Chartered Tax Advisers & Accountants

Budget 2017 - Looking To The Future

Published On: 10 March 2017
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Even more so than most recent Budgets, in the last ever Spring Budget on Wednesday, there was actually very little of any relevance that will take immediate effect, even the headline announcements about increased Class 4 National Insurance Contributions (NIC) for the self-employed and the reduction in the dividend allowance.  For the most part, gone are the days when changes took effect from midnight on the day of the Budget.  That is certainly a good thing in terms of avoiding last minute panics to get something through or paid before the change was implemented and it does allow businesses and taxpayers time to plan a bit more.

At the other end of the spectrum though, many changes to tax systems, tax rates etc. are announced so far in advance that they are almost forgotten about by the time they are actually introduced.  Indeed there are 15 significant changes to the UK tax system that will be effective from April 2017 yet only 2 were announced in Wednesday’s Budget.

For that reason, rather than pass much more comment on the Budget, we thought it better to refresh memories of what changes will come into effect within the next month and also what is currently proposed over the next two years after that.

April 2017

Income Tax

Basic rate Band
By far and away the most significant is the divergence in the basic rate tax band between Scottish taxpayers and those resident in the rest of the UK.  This will result in Scottish taxpayers paying more income tax than their counterparts elsewhere.  The Scottish basic rate band will be £31,500 and the UK basic rate band £33,500.

To determine if you are lucky(?) enough to be a Scottish taxpayer you can find out here.

Personal allowance
Increased to £11,500.

Residential Landlords
The amount of tax relief for interest paid on loans taken out to acquire residential property will be restricted.  Rather than obtain a tax deduction at a taxpayer's marginal rate,  relief will now be restricted to the basic rate only.  The computation on how the restriction applies is not straight forward and more detail can be found here.

Start Up Businesses and Rental Income
Small ‘start up’ businesses or those with occasional income from letting will not pay tax on the first £1,000 of income.  Note this applies to income only and if you want to claim expenses the whole amounts will need to go through a tax return in the normal way.

Individual Savings Account (ISA)
Annual investment limit raised to £20,000.

Corporation Tax

Rate

Reduction in the rate from 20% to 19%.

Loan Interest
Restriction on loan interest and other financial debts where interest is more than £2 million for companies that are part of a worldwide group.

Employment Taxes

Salary Sacrifice
Restriction on certain’ ‘salary sacrifice’ arrangements, now to be known officially as Optional Remuneration Arrangements (OpRA).  From 6 April 2017, employers and employees will need to account for tax and Class 1A national insurance contributions on the greater of the amount of earnings ’sacrificed’ to obtain the benefit or the cash equivalent value of the benefit.

The most common benefits affected will be cars, car parking and mobile phones but it could apply to a whole range of existing arrangements.  Those that will remain exempt include child care, cycle to work and employer provided pensions.

These changes will apply to new contractual arrangements starting after 6 April 2017.  Transitional arrangements will apply for existing arrangements up to 5 April 2018 except cars, vans, fuel, accommodation and school fees when it will be 5 April 2021.

Company Cars
Increased percentages will apply to the car benefit dependent upon C02 emissions.  Increases linked to CO2 emissions will also apply for company provided fuel where the multiplier is increased to £22,600.

 

Van Benefit and Fuel

Van benefit - £3,230

Van fuel benefit - £610

National insurance Contributions Alignment
Future payroll payments will see the primary (employee) and secondary (employer) NIC thresholds aligned at £157 per week.  Currently the weekly rates are £155 primary and £156 secondary.  Pro-rata rates will apply for monthly or 4 weekly payment periods.

Apprenticeship Levy
This will be introduced at the rate of 0.5% on an employer’s payroll cost and is paid through PAYE.  Each employer will receive an annual allowance of £15,000 per annum so effectively it will only apply to companies with a payroll bill of more than £3 million.

VAT

Registration
Turnover threshold for registration increases to £85,000 and De-Registration to £83,000.

Flat Rate Scheme (FRS)
Businesses with limited costs who use the VAT Flat Rate scheme have recently been tagged as “aggressive tax avoiders” and therefore, with effect from 1 April 2017, if they choose to remain within the FRS will need to pay 16.5% as a flat rate charge rather than the current 14.5%.

Taxpayers can opt to come out of the FRS and use the standard method.

We are currently writing to affected clients on this matter but if you would like to speak to someone at M&S about this please get in touch.

Inheritance Tax

Main Residence Nil Rate Band
It now seems an age since this was announced but at long last, the first step in exempting main residences takes effect.  The first threshold is £100,000 and over the next few years will increase to £175,000.

By 2020 this will allow married couples who have not used any of their nil rate band to pass on up to £1 million on second death, so it is set to become a very valuable relief although care does need to be taken as there are some complex conditions that might occasionally result in this part of the nil rate band being restricted.

Pensions

It wouldn’t be a Budget without some form of change to the pension’s regime.  This time it is the annual amount that an individual can pay into a pension scheme once they have started to take the benefits (over and above the tax free cash lump sum).  The amount an individual can pay into a pension scheme in these circumstances will be reduced from £10,000 to £4,000 per annum.

April 2018

Income Tax

Dividend Allowance
The tax free dividend allowance available to each individual will be reduced from £5,000 per annum to £2,000.  Dividends over this amount will be charged to tax at 7.5% for basic rate, 32.5 % for higher rate taxpayers and 38.1% for additional rate taxpayers.

Making Tax Digital for Businesses (MTDfB)
For sole traders and partnerships with turnover above the VAT threshold, they will have to start submitting quarterly returns of income and expenses to HMRC in a digital format.  An ‘end of year activity’ with all relevant tax adjustments and calculations will need to be submitted within 10 months of the end of the accounting period.

This will be the most significant change to the tax system in over 20 years and will have major implications for millions of businesses.  This is very much a topic within itself and there are various articles on this on our website which will continue to be updated as more announcements on this and the actual tax legislation are drafted.

Inheritance Tax

Main Residence Nil Rate Band
Increases to £125,000.

Capital Gains Tax

Annual Exemption

This will be £11,300

Corporation tax

Rate
Reduces to 18%

National Insurance Contributions

Self Employed
Class 2 NIC to be abolished for the self employed but Class 4 NIC increased to 10% on profits over £8,164.

Redundancy and Termination Payments
Where non-statutory redundancy and other qualifying forms of compensation payment are made in excess of £30,000 employers Class 1 NIC will be payable at the normal rate.  Currently if the payment meets the conditions for the £30,000 exemption no employers NIC is payable.

No employee NIC will be payable even if the payment exceeds £30,000.

April 2019

Income Tax

Making Tax Digital for Businesses (MTDfB)
Sole traders and partnerships with turnovers below the tax threshold will have to start filling quarterly returns of income and expenses and filing an ‘end of year’ activity.

VAT Returns also to be completed digitally.

Inheritance Tax

Main Residence Nil Rate Band
Increases to £125,000.

Capital Gains Tax
For residential properties sold from 6 April 2019, a payment to account of the CGT expected to be due is required to be paid to HMRC within 30 days of sale.

National Insurance Contributions

Self Employed
Class 2 NIC to be abolished for the self employed but Class 4 NIC increased to 11% on profits over £8,164.

Confirmation of the new personal allowances and tax rate thresholds can be found on our website at http://msactax.co.uk/news/budget-2017-at-a-glance/