Autumn Statement
In what was Philip Hammond’s first (and apparently last) Autumn Statement, we sat down to the expected positivity of the post Brexit economics that show that Britain isn’t going to go into another downturn when the Prime Minister finally actions Article 50. What we were met with was some interesting facts and figures, and announcements to stabilise the economy and to combat whatever uncertainty lies ahead when we leave the EU…Hard or Soft.
On the economics side of the budget, the Chancellor announced that the government finances forecast to be £122bn worse off at the end of this parliament than was previously announced, with debt rising from 82.4% of GDP last year to 87.3% this year and expecting to peak at 90.2% in 2017/18. These figures were then followed by the statement that the Government will no longer aim for a budget surplus by 2019-20, but “as soon as practicable”.
What is a budget without a few shots fired by the Chancellor at the opposition, with a sarcastic tone. Mr Hammond didn’t disappoint when he announced that a Tory government will be responsible for an increase in the living wage for many low income earners, and confirmed that the current government will seek to increase the personal allowance in the coming years in line with previous announcements, removing millions of individuals from the payment of tax.
There has been major investment earmarked for numerous areas, but most notably the promise of £2.3bn towards housing infrastructure to provide 100,000 new homes and £1.4bn towards providing 40,000 extra affordable homes. In addition to this promise, the Chancellor also announced a £23bn investment in innovation and infrastructure to help secure jobs post Brexit, with £2bn per year being earmarked for Research and Development funding.
In his last attempt at humour and dramatics, Mr Hammond announced that this would be his first and last Autumn statement, only to advise that he is simply changing the timing of the budget over the next 2 years so that we only have an Autumn Budget, and a Spring Statement that addresses any points requested by the OBR.
The robinson+co team has summarised the finer points of the statement below, and should you require any further details, please don’t hesitate to contact us on 01900 603623.
Personal Tax
Rate Changes – Personal Allowance, National Insurance and Insurance Premium Tax
As previously announced the personal allowance and the higher rate threshold is to be increased for 2017/18 as follows:
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Rates |
2016/17 |
2017/18 |
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Personal allowance |
11,000 |
11,500 |
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Basic Rate Band (20%) |
32,000 |
33,500 |
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Higher Rate Band (40%) |
32,001 -149,999 |
33,501-149,999 |
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Additional Rate Band (45%) |
150,000+ |
150,000+ |
To simplify the payment of National Insurance for employers, the National Insurance threshold for both the employer and employee is being aligned from April 2017. Meaning that both employers and employees will start paying National Insurance on weekly earnings above £157.
As announced in the Budget 2016, Class 2 National Insurance will be abolished from April 2018.
The National Living Wage and the National Minimum Wage
The National Living Wage (NLW) and the National Minimum Wage (NMW) will be aligned and increased from April 2017.
For those aged 25 and over they will see a pay rise of 30p per hour as the NLW increases from £7.20 to £7.50 per hour.
The NMW will also increase:
For 21 to 24 year olds - from £6.95 per hour to £7.05
For 18 to 20 year olds – from £5.55 per hour to £5.60
For 16 to 17 year olds – from £4.00 per hour to £4.05
For apprentices – from £3.40 per hour to £3.50
Universal Credit
The taper rate at which a person’s benefit payments are gradually reduced has been decreased from 65% to 63%. So for every £1 above the income threshold their benefit award would be reduced by 65p and they would keep 35p but from April 2017 they will now keep 37p for every £1.
Off Payroll Working
The government has advised that they will reform public sector working rules from April 2017 so that the onus is put on the contractor where a subcontracting company is providing services to a public sector body. The rules will ensure that all people working within the public sector in roles similar to employees, whether employees or not, will be taxed as employees.
Salary Sacrifice
Salary sacrifice schemes will no longer achieve Income Tax and Employer National Insurance savings from April 2017, except schemes for pensions, childcare, cycle to work and ultra-low emission cars which will be exempt.
All arrangements in place before April 2017 will be protected up to April 2018 and schemes for cars, accommodation and school fees will be protected up to April 2021.
Corporation Tax Rate
The government has confirmed their intention today to reduce the corporation tax rate to 17% by 2020.
Capital Gains Tax
Employee Shareholder Status
Employees receiving shares under an employee shareholder agreement will no longer get Income Tax relief on the issue of the shares or Capital Gains Tax exemption on the sale of the shares, this will apply to shares issued from 1 December 2016. Shares received before this date will not be affected and the employer will still receive Corporation Tax Relief. The status will be closed to new arrangements at the next legislative opportunity.
Indirect Taxes
VAT – Flat Rate Scheme (FRS)
The VAT FRS is currently a simplified accounting system that enables businesses to utilise a reduced percentage for remitting VAT based on their trade sector. However, in the government’s view, the adoption of the FRS by contracted businesses, whose expenditure is somewhat limited, means that they are able to benefit from the FRS rules.
Therefore, from April 2017, businesses using the scheme will need to establish if they fall within the new “limited cost trader” definition, which will deem that regardless of your trade sector, you will adopt a VAT FRS percentage of 16.5%.
To establish whether a business is a limited cost trader, its VAT inclusive expenditure on goods will need to exceed 2% of the VAT inclusive turnover of the business, or if the expenditure is greater than 2%, it must also be greater than £1,000 in total. Therefore, a company who incurs £2,000 on goods will need to have turnover less than £100,000 to fall out of the new rules.
Importantly, various types of expenditure need to be ignored when calculating the total costs. These include capital expenditure, food and drink, with the intention being that expenditure on these items can’t be undertaken on an annual basis just to get the company’s expenditure above the required threshold.
More details on the scheme changes are being released on 8 December, and we will provide more commentary once that is available.
Insurance Premium Tax (IPT)
Insurance Premium Tax will increase from 10% to 12%. This is a tax on insurers and it is up to them whether and how to pass on costs to the customers. It will be interesting to see how this interacts with the new crack down on false whiplash claims and the expectation that legislation to tackle this will be released in due course.
Soft drink levy
The government’s efforts to tackle obesity appear to come in the form of levying the soft drink industry. Rules will be announced in due course to implement this.
