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.
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Spring 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.

National Insurance (NI) for the self employed

Class 4 National Insurance (paid as a percentage of profits) will increase from 9% to 10% from April 2018 and then 11% from April 2019.

The Chancellor’s justification for this increase is that the benefits of paying national insurance for the self employed are becoming more closely aligned with the benefits for employees, in terms of pensions.

The main difference in benefits between employed (class 1) and self employed (class 4) national insurance now relates to ‘parental benefits’ – ie maternity, paternity and adoption pay, and the Chancellor announced a consultation on whether there is a case for greater parity on these between the employed and self employed.

He also confirmed that Class 2 National Insurance (paid at a weekly flat rate by the self employed) will be abolished from 6 April 2018.

New allowances for property and trading income

From April 2017, two new tax-free £1,000 allowances come into effect – one for selling goods or providing services, and one income from property.

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

The nil rate dividend allowance will be reduced from £5,000 to £2,000 from April 2018.

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.

Business rates

There has been a business rates review, which has left many businesses with increased rateable values and significant increases in their rates bills.  The Chancellor has guaranteed that no business coming out of the small business rates relief will see their rates bill go up by more than £50 per month.  Local authorities will also have a fund to help those in real hardship.

Good news for pubs – they will receive a £1,000 discount on their rates bill for 2017 if they have a rateable value of less than £100,000.

As previously announced, from 1 April 2017 the small business rates relief will double from 50% to 100% and the threshold will increase from £6,000 to £12,000.

This means that businesses occupying property with a rateable value of £12,000 and below pay no business rates.  Those with a rateable value of between £12,000 and £15,000 will receive tapered relief.

Making Tax Digital

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

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 Budget that implementation will be delayed until April 2019 for those with turnover under the VAT threshold.

So, the timetable for MTD now stands as:

April 2018 – unincorporated business and landlords with turnover over the VAT threshold
April 2019 – unincorporated business and landlords with turnover over 10,000 but below the VAT threshold
April 2019 – VAT registered businesses
April 2020 – limited companies

Businesses and landlords with turnover less than £10,000 are exempt from the requirements (presumably unless they are registered for VAT).

Spring Budget 2017- Personal Tax

Tax rates

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

Allowances and tax bands

The tax allowances and bands for 2017-8 had been announced previously, as a reminder: the personal allowance will be £11,500, with the income on which you start to pay tax at 40% increasing to £45,000.

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 1105L taking effect in April 2016.

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

The Chancellor did not announce the allowances for 2017-8 since there will be another Budget in the Autumn.

Marriage Allowance

A reminder that the Marriage Allowance started from 6 April 2015.  This allows a spouse or civil partner to transfer £1,110 (£1,150 for 2017-8) of their personal allowance to their spouse (where both were born after 5 April 1935).  Neither party can be higher or additional rate tax payers.

The Marriage Allowance is set at 10% of the personal allowance.

Savings

A reminder that the personal savings allowance started from 6 April 2016.  This removed tax on up to £1,000 of savings income for basic rate tax payers and up to £500 for higher rate tax payers.  Additional rate tax payers do not receive an allowance.

As tax will no longer be deducted at source on interest paid by banks and building societies, you will have to let HMRC know if your interest income is more than the allowance.

ISAs

The ISA limit increases from £15,240 to £20,000 from 6 April 2017.

The Lifetime ISA

A new ‘Lifetime ISA’ will be introduced from 6 April 2017.  This will 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 will be rolled out from April 2017 with all parents being eligible by the end of 2017.

The scheme will 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 2017-8 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 some announcements from the Summer Budget 2015 that will affect tax returns for 2016-7 or come in to effect from April 2017:

Tax relief on interest

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.

Wear and tear allowance

From April 2016, the Wear and Tear Allowance (a deduction of 10% of the rent for landlords of furnished properties) was replaced with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings, so don’t forget this when you fill in your 2016-7 tax returns.

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, increased from £4,250 to £7,500 per year from 6 April 2016.

Making Tax Digital

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

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 Budget that implementation will be delayed until April 2019 for those with turnover under the VAT threshold.

So, the timetable for MTD now stands as:

April 2018 – unincorporated business and landlords with turnover over the VAT threshold
April 2019 – unincorporated business and landlords with turnover over 10,000 but below the VAT threshold
April 2019 – VAT registered businesses
April 2020 – limited companies

Businesses and landlords with turnover less than £10,000 are exempt from the requirements (presumably unless they are registered for VAT).

Spring 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.

Class 4 NI (paid as a percentage of profits for the self employed) will increase from 9% to 10% from April 2018 and then 11% from April 2019.

The Chancellor’s justification for this increase is that the benefits of paying national insurance for the self employed are becoming more closely aligned with the benefits for employees, in terms of pensions.

The main difference in benefits between employed (class 1) and self employed (class 4) national insurance now relates to ‘parental benefits’ – ie maternity, paternity and adoption pay, and the Chancellor announced a consultation on whether there is a case for greater parity on these between the employed and self employed.

He also confirmed that Class 2 NI (paid at a weekly flat rate by the self employed) will be abolished from 6 April 2018.  It will be £2.85 per week for 2017-8 and will 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 £157 and will remain aligned going forwards.

The upper earnings (or profits for the self employed) limit is £45,000 (£866 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 2017-8.

Minimum wage

The National Minimum Wage historically increased on 1 October every year.  This will be brought into line with the Living Wage, so both rates are amended in April from 2017.

The Minimum Wage rates from 1 April 2017 will be:

  • 25+ (National Living Wage) – increases from £7.20 to £7.50 per hour
  • 21 to 24 year olds increases from £6.95 to £7.02 per hour
  • 18 to 20 year olds increases from £5.55 to £5.60 per hour
  • 16 to 17 year olds increases from £4.00 to £4.05 per hour
  • apprentices increases from £3.40 to £3.50 per hour

 

Changes to Benefits in Kind

The small earnings threshold of £8,500 that existed for benefits in kind was abolished for employees from 6 April 2016.  This means that benefits in kind must be reported on P11Ds due for 2016-7, and tax and employer’s national insurance paid, for all benefits provided to employees, not just those earning over £8,500 per annum.

Note: The exemption never applied for directors, so those paying themselves the lower NI limit, which is less than £8,500, already have to report and pay tax on any benefits

 

Spring Budget 2017 – Pensions

The lifetime allowance remains at £1m for 2017-8.

The annual allowance remains at £40,000.

There is a reduced annual allowance for those who have started to draw from a pension.  This is currently £10,000 but will reduce to £4,000 from 6 April 2017.

Auto Enrolment

Not a Budget announcement, but I thought it worth a mention.

Auto enrolment staging dates are now coming thick and fast for small employers, so make sure that you do not miss yours.

Very briefly, all employers have to consider auto enrolment unless the only people on the payroll are directors with no employment contracts.

If you have an employee earning in excess of £10,000 you MUST enrol them in a pension scheme, whether they want to be enrolled or not.  They can then make the choice and unenrol themselves, but they CANNOT choose not to be enrolled in the first place.

For those with employees earning less than £10,000, you still have to take action and write to your employees to tell them that they can ask to join a scheme.  If they opt in, you then have to enrol them, and make employer contributions if their earnings are over the lower national insurance threshold (£490 per month, £113 per week).

Spring Budget 2017 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits have been increased with effect from 1 April 2017 to £85,000 and £83,000 respectively.

VAT Flat Rate Scheme

A reminder of the changes to the VAT flat rate scheme announced in the Autumn Statement that take effect from 1 April.

Small businesses can join the VAT Flat Rate Scheme and pay a fixed rate of VAT rather than having to calculate the VAT on sales and purchases separately and pay over the difference.

Some of VAT rates under the flat rate scheme are quite generous for businesses that have little in the way of VATable purchases of goods.  For these ‘limited cost traders’ (with cost of goods less than 2% of their turnover, or £1,000 per annum if lower), a new flat rate of 16.5% will be introduced from 1 April 2017.

There are anti-avoidance provisions to stop you buying, say £250 of stationery as goods to resell since only goods purchased for the purposes of the main trade will be allowed as qualifying goods.

Most small service business will be affected, and many will need to revert to the standard VAT scheme or consider de-registering for VAT.

HMRC have published an online tool for businesses to use to determine whether they need to use the new rate here.

Spring Budget 2017 – Capital Gains Tax

The capital gains tax (CGT) annual exempt amount will increase to £11,300 from 6 April 2017 (2016-7:£11,100) for 2016-7 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees is £5,650.

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.

Spring Budget 2017 – Motoring Costs

Fuel prices

Fuel duty was frozen again.

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 2019-20 were announced in the Budget in 2016.
As usual, there will be increase to the percentages, so that a higher percentage is payable for each CO2 band each year.  The highest rate remains at 37%.
For example, a zero emission car has a benefit rate of 7% for 2016-7.  This increases to  9% for 2017-8, 13% for 2018-9 and 16% for 2019-20.
Van benefit

The van benefit in kind charge will increased from £3,170 to £3,230 for 2017-8. The van benefit for zero emission vans will be 20% of the charge for conventionally fuelled vans for 2017-8.  This will increase to 40% for 2018-9, 60% in 2019-20, 80% in 2010-1 and 90% 9on 2021-2.  From 2022-3, the charge will be the same at that for conventionally fuelled vans.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £22,600 (from £22,200) with effect from 6 April 2017.

The van fuel benefit charge multiplier will be £610 (increased from £598) for 2017-8.

Spring Budget 2017 – Other Matters

Inheritance tax (IHT)

There was no change to the Inheritance tax threshold of £325,000, which was previously frozen until 2020-1.

The new residence nil rate band also starts to be phased in from 6 April 2017. This additional nil-rate band will be introduced for when a residence is passed on death to a direct descendant. This will be £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.

Sugar Levy

The levy rate for added sugar drinks with a total sugar content of 5 grams or more per 100 millilitres will be set at 18 pence per litre, and those with 8 grams or more per 100 millilitres will be set at 24 pence per litre.

Insurance Premium Tax (IPT)

IPT will increase from 10% to 12% from 1 June 2017.

Autumn Statement 2016

Philip Hammond, the new Chancellor of the Exchequer, presented his first (and last – see the note below) Autumn Statement on 23 November 2016.

The key announcements affecting personal tax and small businesses are:

Timing of Future Budgets

Currently, the Government’s annual Budget Statement is made in March, with an update in the Autumn.

The Budget in March 2017 will be held as usual, but from then onwards, the Budget will be held in the Autumn, with an update in the spring.  This will give time for announcements made in the Budget to be implemented from the start of the new tax year in the following April, and means that this will be the last ‘Autumn Statement’ as we know it.

Tax and National Insurance Thresholds for 2017-8

The tax and national insurance thresholds and other limits such as ISA contribution thresholds for 2017-8 were set/confirmed.  You can find them here.

The lower national insurance thresholds for employees and employers will be aligned.  Currently, employees start to pay national insurance on earnings in excess of  £155 per week and employers start paying from £156 per week.  From 2017-8, these thresholds will be aligned at £157 per week.  Interestingly (to a rather sad accountant anyway!), they became aligned in 2014-5, but one was updated by CPI and one by RPI and hence diverged again.  Both will in future be updated by CPI to keep them aligned.

Minimum Wage

The living wage (minimum wage for over 25s) will increase from £7.20 to £7.50 from 1 April 2017.

As announced in the Budget in March, future changes to the Minimum Wage will move from October to April.  As a result, minimum wage rates will also increase again in April, and will then be increased annually in April going forwards.

VAT Flat Rate Scheme

Small businesses can join the VAT Flat Rate Scheme and pay a fixed rate of VAT rather than having to calculate the VAT on sales and purchases separately and pay over the difference.

Some of VAT rates under the flat rate scheme are quite generous for businesses that have little in the way of VATable purchases.  For these ‘limited cost traders’ (with cost of goods less than 2% of their turnover, or £1,000 per annum if lower), a new flat rate of 16.5% will be introduced from 1 April 2017.  Provision has already been made to prevent invoices being issued before 1 April for work after 1 April to avoid the increase in VAT for those businesses.

There will be an online tool for businesses to use to determine whether they need to use the new rate.

Insurance Premium Tax

Insurance Premium Tax will increase from 10% to 12% from 1 June 2017.

Letting Agents Fees

There will be a ban on letting agents charging fees to tenants when they sign a new tenancy agreement.

Letting agents will need to recover the lost revenue from somewhere, so I suspect landlords will again feel the impact of Government policy hitting their pockets.

National Savings Bond

There will be a new three year NS&I Investment Bond launched in Spring 2017.  The interest rate will be around 2.2% and the maximum investment will be £3,000.

Tax on Salary Sacrifice Arrangements

From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income.

In salary sacrifice schemes, employees exchange some of their salary for a non-cash benefit in kind (such as a mobile phone).  Both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all.

Pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt from the new rules and there will be transitional arrangements for schemes in place before April 2017.

Pension Contribution Allowances

The Money Purchase Annual Allowance will be reduced from £10,000 to £4,000.  This means that those who have withdrawn funds from their pension schemes will be able to pay less back in.

Normally, you can pay up to £40,000 into your money purchase pension fund each year and receive tax relief on the contributions (depending on other factors, such as your income and whether they are personal or employer contributions).  Once you reach 55, you can withdraw money from your pension scheme and receive 25% of it tax free.  Once you have withdrawn money from your fund, you are then restricted on the amount that you can pay in – the limit is reduced from £40,000 to £10,000 – this is the Money Purchase Annual Allowance.  From April 2017, you will only be able to pay £4,000, rather than the £10,000, into your pension fund each year if you have previously made a withdrawal from a fund.

The reason that the limit is reduced is to prevent taxpayers from ‘recycling’ contributions. For example, if you withdrew £10,000 from your pension scheme and paid it straight back in, a basic rate taxpayer would benefit by £500 and a higher rate by £1,000 (basically, the tax on the £2,500 tax free element), and would have a fresh £10,000 in their pension fund to repeat the exercise in the next tax year.

The new £4,000 limit will reduce the benefit to £200/£400, so would probably make it not worthwhile as a tax planning strategy.