The 2016 Autumn Statement marked the first statement delivered by Chancellor Philip Hammond but, despite this, served mainly to confirm old news that changes already announced would take place, rather than introduce anything significant.
These include plans to increase the personal allowance to £12,500, and the higher rate tax threshold to £50,000 by the end of this parliament. This will start with an increase in the personal allowance to £11,500 from 6 April 2017, and the higher rate threshold to £45,000. Note although the UK government have confirmed this, the Scottish government have indicated they will not apply the increase.
From April 2018, it is confirmed termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs. The £30,000 income tax and employee NIC exemption will remain the same.
Non-domiciled individuals who have been UK resident for 15 of the past 20 years will be deemed UK domiciled, for all tax purposes, from April 2017, and be subject to tax on their worldwide income as a result.
Also confirmed was the introduction of two new income tax allowances of £1,000 each, for trading and property income. If your income is below this level, there will be no requirement to declare it to HMRC or pay tax on it.
Other confirmed amendments were the plan to reduce corporation tax rates to 17% by 2020. Reform to corporation tax loss relief, as announced at Budget 2016, is to go ahead. Following consultation, for losses over £5 million, reform will restrict the amount of profit that can be offset by carried forward losses to 50% from April 2017 but allow greater flexibility over the profits that losses can be used against.
Moving on to the something new, the tax and employer National Insurance (NI) advantages of salary sacrifice arrangements will largely be removed from April 2017. Salary sacrifice relating to pensions, childcare, cycle to work, and ultra-low emission cars will not be impacted by this. It will mean that employees who swap salary for benefits, will pay the same tax as those who do not and instead pay for them out of their post-tax income. Examples of the type of arrangements effected are private healthcare and company cars. There are transitional periods in place for certain arrangements which would extend the current advantages to April 2021 at the latest.
A new rate of 16.5% will be added to the VAT Flat Rate Scheme for business with limited costs (e.g. labour only businesses) in attempt bring the VAT paid by users of the flat rate and standard scheme to a similar level. It is currently unclear which business will be required to use this new rate, but more details should follow shortly.
The National Insurance thresholds for employer and employee contributions are to be aligned from April 2017, at earnings over £157 per week, in an aim to simplify the payment of National Insurance for employers.
The tax advantages linked to shares awarded under Employee Shareholder Schemes (ESS) will be abolished for arrangements entered into on, or after, 1 December 2016, and they will be phased out completely at the next opportunity. The original aim of this scheme was to support a more flexible workforce, but the government believes it is instead being used for tax planning opportunities. For our part, we don’t see this as a great loss as none of our clients ever felt the tax advantage outweighed the disadvantage.
Following the recently closed consultation, the ‘make good’ deadline for repaying non-pay rolled benefits in kind will be 6 July following the end of the tax year.
Off-payroll working rules, better known as IR35, will be changed from April 2017 to put the responsibility for deciding whether PAYE and National Insurance contributions are due are passed onto the public-sector body engaging the services, rather than the personal service company.
Given there was so little mentioned about tax, these were not difficult to spot and one or two could lead to significant reform down the line.
A consultation document is to be published regarding how benefits in kind are valued for tax purposes. This will seek evidence to review the value of all benefits in kind and the results of this will be announced at Budget 2017. This is certainly worth keeping an eye on as it could potentially impact a large number of employees and employers.
The use of income tax relief for employee business expenses, including those not reimbursed by the employer, is to be reviewed. At this point it is unclear what changes this could lead to.
Finally, one key announcement missing from the Autumn statement was a response to the recently ended consultation on ‘Making Tax Digital’. Despite previous commitments that this would be a feature, a response has now been pushed back to January 2017. This is further confirmation that the introduction of ‘Making Tax Digital’ may not be as seamless or straight forward as the government likes to suggest. Perhaps for once they are taking serious consideration of the consultation feedback.