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.
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.