Spring Budget 2017 – How does it affect you?

08 March 2017 15:42

This post mentions Making Tax Digital, for more up-to-date information on the subject, see our new post "Is Making Tax Digital on Hold?"

There were few surprises in the first of two Budgets in 2017.

With Brexit on the horizon and uncertainty elsewhere, Philip Hammond aims to put economic stability first. Following a period of robust growth (the second fastest of all major economies!), a falling deficit and record level of employment, the Chancellor announced several measures to help the next generation.

In order to sustain continued growth with reduced borrowing, the Chancellor insisted the tax system needs to be fair and sustainable, whilst ensuring the UK remains one of the most attractive places to set up and grow businesses.

Some information was announced prior to the Spring Budget, but we have included the main changes here too as a reminder.

So, what were the main Tax announcements?

Tax Administration - Making Tax Digital (MTD)

We have already written articles in connection with Making Tax Digital. Some good news is that the government will provide an extra year (April 2019) until MTD is mandatory for businesses and landlords with turnover below the VAT threshold (see below).

Tax Simplification

The government will increase the cash basis entry threshold to £150,000, and the exit threshold to £300,000.It should be noted that using the cash basis does affect certain tax reliefs/claims, so caution is advised when deciding whether the cash basis is beneficial to you.

Avoidance

In a bid to continue the crackdown on illegal (or should we say immoral?) tax planning, the government announced measures to discourage the use of certain schemes.

Such measures include ensuring promoters of tax avoidance schemes are penalised when schemes have been found to fail.

Income Tax / National Insurance

Personal Allowance

The personal allowance will rise to £11,500 in April 2017, and the higher rate threshold will increase to £45,000 from 6 April 2017. These increases will cut income tax for 31 million tax payers when compared with the beginning of the current Parliament.

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.

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.

The band of savings income that is subject to the 0% starting rate will remain at £5,000 for 2017/18.

National Insurance

The thresholds for employees' and employers' National Insurance will be aligned from April 2017, at £157 per week. This will not result in any additional national insurance being payable by the employee but will do so for employers.

As announced in 2016, Class 2 NIC will be abolished as from April 2018, as announced in our 2016 Budget report summary.

In order to equalise the difference in National Insurance paid by the employed and the self-employed, the main rate of Class 4 National Insurance will increase 1% to 10% in April 2018, and a further 1% to 11% in April 2019. This will result in those self-employed with profits of over £16,250 having more NIC to pay.

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.

Dividend Allowance

The tax free dividend allowance will be reduced from £5,000 to £2,000 from April 2018, with the aim being to reduce the tax differential between the self-employed, and those who operate via their own limited company.

The reduction will also impact investors who have dividend income of over £2,000 (typically investments of over £50,000), meaning they will pay more tax, and perhaps be required to complete a self-assessment tax return.

With the reduction, it is important that investors utilise ISA allowances, as dividends from ISAs will remain tax free.

Different forms of remuneration

Employers can choose to remunerate staff in a variety of ways, some of which have inconsistent tax treatments. The Government have announced they will consult on the taxation of benefits in kind, accommodation benefits and employee expenses.

As announced previously, 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.

Non-domiciled individuals

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. This is in order to make it easier for non-domiciled individuals, taxed on the remittance basis, to bring money into the UK.

Capital Gains Tax

There were no major announcements in connection with Capital Gains Tax.

Corporation Tax

In order to make the UK an attractive place to set up business, the corporation tax rate will drop to 19% from April 2017, and to 17%  from April 2020.

Research and Development (R&D) Tax

A review of the R&D tax regime has found that it is effective and internationally competitive, supporting innovation in the UK.

To further support investment and encourage the use of the very beneficial regime, the government have announced they will make administrative changes, reducing the administrative burden for claiming companies.

Substantial Shareholding Exemption (SSE)

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.

Employment Tax

National Living Wage

A reminder that the National Minimum and Living wage will increase every April from 2017. The Rates from April 2017 are:

  • £7.50 per hour    25yrs and over
  • £7.05 per hour    21-24 yrs old
  • £5.60 per hour    18-20 yrs old
  • £4.05 per hour    16-17 yrs old
  • £3.50 per hour    apprentices under 19, or in their first year of employment

Business Rates

As previously announced, the Small Business Rate relief was doubled to 100%, and the threshold increased to a rateable value of £12,000 (previously £6,000). This change ensured circa 600,000 businesses would not pay any business rates.

However, due to the revaluation in 2017, some businesses who don’t qualify for the SBRR may see a large increase in their business rates. In order to help protect businesses against large rises, the government announced support for businesses losing SBRR to limit the increase in their bill to £600 per annum.

In addition, £300m has been provided to local authorities so that they can apply discretionary relief to support individual hard cases.

In great news for the local pub, the government will introduce a £1,000 business rate discount for public houses with a rateable value of less than £100,000, for one year from April 2017.

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.

It is also planned that businesses will be revalued every three years, with further details expected in the Autumn Budget 2017.

VAT

From April 2017, the VAT registration threshold will increase from £83,000 to £85,000, with the deregistration threshold increasing to £83,000.

A reminder that a new VAT flat rate of 16.5% must 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.

Capital Allowances

There were no new major changes to the current capital allowance regime.

Lifetime ISAs / ISAs

A reminder that a new Lifetime ISA will be available 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.

Inheritance Tax

There were no new announcements in relation to IHT.

Duties / Insurance Premium Tax

HGV VED & Road User Levy

HGV VED and Road User Levy rates will be frozen from April 2017.

The government will also consult with industry to amend the Levy so that it rewards Hauliers that plan their routes efficiently.

Insurance Premium Tax

As announced previously, the standard rate of Insurance Premium Tax will increase from 10% to 12%, as from 1 June 2017.

Welfare

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 first of two Budgets

As the Chancellor announced he is to abolish the Spring Budget, we will have a second Budget later in 2017 (the autumn budget), which of course we will keep you up to date on.

Worried how the Spring Budget will affect you? Then why not get in touch for advice from one of our tax specialists? You can take advantage of our FREE 60-minute health check, so you can make sure your business is in good shape for the future.

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