Welcome To Our Autumn Statement Update
Many of the changes below were already flagged up. The change to Flat Rate VAT however was a bit of a bombshell. We will be in contact with all our clients on Flat Rate VAT to see if the change affects them. If you have any queries about anything in this newsletter please don’t hesitate to give us a call.
GETTING THE UK “MATCH FIT” FOR BREXIT
The Chancellor Philip Hammond announced that his first Autumn Statement will also be his last. In future the main Budget announcements will be made in the autumn rather than the spring. We were not expecting that many tax announcements and many that were made we already knew about. He could not afford too many give-aways as he expects the economy to have a bumpy ride during the BREXIT transition.
There will still be a Budget next March but thereafter the annual Budget will be in the Autumn to allow longer consideration of the announcements and draft legislation before enactment the following summer.
KEY TAX ANNOUNCEMENTS:
Remember that come of the key Personal Tax thresholds are being devolved to Scotland from April 2017 so may not follow these limits.
- Personal allowance to increase to £11,500 in 2017/18, rising to £12,500 by 2020/21
- Higher rate tax threshold to increase to £45,000 in 2017/18, rising to £50,000 by 2020/21
- National Insurance threshold to be raised to £157 a week for employees and employers
- Corporation tax rate to reduce to 17% in 2020
- Business tax “roadmap” to continue, in particular new rules for company losses
- Insurance premium tax to increase from 10% to 12% from 1 June 2017
- More anti-avoidance measures, in particular a new VAT flat rate percentage for “limited cost traders”
|HELP FOR THOSE JUST ABOUT MANAGING (JAM)
The Chancellor made a number of announcements that were intended to help those families that a just about managing, given the acronym – JAM. Raising the personal allowance to £11,500 and higher rate threshold to £45,000 will mean they pay less income tax and keep more of what they earn, however remember that these thresholds will be devolved to Scotland from April 2017.
This group will also benefit from the increase in the National Living Wage to £7.50 an hour and the changes to Universal Credit.
The Universal Credit taper rate will be cut from 65% to 63% from April 2017 which will mean that fewer benefits will be clawed back as claimants’ income increases. The planned reductions in the overall benefits caps will however go ahead.
CORPORATE AND BUSINESS TAX CHANGES
Many of the corporate tax changes had already been announced and are set out in the business tax “roadmap” which details the government tax strategy for the life of this Parliament and beyond.
The currently 20% corporation tax rate is planned to fall to 19% from 1 April 2017 and then to 17% on 1 April 2020. The government is committed to keeping the UK corporate tax rate the lowest in the G20 and there is talk of a rate as low as 15% in the future.
The Chancellor raised concerns that there continues to be a rise in tax-driven incorporations as there are still tax savings compared to unincorporated businesses operating at a similar level of profit. That may suggest that the government is still considering the introduction of a new “look through entity” suggested by the Office of Tax Simplification so that the tax treatment will be the same, thereby creating a level playing field.
The new flexible corporate tax loss rules announced in the spring budget have been subject to consultation and will go ahead from 1 April 2017.
From 23 November 2016 to 31 March/ 5 April 2019, businesses will be entitled to a 100% First Year Allowance (FYA) for the cost of installing electric charge-point equipment for electric vehicles. This measure is intended to complement the 100% FYA available for low CO2 emission vehicles and to encourage their uptake.
HIGHER RATE TAX RELIEF FOR PENSIONS CONTINUES
There has been much speculation that the government would further limit tax relief for pension contributions by removing higher rate tax relief. That measure would save the country £34 billion in tax but the only change announced concerns a new lower limit on amounts that can be saved in a pension when individuals have started drawing down from their private pension.
Currently the net effect of pension tax relief for a higher rate taxpayer is that saving £10,000 in a pension costs £6,000. The taxpayer pays £8,000 into their pension and the government tops this up by £2,000 with a further £2,000 deducted from the individual’s income tax liability, reducing the net cost to £6,000. For additional rate taxpayers the net cost would be just £5,500.
Remember that there is currently an annual pension input limit of £40,000 which caps the combined contributions by an individual and his or her employer. For those with high income this is tapered and can be as low as £10,000.
One new pension restriction that was announced was a measure to limit pension “recycling”. Those individuals who have started drawing down their personal pension will in future only be able to reinvest up to £4,000 in their pension. Please contact us if you want to discuss pension planning further. SALARY SACRIFICE RULES TO BE TIGHTENED UP
Many employers now provide flexible remuneration packages that allow employees to give up some of their contractual salary in exchange for benefits in kind. This can have the effect of saving tax and national Insurance contributions for both the employee and employer, particularly where the benefit provided is exempt from tax.
These tax and NIC advantages are to be withdrawn from 6 April 2017. Arrangements involving pensions, childcare, Cycle to Work and ultra-low emission cars will be excluded; existing arrangements will be protected for a transitional period until April 2018, and existing arrangements for cars, accommodation and school fees will be protected until April 2021.
The Chancellor has announced a wider review of the taxation of benefits, with the intention of making this area ‘fairer and more coherent’. This appears likely to have a significant effect on any employee who is in receipt of benefits from their employer. OTHER EMPLOYEE BENEFIT CHANGES
An employee who repays to their employer, or ‘makes good’, the cost of a benefit, avoids a tax charge. As previously announced, from April 2017 such making good will have to take place by 6 July in the following tax year if it is to be effective.
CHANGES TO TERMINATION PAYMENTS TO GO AHEAD
As announced in March, from April 2018 termination payments over £30,000, which are subject to Income Tax, will also be subject to employer’s NIC. Tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked. The first £30,000 of a genuine termination payment will remain exempt from tax and NIC.
“ABUSE” OF THE VAT FLAT RATE SCHEME
The VAT flat rate scheme is a simple scheme that enables small businesses to calculate and pay their VAT based on a flat rate percentage of total takings rather than deducting input tax on purchases and expenses and deducting that from total output tax on sales in the period. HMRC believe that the scheme is being abused by certain traders who have minimal costs who charge 20% VAT to their customers and then pay a lower percentage over to HMRC.
The flat rate percentage varies depending on the nature of the trade, ranging from 4% for food retailers up to 14.5% for IT consultants and labour only construction workers. A new 16.5% rate will apply from 1 April 2017 for businesses spending less than 2% of their turnover or less than £1,000 per year on goods, excluding capital goods, food, vehicles and fuel. Any business affected will almost certainly be better off returning to the normal VAT system with effect from that date. If you are currently using the flat rate scheme please contact us to check whether this change is likely to affect your business.
DON’T MISS OUT ON TAX RELIEF ON R&D
The government is concerned that many small companies are missing out on generous R&D tax credits. For the last year HMRC have been offering companies an advance assurance scheme to check whether or not their activities qualify before they make a claim. So far over 200 applications for advance assurance have been made.
There is a general misconception that R&D involves scientists in white coats but it should be remembered that R&D may be necessary to resolve a problem with a product or a process.
So some of the work by your engineers or technical staff may qualify as R&D. For Small and Medium-sized Enterprises (SMEs) the tax credit is 230% of the expenditure on qualifying R&D, and where the company incurs a trading loss, HMRC will provide an immediate cash refund rather than waiting until there is a profit in a future period.
By applying for advance assurance the company’s R&D claim will not be subject to an HMRC enquiry and HMRC will then accept the first three years of claims.
Companies eligible to apply for advance assurance:
- turnover below £2m
- fewer than 50 employees
- no previous R&D claims
So don’t hestitate to get in contact if you think you may have a claim.
CHRISTMAS IS COMING! – NEW RULES FOR GIFTS TO STAFF
From 6 April 2016 new rules were introduced to allow employers to provide their directors and employees with certain “trivial” benefits in kind, tax-free.
The new rules are a simplification measure so that certain benefits in kind will not need to be reported to HMRC, as well as being tax free for the employee. There are of course a number of conditions that need to be satisfied to qualify for the exemption.
CONDITIONS FOR THE EXEMPTION TO APPLY:
• the cost of providing the benefit does not exceed £50
• the benefit is not cash or a cash voucher
• the employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)
So this exemption will generally apply to small gifts to staff at Christmas or on their birthday.
Prior to this change in the rules, the benefit in kind would have had to be reported on the employee’s P11D form at the end of the year, or alternatively the employer would have dealt with the tax and national insurance under a PAYE settlement agreement. Under such an arrangement a £50 Christmas turkey to a higher rate taxpayer could end up costing the employer nearly £95!
Note that where the employer is a “close” company and the benefit is provided to an individual who is a director or other office holder of the company, the exemption is capped at a total cost of £300 in the tax year.
Please feel free to contact us if you are considering taking advantage of this new exemption.