Spring Budget Review 2017
In what has been described as a budget to provide a “strong, stable platform for Brexit”, the main focus was on the country’s social care, schools and taking away the advantage of using different “vehicles” for operating businesses.
The usual economic statistics were provided during the budget speech, with the highlights being:
UK is the second fastest growing economy in the G7;
Forecast for growth has been upgraded from 1.4% to 2%;
Inflation is forecast to rise to 2.4% in 2017/18, before falling to 2.3% and 2% in subsequent years;
Annual public sector borrowing was £51.7bn in 2016/17, which is down from the forecast of £68bn;
However, those hit hardest by the budget will be self-employed workers, who face an increased bill from April 2018 with rises in class 4 National Insurance rates coming into effect.
The Chancellor described his intention to equalise the National Insurance paid by employed and self-employed individuals, but some might say that this can’t be achieved without also taking into account those operating a business through a limited company.
robinson+co’s Tax Manager, Brett Bennett, says “the budget didn’t have a lot of detail in it today, short of the point that the Chancellor strongly feels that the decision as to how to operate your business should not be driven by tax advantages, but by commercial considerations alone.
The finer details of the budget report are outlined below.
With effect from April 2016, the Revenue introduced a new dividend nil rate allowance on the first £5,000 of dividends received with basic rate taxpayers paying 7.5% thereafter. This resulted in a tax increase for taxpayers who in the past were remunerated up to the basic rate band with salary, and dividends, of approximately £2,000.
With effect from April 2018, the Revenue will reduce the £5,000 allowance to £2,000, which will increase the tax charge on those in the example above, by a further £225.
Benefit in Kind
Legislation will be introduced, that will apply to benefits provided during the 2017/18 tax year, so that, should an employee wish “to make good” the value of the benefit received and thus avoid a tax charge, they have until the following 6 July to reimburse their employer for the benefit value.
The Revenue have announced their intention to target the taxation of termination payments in earlier budgets. From April 2018, all contractual and non-contractual termination payments made in lieu of notice will be taxable as earnings, requiring employers to tax the payments as income if notice is not worked. In addition, rules will be introduced to ensure that amounts received in excess of £30,000 will also be subject to National Insurance.
Importantly though, the first £30,000 of termination payments will remain exempt from tax and National Insurance.
The government confirmed that the personal allowance will increase to £11,500 with effect from April 2017 and the basic rate band will be £45,000.
In addition, the National Living Wage will increase to £7.50 from April 2017.
Increase in the Class 4 NIC rate
The abolition of Class 2 NIC will go ahead from April 2018 as previously announced, however, as mentioned above, the Chancellor announced an increase in the Class 4 NIC rate by 1% from April 2018 and further 1% from April 2019. This will increase the rate from the current 9% to 10% in April 2018 and to 11% in April 2019.
The Chancellor confirmed that the intention of this measure was to reduce the gap between the employed and self-employed. However by reducing this gap, the government is fundamentally reducing the attraction to individuals of becoming self-employed as the financial incentive of doing so is slowly being taken away.
The Chancellor has confirmed that no small business that is losing small business rate relief will see their monthly business rate bill increase by more than £50. In addition, he has pledged that he will provide a £1,000 discount on all business rate bills for pubs with a rateable value of less than £100,000.
Money Purchase Allowance
The amount an individual can contribute to a money purchase scheme will be reduced to £4,000 from April 2017, in circumstances where they have flexibly accessed their pension savings.
Qualifying Recognised Overseas Pension Schemes (QROPS)
A tax charge will be introduced of 25% on all transfers made to QROPS, however there are various exceptions to the charge. robinson+co financial services team are able to advise further on such transfers and where the new rules will apply.
The Chancellor confirmed that the corporation tax rate will reduced from April 2017 to 19%, with a further reduction planned to 17% by April 2020.
Appropriation of Trading Stock
As of today, rules will be introduced to remove the ability to convert property into trading stock, thereby converting a capital loss into a more favourable trading loss.
Research & Development
The government will make administrative changes to research and development (R&D) tax credits, following a review of the tax environment for R&D. This will increase the certainty and simplicity around claims, and will improve awareness of R&D tax credits among small and medium size companies.
Insurance Premium Tax
With effect from June 2017, Insurance Premium Tax will increase by 2%.
With effect from 1 April 2017, the registration threshold for VAT will increase from £83,000 to £85,000, while the deregistration threshold will increase from £81,000 to £83,000.
Stamp Duty Land Tax
The government has originally intended the reduction for the payment and reporting obligations of Stamp Duty Land tax to be reduced from 30 days to 14 days. However, it was announced that the introduction of this reduction will be delayed until April 2018.
HGV Levy & Duty
Announced today, the government will freeze rates of Vehicle Excise Duty for HGVs in 2017 to 2018, which includes all rates linked to the basic goods rate. Levy rates will also be frozen from 1 April 2017. The government will also launch a call for evidence in spring 2017 on updating the existing HGV Road User Levy so that it rewards hauliers who plan their routes effectively, to incentivise the efficient use of roads, and improve air quality.
Making Tax Digital
In one initiative that most accountants are hoping will be revoked, it was announced that the government will implement digital record keeping and updating by businesses, the self-employed and landlords, as part of Making Tax Digital for Business.
However, in a welcome move, it was announced the start date for unincorporated businesses and landlords with gross income below the VAT registration threshold will be deferred until April 2019.
As a summary, businesses, self-employed people and landlords will be required to start using the new digital service from:
- April 2018 if they have profits chargeable to Income Tax and pay Class 4 National Insurance contributions (NICs) and their turnovers are in excess of the VAT threshold
- April 2019 if they have profits chargeable to Income Tax and pay Class 4 NICs and their turnovers are below the VAT threshold
- April 2019 if they are registered for and pay VAT
- from April 2020 if they pay Corporation Tax (CT)
Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.
Those in employment who have secondary income of more than £10,000 per year through self-employment or property will also be required to use the digital service.