Autumn Budget 2017

Collier-Marsh Accountancy

Chartered Accountants



This Report, which was written immediately after the Chancellor of the Exchequer delivered his Budget Speech, is intended to provide an overview of the latest announcements and recent measures most likely to affect you or your business.


The 2017 Autumn Budget represents the first step in the government’s new Budget regime, which sees the main Budget now being presented in the Autumn, to be followed by a Spring Statement the following year.


We can help to ensure that your financial plans remain effective, even as your personal and business circumstances change. We will work alongside you to help you to achieve a rewarding and financially secure future.


Please note: while most taxation changes take effect from the start of the new financial year, or tax year, some may not take effect until 2019, or later. Where relevant, details of these changes have been included in this Report.



Hammond heralds vision of an ‘outward looking, free-trading nation’


Chancellor Philip Hammond’s first Autumn Budget was delivered against a backdrop of economic and political uncertainty, fuelled partly by the ongoing Brexit process.


Acknowledging that the UK has entered a ‘critical phase’ of negotiations, the Chancellor set out his vision of a ‘new relationship’ with the European Union – though he was keen to emphasise the need to prepare for ‘every possible Brexit outcome’, announcing that £3bn had been set aside for Brexit preparations.


While asserting that the economy ‘continues to confound those who talk it down’, the Chancellor revealed that the Office for Budget Responsibility has revised down UK economic growth for the next five years, with the economy expected to grow by 1.5% in 2017. Debt is also expected to reach a peak this year, reducing gradually thereafter as a share of GDP, while borrowing forecasts have also been revised downwards.


Technology and housing proved to be a key focus of the speech, with the Chancellor announcing a package of support for electric vehicles, including £400m for new charging points, and a £44bn investment fund to support the government’s target of building an average of 300,000 new homes every year, over the next five years. The government will also make changes to the planning system to ‘encourage better use of land in cities and towns’.


There was also some good news for first-time buyers, as the Chancellor revealed that any seeking to buy a property worth up to £300,000 will be exempt from paying Stamp Duty Land Tax with immediate effect. Meanwhile, the income tax personal allowance will increase to £11,850 from April 2018, with the higher rate threshold rising to £34,500.


Although making a feature of his resistance to reducing the VAT registration threshold, the Chancellor did address the issue of business rates, announcing that firms being affected by the so-called ‘staircase tax’ could apply to have their bills recalculated and backdated, and that future revaluations will take place every three years.

Finally, entering at least partially into the festive spirit, the Chancellor announced that duty on most alcoholic drinks will be frozen, although a new band of duty will be introduced in 2019 for certain higher strength ciders.


Budget Highlights


  • Stamp Duty Land Tax abolished for most first-time buyers
  • Personal allowance increasing to £11,850
  • Business rates to rise by CPI inflation from April 2018
  • VAT registration threshold frozen for two years
  • RDEC tax credit increasing to 12% from January 2018
  • National Living Wage to rise to £7.83
  • Increase in VED for the most polluting diesel cars


Business Tax and Investment Incentives


Corporation Tax


Corporation tax rates are as follows:







As previously announced, the corporation tax rate is set to reduce to 17% from 1 April 2020.


Indexation allowance


For disposals of capital assets on or after 1 January 2018, the indexation allowance that is applied in order to determine the amount of the chargeable gain will be calculated up to December 2017, irrespective of the date of disposal of the asset.


Research & Development Expenditure Credit (RDEC)


The rate of RDEC is to increase from 11% to 12%. This will have effect for expenditure incurred on or after 1 January 2018.


Knowledge-intensive companies (KICs)


The annual limit for individuals investing in KICs under the Enterprise Investment Scheme (EIS) will be increased to £2m, provided that anything above £1m is invested in KICs. In addition, the annual EIS and Venture Capital Trust (VCT) limit on the amount of tax-advantaged investments a KIC may receive will be increased to £10m. The permitted maximum age rules will also be amended to allow a KIC to use the date from which its annual turnover exceeded £200,000, instead of the date of its first commercial sale, when determining the date from which the end of the initial investing period is calculated. For EIS the changes will apply to shares issued on or after 6 April 2018 and for VCTs the changes will apply to new qualifying investments made on or after 6 April 2018.


Non-UK resident companies


Legislation will be introduced so that non-UK resident companies that carry on a UK property business or have other UK property income will be charged to corporation tax, rather than being charged to income tax as at present. A non-UK resident company that has chargeable gains on the disposal of UK residential property will also be charged to corporation tax, instead of capital gains tax as at present. The change will have effect on and after 6 April 2020.


Capital allowances


The 100% first year allowance for businesses purchasing zero-emission goods vehicles or gas refuelling equipment is to be extended to 31 March 2021 for corporation tax and to 5 April 2021 for income tax.


First Year Tax Credits (FYTC)


The FYTC scheme will be extended until 31 March 2023 and the rate of eligible claims will be set at two-thirds of the corporation tax rate. This will come into effect on 1 April 2018.


Depreciatory transactions


Legislation will be introduced to remove the time limit of six years within which companies must adjust for any depreciatory transactions when claiming a capital loss on disposal of shares in a group company.


This will have effect for disposals of shares in or securities of a company made on or after 22 November 2017.


Royalties withholding tax


The government will publish a consultation on 1 December 2017 on the design of rules expanding the circumstances in which a royalty payment to persons not resident in the UK has a liability to income tax.


The changes will have effect from April 2019.


Subsistence


Legislation is to be introduced so that employers will no longer be required to check receipts when making payments to employees for subsistence using benchmark scale rates. This applies to standard meal allowances paid in respect of qualifying travel and the overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel.


This will have effect from April 2019. Abolition of receipt checking does not apply to amounts agreed under bespoke scale rates or industry wide rates.


Employer-provided electricity for an electric car 


The government will legislate to exempt employer-provided electricity from being taxed as a benefit in kind from April 2018. This will apply to electricity provided in workplace charging points for electric or hybrid cars owned by employees.


Business rates


Business rates will switch from being increased by RPI to being increased by CPI from April 2018, two years earlier than originally planned. Business rates revaluations will take place every three years, rather than every five years, starting after the next revaluation, currently due in 2022.


The government will also legislate retrospectively to address the so-called ‘staircase tax’. Affected businesses will be able to ask the Valuation Office Agency to recalculate valuations so that bills are based on previous practice, backdated to April 2010.


The £1,000 business rate discount for public houses with a rateable value of up to £100,000, subject to state aid limits for businesses with multiple properties, will continue for one year from 1 April 2018.


Capital taxes


Inheritance tax


Inheritance tax is currently charged at 40% on the proportion of an individual’s estate exceeding the ‘nil-rate band’ of £325,000. Married couples and registered civil partners can already pass any unused nil-rate band to one another on death.


A new residence nil-rate band (RNRB) now applies in addition to the nil-rate band, allowing a ‘family home’ to be passed wholly or partially tax-free on death to direct descendants such as a child or grandchild. A step-child, adopted child or fostered child is also regarded as a direct descendant.


The RNRB rates are set as follows:








RNRB can only be used in respect of one residential property. The property does not have to be the main family home, although it must, at some point, have been a residence of the deceased.


There is a tapered withdrawal of the RNRB for estates valued at more than £2m, at a withdrawal rate of £1 for every £2 over this threshold.


Capital gains tax (CGT)


CGT is payable on the profit made when you sell or otherwise dispose of an asset. The rates for 2018/19 are:


On chargeable gains








Higher rates (18%/28%) may apply to the disposal of certain residential property and carried interest.


Annual exempt amount for 2018/19 – individuals £11,700 and most trustees £5,850.


CGT payment window 


The introduction of the 30-day payment window for gains on residential property disposals will be deferred until April 2020.


Taxation of carried interest 


The government will amend legislation to ensure that asset managers receiving carried interest pay CGT on their full economic gain. The changes will remove the special treatment afforded to carried interest that arises in connection with disposals of assets before certain dates in 2015. The changes will have effect on and after 22 November 2017.


Entrepreneurs’ relief


The government will consult in spring 2018 on how access to the relief might be given to entrepreneurs whose holding in their company is reduced below the normal 5% qualifying level as a result of raising funds for commercial purposes by means of issues of new shares.


Taxing non-residents’ gains on immovable property


The government has published a consultation on taxing non-residents’ gains on immovable property. This measure will broaden the UK’s tax base to include disposals of UK commercial property by non-residents, both directly and indirectly, and will bring all companies into charge on disposals of residential property, and all persons into charge on indirect disposals of residential property. The changes will have effect on and after 1 April 2019 for companies, and on and after 6 April 2019 for those in charge to CGT. An anti-forestalling measure to support this reform will have effect on and after 22 November 2017.


Offshore trusts


New anti-avoidance rules will be introduced relating to the taxation of income and gains accruing to offshore trusts. This measure ensures that payments from an offshore trust intended for a UK resident individual do not escape tax when they are made via an overseas beneficiary or a remittance basis user.


Following consultation, minor changes have been made to the legislation, including to ensure that the onward gift rules can apply if the close family member rule applies, to clarify the position in the year of the settlor’s death and in relation to onward gifts to multiple recipients. The changes will have effect on and after 6 April 2018.


National Minimum Wage and National Living Wage


The government has aligned the National Minimum Wage and National Living Wage cycles so that any increases in rates now occur in April each year. The rates applying from 1 April 2018 are outlined below.




 





*Under 19, or 19 or over and in the first year of their apprenticeship.


Income Tax and Personal Savings


Income tax
























†For Scottish taxpayers only the limit for 2017/18 is £31,500. The Scottish government is set to introduce further changes to the income tax rates and bands for Scottish taxpayers for 2018/19.

*If an individual’s taxable non-savings income exceeds starting rate limit, then starting rate limit for savings will not be available for savings income. £1,000 of savings income for basic rate taxpayers (£500 higher rate) may be tax-free.

**The tax-free dividend allowance is set to reduce from £5,000 to £2,000 from 6 April 2018.


Personal allowances 




















*Allowances are reduced by £1 for every £2 that adjusted net income exceeds £28,900 (2017/18 £28,000) to a minimum MCA of £3,360 (2017/18 £3,260). Where adjusted net income exceeds £100,000 (2017/18 £100,000), PA is reduced in the same way until it is nil regardless of the individual’s date of birth.

 

 Marriage Allowance: allowing claims on behalf of deceased partners


The government will legislate to allow Marriage Allowance claims on behalf of deceased spouses and civil partners, and for the claim to be backdated for up to four years where the entitlement conditions are met. The changes will have effect on and after 29 November 2017.


Investment tax reliefs

 













*For 2018/19 the annual limit is increased to £2m, provided that anything above £1m is invested in knowledge-intensive companies.


Individual Savings Accounts (ISAs) 


Individuals can invest in any combination of cash or stocks and shares up to the overall annual ISA subscription limit. However, a saver may only pay into a maximum of one Cash ISA, one Stocks and Shares ISA, one Innovative Finance ISA and one Lifetime ISA.


The Lifetime ISA, which came into effect on 6 April 2017, is available to adults aged between 18 and 40 to save towards retirement or for a first home in the UK worth up to £450,000. Those eligible can deposit up to £4,000 each tax year and will receive a 25% bonus from the government on savings put into the account before their 50th birthday. Various rules and restrictions apply.


The ISA subscription limit for 2018/19 will remain unchanged at £20,000, of which £4,000 can be saved into a Lifetime ISA.


The annual subscription limit for Junior ISAs and Child Trust Funds for the tax year 2018/19 will be uprated in line with CPI from £4,128 to £4,260.


Pensions Lifetime Allowance (LTA)


The LTA represents the maximum amount that an individual can save into their pension pot and still benefit from tax relief at their marginal rate.


The LTA will increase in line with CPI, rising to £1,030,000 for the tax year 2018/19.


Value Added Tax


The rates for 2018/19 are as follows:

















The VAT registration and deregistration thresholds will not be uprated for a period of two years. The two year period ends on 31 March 2020.


Online VAT fraud


The government will legislate to extend HMRC’s powers to hold online marketplaces jointly and severally liable for the unpaid VAT of overseas traders on their platforms to include all (including UK) traders.


Online marketplaces will be required to ensure that VAT numbers displayed for businesses operating on their website are valid. They will also be required to display a valid VAT number when they are provided with one by a business operating on their platform.


National Insurance Contributions (NICs)



-



















*No NICs are actually payable but notional Class 1 NIC is deemed to have been paid; this protects contributory benefit entitlement.

**Over State Pension age, the employee contribution is generally nil.



















*Exemption applies if state pension age was reached by 6 April 2018.


In a change to the date originally announced, Class 2 NICs are set to be abolished from April 2019.

As previously announced, the government will no longer proceed with an increase to the main rate of Class 4 NICs from 9% to 10% in April 2018, and to 11% in April 2019.


2017/18

£100,000

2018/19

£125,000

2019/20

£150,000

2020/21

£175,000

Financial Year from

1 April 2017

1 April 2018

1 April 2019

Corporation tax rate

19%

19%

19%


2018/19

Total taxable income and gains


- up to higher rate threshold

10%

- from higher rate threshold

20%

Trust rate

20%


Apprentices*

16 and 17

18-20

21-24

25 and over

National Minimum Wage

£3.70

£4.20

£5.90

£7.38

-

National Living Wage

-

-


-

£7.83




2018/19


2017/18


Basic rate band – income up to

†£34,500

†£33,500

Starting rate for savings income

*0%

*0%

Basic rate

20%

20%

Dividend ordinary rate

**7.5%

**7.5%

Higher rate - income between

†£34,501 - £150,000

†£33,501 - £150,000

Higher rate

40%

40%

Dividend upper rate

**32.5%

**32.5%

Additional rate – income over

£150,000

£150,000

Additional rate

45%

45%

Dividend additional rate

**38.1%

**38.1%

Starting rate limit (savings income)

*£5,000

*£5,000


2018/19


2017/18


Personal Allowance (PA)


£11,850

£11,500

Married couple's allowance (MCA) (relief given at 10%)


Either partner born before 6 April 1935

*£8,695

*£8,445

Transferable Tax Allowance ('Marriage Allowance')

 

For certain married couples (relief given at 20%)

£1,185

£1,150


2018/19


2017/18


Venture Capital Trust up to

£200,000

£200,000

Enterprise Investment Scheme up to*

£1,000,000

£1,000,000

Seed Enterprise Investment Scheme up to

£100,000

£100,000

Social Investment Tax Relief up to

£1,000,000

£1,000,000


From


1 April 2018

Standard rate

20%

VAT fraction

1/6

Reduced Rate

5%

Turnover Limits


Registration - last 12 months or next 30 days over

£85,000

Deregistration - next 12 months under

£83,000

Annual and Cash Accounting Schemes

£1,350,000

Flat Rate Scheme

£150,000

2018/19



Employee

(primary)


Employer

(secondary)

Class 1


Payable on weekly earnings of:



Below £116 (lower earnings limit)

Nil

-

£116 - £162 (primary threshold)

*0%

-

Up to £162 (secondary threshold)

-

Nil

Above £162

-

13.8%

£162.01 - £892 (upper earnings limit)

**12%

-

  £162.01 - £892 (under 21s and apprentices under 25)

-

0%

Above £892

**2%

-

Employment Allowance



Up to £3,000 (per year)

Class 1A

On relevant benefits

13.8%

Class 2

Self employed


Small profits threshold

£2.95 per week


£6,205 per annum


Class 3

Voluntary

£14.65 per week

Class 4

Self employed on annual profits


£8,424 - £46,350


Excess over £46,350




*9%


*2%

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