Autumn Budget 2017 – Summary

Philip Hammond presented the 2017 Autumn Budget on Wednesday 22 November 2017.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2017-18 tax year and beyond.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

Main Budget proposals from the Autumn Budget

  • Indexation allowance for capital gains in companies will be frozen for disposals after 1 January 2018.
  • The VAT registration threshold will be frozen at £85,000 for two years and there will be a consultation on its future.
  • From today, there will be no stamp duty for first time buyers on the first £300,000 of a property bought for £500,000 or less.
  • The income tax personal allowance for 2018-9 will be £11,850 and the 40% threshold will be £46,350.

A reminder of key changes announced previously

  • The nil rate dividend allowance of £5,000 will be reduced to £2,000 from April 2018.
  • It was announced in the Spring Budget that National Insurance rates for the self employed (Class 4) were going increase from 9% to 10% from 6 April 2018 and then to 11% from 6 April 2019, however the Chancellor later did a u-turn on this and there will be no increase.
  • Class 2 National Insurance will now be abolished from 6 April 2019.
  • Corporation tax rates will fall to 17% from 1 April 2020 (Current: 19%).
  • There will be £1,000 allowances for trading and property income from 5 April 2017.
  • The changes to interest deduction rules for landlords start from April 2017, being phased in over a 4 year period.  Relief for interest will be limited to basic rate tax.
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Autumn Budget 2017 – Corporate and Business Tax

Corporation tax rates

As announced previously, corporation tax will fall to 19% from 1 April 2017 and then to 17% from 1 April 2020.  These rates were confirmed in Spring Budget 2017.

Corporate Capital Gains tax

Currently, companies are allowed an allowance for inflation (‘indexation allowance’) when they sell capital assets, based on the increase in the retail price index over the period of ownership of the asset.

The Chancellor announced that this indexation allowance will be frozen for disposals after 1 January 2018 at the amount that would be due based on the Retail Price Index for December 2017.

This means that companies will pay more tax on their capital gains.

National Insurance (NI) for the self employed

Class 4 National Insurance (paid as a percentage of profits) were due increase from 9% to 10% from April 2018 and then 11% from April 2019 following the Spring Budget, but the Chancellor did a u-turn shortly after the Budget and the increase will not go ahead.

Although he confirmed in the Spring Budget that Class 2 National Insurance (paid at a weekly flat rate by the self employed) would be abolished from 6 April 2018 , it was announced earlier this month that the abolition will now not take place until 6 April 2019.

Class 2 NI will be £2.95 per week for 2018-9  and will continue to be collected via self assessment tax returns.

New allowances for property and trading income

It was announced in the Spring Budget that, from April 2017, two new tax-free £1,000 allowances would come into effect – one for selling goods or providing services, and one income from property.

The legislation for this is currently still working its way through parliament (having been delayed by the General Election), but will apply retrospectively from April 2017 (assuming it is passed).

The new allowances will mean that individuals with property income below £1,000 or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance from their gross income.

Dividend tax

Again, announced in the Spring Budget – the nil rate dividend allowance will be reduced from £5,000 to £2,000 from April 2018.

The legislation for this is currently still working its way through parliament (having been delayed by the General Election).

A reminder that the new rates of tax on dividend income above the allowance of 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers started from 6 April 2016, so will start to hit those with dividends in excess of £5,000 in tax returns they will be completing soon for 2016-17.  If you have dividends in excess of £5,000 and are not already completing a tax return, you will need to ask HMRC to issue one.

Making Tax Digital

Making Tax Digital (MTD) has been going through consultations over the past year or so.

Under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.

The requirements were due to come into effect from April 2018 for unincorporated businesses and landlords with turnover (ie income before costs) of £10,000 or more, but the Chancellor announced in the Spring Budget that implementation will be delayed until April 2019 for those with turnover under the VAT threshold.

A further delay was announced in July 2017 such that the start date is delayed until April 2019 for businesses with a turnover above the VAT threshold and at least April 2020 for other businesses.

 

Autumn Budget 2017- Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget.

Allowances and tax bands

The personal allowance for 2018-9 will be £11,850, with the income on which you start to pay tax at 40% increasing to £46,350.

This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1185L taking effect in April 2018.

Other allowance levels can be found on the HMRC web site here.

ISAs

The ISA limit will remain at £20,000 for 2017-8.

The Lifetime ISA

A reminder that the ‘Lifetime ISA’ was introduced from 6 April 2017.  This allow adults under 4o to open a Lifetime ISA and pay in up to £4,000 per annum.  The government will add a 25% bonus to the ISA, so, up to £1,000.

Contributions can continue up to the age of 50.

Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.

Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government, and an additional 5% charge will be applied if the withdrawal is not for the purchase of your first home.

Tax-free childcare

The tax-free childcare scheme first announced in the 2013 budget is now being be rolled out, with it currently being available for children born on or after 1 April 2013 and disabled children.

Parents of older children can sign up to receive an email when the scheme is extended to children of their age here.

The scheme is be worth up to £2,000 per child (under the age of 12) each year (£4,000 for disabled children).

The existing scheme Employer-Supported Childcare will remain open to new entrants until April 2018 to support the transition between the schemes

Tax Credits

There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.

There were no changes to tax credits announced in the Budget 2017.   The rates of payments, can be found at here,  have increased slightly for disabled workers and children, but remain largely the same.

Child Benefit

There were no changes announced to child benefit in Budget.  Rates for 2018-9 will remain at £20.70 for the first child and £13.70 for subsequent children.

Don’t forget that there are special rules for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

Landlords

A reminder of the interest restrictions announced in the Summer Budget 2015 that started to come in to effect from April 2017:

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

  • in 2017-8 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
  • in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
  • in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
  • from 2020-1 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

 

Rent a room

Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property remains at £7,500 per year.

It was announced that there will be a consultation on the future of rent a room relief.

Making Tax Digital

Making Tax Digital (MTD) has been going through consultations over the past year or so.

Under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.

The requirements were due to come into effect from April 2018 for unincorporated businesses and landlords with turnover (ie income before costs) of £10,000 or more, but the Chancellor announced in the Spring Budget that implementation will be delayed until April 2019 for those with turnover under the VAT threshold.

A further delay was announced in July 2017 such that the start date is delayed until April 2019 for businesses with a turnover above the VAT threshold and at least April 2020 for other businesses.

 

Autumn Budget 2017 – Employment Issues

National Insurance Contributions (NI)

No changes to the rates of income based NI contributions on employment were announced in the Budget.

The date for the abolition of Class 2 NI (paid at a weekly flat rate by the self employed) was confirmed as 6 April 2019.  It will be £2.95 per week for 2018-9  and will continue to be collected via self assessment tax returns.

The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) will increase to £162.  This means that company directors paying themselves the national insurance threshold can have an increase in pay from April 2018 to £702 per month (from £680.33).

The upper earnings (or profits for the self employed) limit is £46,350 (£892 per week), aligned with the point at which 40% tax becomes payable.

Details of the rates of NI can be found here.

Employer’s Employment Allowance

The employment allowance will remain at £3,000 per annum for 2018-9

Minimum wage

The Minimum Wage rates from 1 April 2017 will be:

  • 25+ (National Living Wage) – increases from £7.50 to £7.85 per hour
  • 21 to 24 year olds increases from £7.05 to £7.38 per hour
  • 18 to 20 year olds increases from £5.60 to £5.90 per hour
  • 16 to 17 year olds increases from £4.05 to £4.20 per hour
  • apprentices increases from £3.50 to £3.70 per hour

 

Autumn Budget 2017 – Pensions

The lifetime allowance will increase in line with the Consumer Prices index to £1,030,000 for the 2018-9 tax year.

The annual allowance remains at £40,000.

There is a reduced annual allowance for those who have started to draw from a pension. This will be £4,000 from 6 April 2017 (previously £10,000) although the legislation for this is currently still working its way through parliament (having been delayed by the General Election).

Autumn Budget 2017 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits have been frozen for a period of two years at £85,000 and £83,000 respectively.

The UK has one of the highest VAT registration thresholds in Europe and there will be a consultation on ‘the design of the VAT threshold’ during the two year period ending March 2020.

VAT fraud in labour provision in the construction sector

The Chancellor announced that the government will publish a technical consultation on draft legislation for a VAT reverse charge in spring 2018. A final draft of the legislation and guidance will be published by October 2018.

The measure shifts responsibility for paying the VAT along the supply chain to remove the opportunity for it to be stolen. The changes will have effect on and after 1 October 2019.

VAT: split payment for online payments

The government will publish on 1 December 2017 a response document to the call for evidence to develop a split payment model that was launched after Spring Budget 2017.

A split payment model would allow VAT to be extracted from online payments in real time. The responses to the call for evidence were broadly positive about the concept but highlighted the complexities of implementation. The response document will set out plans for further engagement with external stakeholders, in preparation for a full consultation in 2018.

Autumn Budget 2017 – Capital Gains Tax

The capital gains tax (CGT) annual exempt amount will increase to £11,700 from 6 April 2018 (2017-8:£11,300) for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees will be £5,850.

For capital gains above the annual exempt amount the CGT rate for basic and higher rate tax payers will remain at 10 and 20 per cent respectively.

Gains on residential properties (not qualifying as your personal private residence) and carried interest (the share of profits or gains that is paid to asset managers) will remain at the 18 and 28 per cent for basic and higher rate tax payers respectively.

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

Autumn Budget 2017 – Motoring Costs

Fuel prices

Fuel duty was frozen again.

Vehicle Excise Duty (VED)

VED (Road Tax) will increase in line with the Retail Price Index from 1 April 2018.

There will be a supplement for new diesel cars registered after 1 April 2018 that do not meed the Real Driving Emissions 2 (RDE2) standard.

Business mileage payments

HMRC sets an approved mileage allowance payment (AMAP) rate. This is the rate at which employers may reimburse business mileage tax-free.

The AMAP rate will remain at 45p for the first 10,000 miles per annum and 25p per mile for any excess.

Company Cars

Car benefit

 Car benefits are based on a percentage of the list price of the car.  The percentage depends on the CO2 emissions of the vehicle.
Rates through to 2020-21 were confirmed/announced in the Budget and can be found here.  It was also announced that the diesel supplement will increase from 3% to 4% from April 2018 for vehicles that do not meet the RDE2 standard.  Cars that do meed the RDE2 standard will have the diesel supplement removed.
The maximum charge will remain at 37%.
Van benefit
 The van benefit in kind charge will increased from £3,230 to £3,350 for 2018-9.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £23,400 (from £22,600) with effect from 6 April 2018.

The van fuel benefit charge multiplier will be £633 (increased from £610) for 2018-9.

Autumn Budget 2017 – Other Matters

Inheritance tax (IHT)

There were no changes to inheritance tax.

The residence nil rate band will increase from £100,000 to £125,000 for 2018-9 as previously announced.

Stamp Duty Land Tax (SDLT)

There will be a new relief  that will permanently raise the price at which a property becomes liable for SDLT to £300,000 for first-time buyers. Those claiming the relief will pay no SDLT on the first £300,000 of the consideration and 5% on any remainder. No relief will be available where the total consideration is more than £500,000.

The relief will apply to transactions with an effective date on or after 22 November 2017.

Single-use plastics waste

There will be a consultation in early 2018 on how the tax system or charges could help to reduce the amount of single-use plastic waste.

Spring Budget 2017 – Summary

Philip Hammond presented the 2017 Spring Budget on Wednesday 8 March 2017.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2017-18 tax year and beyond.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

Main Budget proposals

  • National insurance rates for the self employed (Class 4) will increase from 9% to 10% from 6 April 2018 and then to 11% from 6 April 2019.
  • There will be a consultation on extending ‘parental benefits’ to the self employed.
  • The nil rate dividend allowance of £5,000 will be reduced to £2,000 from April 2018.
  • The new NS&I bond announced previously will be available for 12 months from April 2017.  It will be a three year bond with an interest rate of 2.2% for up to £3,000.
  • There will be transitional reliefs for small business adversely affected by the Business Rates review and a £1,000 discount for pubs with a rateable value of less than £100,000.
  • Making Tax Digital will be delayed until April 2019 for the self employed with turnover less than the VAT threshold.

Note: Personal allowances and tax thresholds for a year ahead (ie for 2018-19) have been announced in past Budgets.  There were no such announcements in the Spring 2017 Budget since there will be another Budget in the Autumn.  From then on, there will be an Autumn Budget with a Spring Statement.

A reminder of key changes announced previously

  • The personal allowance for tax will increase to £11,500 from 5 April 2017.
  • The higher rate tax threshold will be £45,000 for 2017-8.
  • Class 2 National Insurance will be abolished from 6 April 2018.
  • There will be a new ‘Lifetime ISA’ to help adults under the age of 40 save towards buying their first home or for their retirement.
  • Capital gains tax rates will fall to 10% for basic rate tax payers and 20% for higher rate tax payers – but the old rates of 18 and 28% will continue to apply for the sale of residential property not qualifying as your personal private residence.
  • Corporation tax rates will fall to 17% from 1 April 2020 (Current: 20%, 1 April 2017: 19%).
  • There will be new £1,000 allowances for trading and property income from 5 April 2017.
  • The changes to interest deduction rules for landlords start from April 2017, being phased in over a 4 year period.  Relief for interest will be limited to basic rate tax.