Spring Budget 2017 - a summary
In the last spring budget, the Chancellor resisted the urge to use some of a windfall provided by revised OBR growth to provide tax reliefs.
In the last spring budget, the Chancellor despite having been handed an unexpected boost via revised OBR growth and borrowing projections, resisted the urge to use some of that windfall to provide tax reliefs preferring to build up reserves for the challenges ahead.
With the move to having an Autumn budget, the announcements in relation to tax changes were largely focused on changes that are to come into effect from April 2018 and therefore not of an immediate impact. What is however becoming clear is that the disparity between the tax treatment of the employed vs self employed and the tax breaks of incorporation are being steadily eroded.
As expected, there were also a number of announcements on funding and investment in infrastructure, R&D, schools and the NHS, including the widely trailed introduction of a technical qualification (T Levels) and £2bn additional grant funding in social care in England.
Tax specilaist, Haydn Rogan, sets out a brief summary of the key tax measures.
Spring budget announcements
Income tax personal allowance
The personal allowance will, as previously announced, increase to £11,500 in 2017/18. The basic rate limit will as previously announced be increased to £33,500 in 2017/18 and the higher rate threshold will increase to £45,000.
Class 2 NICs (payable by self employed individuals) will be abolished from 2018 but the main rate of Class 4 NICs will be increased from 9% to 10% from April 2018 and increased a further 1% to 11% from April 2019. This measure is intended to reduce the gap between taxes paid by employees vs the self employed and reflect that the different NIC treatment is no longer justified by different benefit entitlements.
As previously announced the employer (secondary) and employee (primary) NI thresholds will be aligned from April 2017 with employees and employers paying NI on weekly earnings above £157 from April 2017 and the National Living Wage will increase from £7.20 to £7.50 per hour.
The £5K tax free dividend allowances for individuals will be reduced to £2K from April 2018. This is another measure that is ostensibly aimed at reducing the tax differential between the employed and self employed.
As previously announced from 1 April 2017, small business rate relief will be doubled from 50% to 100% and extended to properties with a maximum rateable value of up to £15,000. Businesses with a property that has a rateable value of £12K or less will receive 100% relief whilst businesses with a property that has a rateable value of between £12 - 15K will receive tapered relief. The threshold for the standard business rates multiplies will also be increased to £51K.
To alleviate the impact of the business rates revaluation in additional to the already announced £3.6bn transitional relief fund:
- Pubs with a rateable value of under £100K will receive a £1K discount (for this year only)
- Businesses who as a result of the revaluation lose Small Business Rate Relief will have their increases capped at £600 (£50 per month); and
- The government will provide £300m funding to local authorities in England to provide discretionary relief to those hardest hit.
The transitional relief fund operates by capping increases in some but does so by also capping the reductions that would otherwise have been to others. This creates geographical disparity and will hit businesses in many of the regions, who will find their anticipated rate reductions being cut to offset rate increases in London and parts of the South which have experienced higher growth in property values.
The proposed reduction in the filing and payment window from 30 days to 14 days is to be deferred until 2018-19.
Corporation tax rate
The corporation tax rate will be reduced to 19% from 1 April 2017 and is to be cut to 17% from April 2020.
Following the review of the current R&D tax credit system, it has been announced that there will be administrative changes to help simplify the claims process.
Making Tax Digital
A one year moratorium until April 2019 for unincorporated businesses and landlords with turnover below the VAT threshold before having to complete online returns and quarterly updates.
Previously announced measures (a reminder)
Substantial Shareholding Exemption (SSE)
Changes to the rules which provide an exemption from tax on the disposal by companies of shares in trading subsidiaries will come into effect from 1 April 2017. At the moment there are conditions relating to the shareholding, the investing company and the investee company, which include the requirement for the investing company to be a trading company or holding company of a trading group (both before and immediately after the sale). The current rules therefore prevent the relief applying on the disposal of the only or final trading company or where groups have substantial investment activities. The investing company requirements will be relaxed or removed.
The reforms to the corporation tax loss relief rules will come into effect from 1 April 2017. In summary any losses incurred on or after 1 April 2017 will be able to be carried forward and set off against any profits of the company in future periods not just those of the same trade or activity as at present and such losses will also be able to be surrendered to other companies in the same group in future accounting periods not just the accounting period in which they arise. Where the company (or group) have profits in excess of £5m only 50% of profits above £5m can be offset using carried forward losses. These changes will therefore benefit the vast majority of companies by allowing greater flexibility in the use of losses.
From April 2017 limits will be imposed on the UK tax deductions that groups can claim for UK interest expenses where the net interest expenses exceed £2m or are more than 30% of the UK taxable earnings or where the UK net interest to earnings ratio exceeds that of the worldwide group.
The tax benefits of salary sacrifice arrangements other than those relating to pensions, childcare, Cycle to Work and ultra-low emission cars will be removed from April 2017 (subject to a one year grace period for arrangements in place before April 2017 and 4 year grace period for arrangements in relation to cars, accommodation and school fees).
Registration and deregistration thresholds
VAT registration threshold will increase from £83,000 to £85,000 from 1 April 2017 and the deregistration threshold from £81,000 to £83,000.
Insurance Premium Tax (IPT)
Anti-forestalling provisions to be introduced in relation to the increase in the standard rate of IPT to 12% from 1 June 2017.
Off payroll working in the public sector
The previously announced changes that shift the burden of assessing whether people working for a public sector body via an intermediary are within IR35 to the public sector body are to come into effect from 6 April 2017. These changes are likely to have a huge practical and commercial impact across all public sector bodies and it is essential that they are ready for the changes.
Penalty for enablers of tax avoidance schemes
New penalties to be put in place for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.
Offshore property developers
The legislation will be amended to ensure that with effect from today all profits realised by offshore property developers developing land in the UK (including under pre-existing contracts) are subject to UK tax.
Converting capital losses to trading losses
Anti avoidance legislation to be introduced to remove the option to elect for capital losses that would otherwise arise where an asset is appropriated from fixed assets to trading stock to be treated as a trading deduction and offset against trading profits.
Savings & pensions
To be increased to £20K from April 2017
From 6 April 2017 anyone under 40 can open a lifetime ISA under which they can save up to £4K per year up to the age of 50 and the government will pay a 25% bonus where the funds are withdrawn after the age of 60 for use in retirement or to buy a first home. Earlier withdrawals will be permitted but with a loss of the bonus/interest and a small 5% charge.
NS&I Investment Bond
Available from April 2017 for 12 months to anyone over 16 years old. The interest rate will be 2.2% over a term of 3 years subject to a minimum investment limit of £100 and a maximum investment limit of £3,000.