 2017/18.
The thresholds for employees and employers National Insurance will be aligned as from April 2017, to £157 per week. This will not result in any additional national insurance being payable by the employee but will do so for employers.
Class 2 NIC will be abolished as from April 2018, as announced in our 2016 Budget report summary. Instead, Class 3 and Class 4 NIC is to be reformed so that it builds up entitlements to contributory benefits, including State Pension.
Following consultation, the tax and National Insurance advantages of salary sacrifice schemes will be removed from April 2017, with the exception of pensions, childcare costs, Cycle to Work and ultra-low emission cars.
This means that if an employee swaps their salary for benefits (e.g. gym memberships), they will pay the same tax as the majority of individuals who purchase out of their post-tax income.
Arrangements prior to April 2017 will be protected for one year, with arrangements for cars, accommodation and school fees protected until April 2021.
As announced in Budget 2016, termination payments in excess of £30,000 will also be subject to employer National Insurance contributions.
Non – domiciled individuals
Individuals who live in the UK and use public services should contribute their fair share of tax.
As previously announced the government will end the permanency of non-domiciled tax status. From April 2017, individuals will be deemed UK domiciled if they have been resident for 15 of the past 20 years.
From April 2017, IHT will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore trust or company.
In a bid to encourage investment in British businesses by non-domiciled individuals, the government will change the rules for the Business Investment Relief from April 2017 to make it easier for non-domiciled individuals, taxed on the remittance basis, to bring money into the UK.
Capital Gains Tax
Employee Shareholder Status (ESS) will be abolished for arrangements entered into on, or after, 1 December 2016. This is in response to suggestions that the status is being primarily used for tax planning instead of its intended purpose of supporting a more flexible workforce.
To provide certainty to UK businesses, the government announced that they will continue with their “road map” as previously announced, including cutting the Corporation tax rate to 17% as from 1 April 2020.
The government are considering bringing all non-resident companies receiving taxable income in the UK into the UK corporation tax regime. This will be consulted and discussed at Budget 2017, so watch this space.
Substantial Shareholding Exemption (SSE)
Following recent consultation, from April 2017 the government will make changes to remove the investing requirement and provide a more comprehensive exemption for companies owned by qualifying investors, thus simplifying the rules.
The government are continuing their crackdown on “disguised remuneration”, with the aim to ensure those who have used such schemes pay their fair share of tax and NIC. A further announcement, the government will take steps to make it less attractive for employers to use disguised remuneration, by denying tax relief on employers contribution, unless tax and NIC is paid within a specific period.
There will also be a consultation on partnerships, and how the allocation of profits should be done so “fairly” (note the definition of fairly remains to be seen!).
National Living Wage
The National Living Wage is set to increase to £7.50 per hour as from April 2017, up from the current rate of £7.20 per hour.
Rural rate relief will be doubled to 100% from April 2017, in order to remove the inconsistency between rural rate relief and small business rate relief.
A new VAT flat rate of 16.5% will have to be used by businesses whose costs are less than either £1,000 or 2% of their annual turnover. Furthermore, capital expenditure, most vehicle costs and food and drink will be excluded when working out your level of expenditure. This new rate must be applied from 1 April 2017.
There were no new major changes to the current capital allowance regime. However, with the announced increase in spending on infrastructure, is an announcement going to be made in the Budget in 2017?
Lifetime ISA’s / ISA’s
A reminder that a new Lifetime ISA will be available as from April 2017 to those aged between 18 and 40. Individuals will be able to contribute up to £4,000 per annum, and receive a 25% bonus from the government. Funds from the Lifetime ISA can be used to purchase a first home, and be withdrawn from the age of 60 as part of retirement planning.
Any withdrawal for a reason other than first home or post aged 60, you will lose the government bonus, and be subject to a 5% charge.
The annual ISA limit will increase from £15,240 to £20,000 from 6 April 2017.
There were no new announcements in relation to IHT. If IHT is of any concern to you, or you would like a reminder of the current regime, please do not hesitate to get in touch.
Duties / Insurance Premium Tax
The government announced a further freeze on fuel duty, the seventh successive year, saving motorists an average of £130 per annum.
Insurance Premium Tax
The standard rate of Insurance Premium Tax will increase from 10% to 12%, as from 1 June 2017.
Tax Credits / Universal Credit
In good news for people returning to work, the taper rate will be reduced to 63% from April 2017. The taper rate means that once a claimant earns above the work allowances in Universal Credit, the income will be withdrawn at a rate of 63% rather than the current rate of 65%
The last Autumn Statement……
The Chancellor announced this would be his first and last Autumn Statement – he is to instead have a Spring Statement from 2018, and an Autumn Budget in 2017.
We therefore have the “privilege” of two Budgets in 2017, in Spring and Autumn!
Worried how the Autumn Statement may affect you. Then why not get in touch with one of our tax specialists?