The Chancellor Philip Hammond presented the last Spring Budget on Wednesday 8 March 2017.
In his speech the Chancellor was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals.
'But a fair system will also ensure fairness between individuals, so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax.'
In the Budget speech the Chancellor announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. Also the Budget included changes to NICs and the Dividend Allowance.
In December and January the government issued a number of the clauses, in draft, of Finance Bill 2017 together with updates on consultations.
The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2017 and some take effect at a later date.
Our summary focuses on the issues likely to affect you, your family and your business. To help you decipher what was said we have included our own comments. If you have any questions please do not hesitate to contact us for advice.
Main Budget tax proposals
Our summary concentrates on the tax measures which include:
- increases to the Class 4 National Insurance rates
- a reduction in the Dividend Allowance
- changes to the timing of Making Tax Digital for smaller businesses.
Previously announced measures include:
- increases to the personal allowance and basic rate band (a decreased band for Scottish residents)
- the introduction of the Apprenticeship Levy
- changes to corporation tax loss relief
- the introduction of an additional inheritance tax residence nil rate band
- changes for non-UK domiciled individuals.
Our Budget 2017 summary focuses on the issues likely to affect you, your family and your business. To help you decipher what was announced we have included our own comments. If you have any questions please do not hesitate to contact us for advice.
WHAT DOES THE BUDGET MEAN FOR YOU?
BUDGET MARCH 2017 – key points
Today we saw these new announcements which come into effect from April 2017:
These measures have been announced previously but the Chancellor has confirmed that they will be effective from April 2017:
- If your business has been affected business rates revaluation then you will now get some relief
- If as a self employed business you use the simplified ‘cash basis’ of accounting for VAT then the registration threshold has been increased to £150,000 for 2017/18, and extended to landlords.
New announcements which will be implemented in April 2018:
- The tax-free personal allowance will be £11,500, and the threshold for 40% tax will be £45,000.
- National Insurance thresholds for employers and employees made consistent at £157 per week.
- Tax and National Insurance advantages of ‘salary sacrifice’ schemes are withdrawn, apart from arrangements involving pensions, childcare, Cycle to Work and ultra-low emission cars.
- New £1,000 tax-free allowances for trading and property income apply for 2017/18 tax year.
- New tax-free childcare arrangements to be introduced on a trial basis and rolled out to all taxpayers over the coming year.
- Tax advantages of foreign domiciled status will be lost for those resident in the UK for 15 of the last 20 years, and UK property held by a foreign domiciled individual through offshore structures becomes chargeable to Inheritance Tax.
- ISA investment limit rises from £15,240 to £20,000 per year, of which £4,000 can be in the new ‘lifetime ISA’.
- Public sector employers become responsible for tax due from individuals working for them through personal service companies and similar arrangements where there is an underlying employment relationship. This has a big impact if you are a contractor working in the public sector.
- Limit on pension contributions for those who have already made a flexible income drawdown from a money purchase pension scheme will fall from £10,000 per year to £4,000 per year. Limit for those who have not made such a drawdown remains £40,000.
- Main rate of Corporation Tax falls to 19% from 1 April 2017.
- Benefit of VAT Flat Rate Scheme almost completely withdrawn 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. The new rate applicable if your business falls in this category is currently 16.5%
- Reforms to restrict interest relief and amend the rules for brought forward losses for corporation tax.
- From 1 June 2017, Insurance Premium Tax rises from 10% to 12%.
It was confirmed that from April 2018:
- ‘Making Tax Digital’ reforms require businesses and landlords with turnover above the VAT registration threshold (£85,000 for 2017/18) to make quarterly online reports updating their tax position; businesses below the threshold will not be affected until April 2019 (when turnover threshold will be £10,000).
- Class 4 National Insurance Contributions rate on profits between lower threshold and upper limit (for 2017/18: £8,164 to £45,000) rises from 9% to 10% (and from 10% to 11% in April 2019).
- Nil rate band for dividend income, introduced at £5,000 for tax year 2016/17, reduced to £2,000 for 2018/19. If you currently receive income by salary and dividend this will impact on personal tax payable which will increase
- Class 2 National Insurance Contributions for self-employed abolished.
If your business will be affected by any of the above changes please contact us
to discuss further so that we can provide you will specific advice.
HMRC have confirmed in the latest Employer Bulletin that changes will be made to the verification of subcontractors in the construction Industry Scheme (CIS) from 6 April 2017.
From 6 April 2017, contractors must use an approved method of electronic communication to verify their subcontractors. So from 6 April 2017 HMRC will no longer accept any telephone calls to verify subcontractors and from then contractors must verify subcontractors using:
- the free HMRC CIS online service, or
- commercial CIS software.
This change is one of a series made to CIS to increase HMRC efficiency and accuracy, and to reduce administration. HMRC are also reminding contractors that they have also introduced additional features of the online system including the ability to amend returns online, and the addition of an online message/alert service.
Contact us for help with CIS issues.
Internet link: Employer Bulletin
In the latest Employer Bulletin HMRC advise those providing services to a public sector client through their own limited company to ensure they are ready for the new rules which take effect from 6 April 2017.
The new rules for off payroll working, commonly referred to as IR35 or the Intermediaries legislation, take effect from 6 April 2017.
These changes mean individuals working through their intermediary in the public sector will no longer be responsible for deciding whether the intermediaries' legislation applies and then paying the appropriate tax and National Insurance contributions (NICs). This responsibility will instead move to the public authority client, agency, or third party that pays the worker's intermediary, and they will also now become responsible for making sure that, where the rules apply, the relevant income tax and NICs are deducted and reported through PAYE in real time.
The public authority client is required to tell any agency or third party its view as to whether the rules apply. HMRC have been consulting on these new rules and the legislation has yet to be finalised.
HMRC confirm that 'work is continuing on the development of the new Employment Status Service, and the online tool should be available for use in March. We have launched an off-payroll working in the public sector page on GOV.UK where you can find guidance for fee-payers, PSCs and public authorities to use, and links to material such as the technical note'.
If you have concerns in this area please contact us.
Internet links: Employer Bulletin Technical note
Hundreds of thousands of savers have cashed in £9.2 billion from their pension pots since pension freedoms were introduced in April 2015.
In April 2015, the government introduced significant pension reforms giving people the ability to access their pensions savings how and when they want. Over 1.5 million payments have been made using pension freedoms, with 162,000 people accessing £1.56 billion flexibly from their pension pots over the last three months, according to HMRC figures.
The Economic Secretary to the Treasury, Simon Kirby, said:
'Giving people freedom over what they do with their hard-earned savings, whether it's buying an annuity or taking a cash lump sum, is the right thing to do. These figures show that people continue to take advantage of the choices on offer: choices only made available since the government's landmark pension freedoms were introduced in April 2015.
We are working with our partners, including Pension Wise, the regulators and pension firms, so that savers have the support they need to understand the options available to them.
The statistics show that in the first year of these new rules being available, more than 232,000 people have accessed £4.3 billion flexibly from their pension pots.'
Internet links: GOV.UK news Statistics