The Chancellor Philip Hammond, announced his first and final Spring budget on 8th March. He announced that the current financial forecasts are more optimistic than the autumn budget. Overall, this budget was a lighter touch than previous.
The key announcements are summarised below.
There will be a rise in the personal allowance from April 2017 to £11,500 and the higher rate income tax threshold to £45,000 (Scotland: £43,000).
The proposed rise in Class 4 National Insurance Contributions (NICs) for self employed has since been postponed to allow for further consultation. This back turn is due to a manifesto commitment to maintain current levels. However. the Chancellor has confirmed that the abolishment of class 2 NICs for self employed from April 2018 will go ahead.
The Chancellor confirmed that the new dividend allowance (introduced in April 2016) will fall from £5,000 to £2,000 with effect from April 2018. This change will further reduce the benefits available from tax-motivated incorporation. The allowance, in which dividends will be taxed at 0%, is available to all taxpayers regardless of their level of income.
The threshold below which an unincorporated business can use the cash basis of accounting (rather than accruals) in computing their taxable profit is increased to £150,000 from April 2017. In addition, the legislation will now provide a simple list of disallowable expenditure to simplify the rules for allowable deductions within cash basis accounting. The cash basis will also be extended to property businesses from April 2017 onwards, and will be used as the default method unless the landlord opts out or income exceeds the threshold. Those with both a UK and an overseas property business will be able to use the cash basis, if they so choose, for either or for both. Similar exclusions will apply as for trades, including the operation of the £150,000 threshold.
There were no significant announcements regarding business taxes, however, the Chancellor confirmed that the corporation tax rate will be reduced to 17% from 2020.
The Chancellor announced that there will be changes with regards to business rates. The government has proposed new measures to include indexing rating valuations to reduce the likelihood of large changes in valuations every five years. Any business coming out of small business rate relief will have its rate increases capped to £50 per month. While pubs have been given a £1,000 (for 1 year) discount if rateable value is lower than £100,000.
The draft legislation with regards to off payroll working and the public sector (IR35) will be amended to make it optional for the agency/public sector body to take account of a worker’s expenses when calculating the tax due.
The government also remains concerned about productivity and investment and further changes have been announced to the research and development tax credits to encourage smaller companies to take up their allowance.
Land & Property
The Chancellor announced that there will be a consultation on rent a room relief to ensure it is better targeted to support long term letting.
Following on from the consultation on inheritance tax on UK residential property, the limit below which minor interests in UK property will be is regarded will be increased from 1% to 5% of an individual’s total property interests.
Trading & Property income Allowances
There will be 2 separate £1,000 allowances from April 2017 onwards for trading and property income. Where an individual’s gross receipts (i.e. before deducting expenses) do not exceed the £1,000 limit, there will be no charge to tax. The individual can, however, elect that this should not apply. Where gross receipts exceed that limit, the individual can elect to use an alternative method of calculating the taxable income. Under this method the charge to tax is on gross receipts less £1,000. These allowances will operate in a similar fashion to rent-a-room relief, albeit with a much lower threshold, and the intention would seem to be to ease the load on the tax administration machine by taking the very smallest businesses and lettings out of tax altogether.
The annual subscription limit for Individual Savings Accounts (ISAs) will be increased to £20,000 from April 2017.
From 1 April 2017:
From April 2018, where employers make payments on termination of employment, including all payments in lieu of notice (PILONs), they will be required to identify, using a new statutory formula, the amount of basic pay that the employee would have received if they had worked their full notice period. That amount will be treated as earnings and Class 1 national insurance contributions (NICs) will therefore be payable in respect of them. Those earnings will not qualify for the exemption from income tax on the first £30,000 of termination payments. Any payment over and above the amount identified as earnings will then be chargeable to income tax to the extent that it exceeds £30,000. Such excess will now be subject to employer Class 1A NICs as well.
With effect from April 2017, the use of salary sacrifice arrangements will be limited to:
All other benefits will be subject to income tax and Class 1A NIC, however, transitional arrangements will apply for one year to salary sacrifice arrangements in place before 6 April 2017.
Making tax digital
Making Tax Digital (MTD) was first announced back in the Autumn Statement of 2015 with an aim to eventually abolish the personal tax return. The legislation will require unincorporated businesses (including property businesses) to:
Businesses will be able to continue to use spreadsheets, where applicable, for record-keeping, but will need to combine the spreadsheet with software in order to produce the quarterly reports.
These requirements will take effect from 6 April 2018, however, businesses and landlords with turnover of less than £10,000 will be exempt.
In recent months there have been formal consultations between HMRC, and related bodies/industry. There have been concerns by many regarding the requirements, timings and costs to individuals and small businesses of MTD. It would appear that the Chancellor has listened to the concerns and is attempting to address some of them, with the announcement that the introduction of MTD for businesses that have a turnover below the VAT threshold (currently £83,000) will be deferred by a year, from 6 April 2018 to 6 April 2019. This will give smaller businesses much more time to plan and prepare for the changes.
Copyright © Collier-Marsh Accountancy