Autumn statement 2016
Many commentators say the most exciting announcement of this Autumn Statement is probably that this will be the last one. There will be a transitional Budget in spring 2017 followed by a Finance Bill to get Royal Assent at (one assumes) the normal mid-July date. After a summer off there will be another Budget in the autumn with the subsequent Finance Act 2018 to receive Royal Assent before the start of the 2018-19 tax year. However we think there are quite a few announcements of interest:
Announcements for the future
Some interesting developments are:
• the intention to align employer and employee NIC thresholds from April 2017;
• a personal allowance of £12,500 and higher rate threshold of £50,000 by 2020;
• a review of non-cash payments by employers to their employees; and
• the introduction of 100 per cent first year allowances for electric car charge-points.
Watch this space !
Main features of the statement
Personal allowance and higher rate threshold
The Government has announced it will meet its commitment to raise the income tax personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this Parliament. Next year, the personal allowance will rise to £11,500 and the higher rate threshold to £45,000. Increases to the personal allowance over the last Parliament took 4 million of the lowest paid out of income tax altogether.
Once the personal allowance reaches £12,500, it will then rise in line with Consumer Prices Index as the higher rate threshold does, rather than in line with the national minimum wage. This will lock in the increases the Government has made to the personal allowance over the past six years, so they are not eroded by inflation, while increasing the sustainability of the public finances in the long term.
Off-payroll working rules
Following consultation, the Government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. The Government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax. This reform is designed to tackle the high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.
There are concerns about the practicalities of moving to deduction at source and a number of outstanding issues which may be difficult to resolve before the Government's introduction of the new rules.
Changes to salary sacrifice schemes
Employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The tax system treats these different forms of remuneration inconsistently and sometimes more generously. The Government has announced it will therefore consider how the system could be made fairer between workers carrying out the same work under different arrangements and will look specifically at how the taxation of benefits in kind and expenses could be made fairer and more coherent. The Government will take the following action:
•Salary sacrifice - following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
•Valuation of benefits in kind - the Government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017.
Small trading allowance
As announced at Budget 2016, the Government will create two new income tax allowances of £1,000 each, for trading and property income. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will now also apply to certain miscellaneous income from providing assets or services.
Changes for non-domiciled tax payers
Individuals who live in the UK and make use of public services should pay their fair share of tax. The following reforms to the taxation of non-domiciled individuals are intended to make the tax system fairer for everybody:
•as previously announced, the Government will end the permanency of non-domiciled tax status. From April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin. Also as previously announced, non-domiciled individuals who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust.
•from April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust. This closes a loophole that has been used by non-domiciled individuals to avoid paying inheritance tax on their UK residential property (see also the Property taxes section).
•the Government will change the rules for the business investment relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals.
National Insurance thresholds
From April 2017, the National Insurance secondary threshold (employer threshold) and the National Insurance primary threshold (employee threshold) are to be aligned. This move was recommended by the Office of Tax Simplification (OTS) in its March 2016 report on The closer alignment of income tax and national insurance in which it said that “aligning the NICs primary and secondary thresholds would be a good place to start”, and the thresholds have been aligned at various stages in the past. This measure means that from April 2017 both employees and employers will start paying National Insurance on weekly earnings above £157.
Class 2 NICs
As announced at Budget 2016, Class 2 NICs are to be abolished from April 2018. The Autumn Statement confirmed that, once Class 2 NICs are abolished, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. All self-employed women will still be able to access the standard rate of maternity allowance and self-employed people with profits below the small profits limit will be able to access contributory employment and support allowance through Class 3 NICs.
As announced at Budget 2016 and following a consultation over the summer, from April 2018 termination payments of the over £30,000, which are subject to income tax, will also be liable to employer but not employee NICs. As a result of the consultation tax will only be applied to the equivalent of an employee’s basic pay if their notice is not worked. The first £30,000 of a termination payment will continue to be exempt from income tax and NICs. The government is to monitor this change and will address any further manipulation if it deems it necessary.
The Government reaffirmed its commitment to its business tax roadmap which means that previously enacted corporation tax rate reductions remain as follows:
•Financial year 2017 - 19%
•Financial year 2018 - 19%
•Financial year 2019 - 19%
•Financial year 2020 - 17%
The Northern Ireland corporation tax regime will be amended in Finance Bill 2017 for the benefit of SMEs trading in Northern Ireland to minimise abuse and to ensure it is fit for commencement when the Northern Ireland Executive demonstrates its finances are on a sustainable footing.
Rules to impose a 50% restriction on the amount of profit that can be offset with carried forward corporation tax losses will take effect from 1 April 2017, subject to a £5 million allowance for each standalone company or group. The rules will also allow a greater degree of flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction of the amount of profit that banks can offset with carried forward losses incurred prior to April 2015 remains at 25%. These proposals were the subject of a consultation exercise during 2016.
Changes for large companies
The Government has confirmed it will proceed with the previously announced reforms to interest and loss relief, from April 2017. Both reforms have the potential to be relevant in connection with property businesses carried on by companies (or by groups of companies).
These rules will, firstly, limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group's net interest to earnings ratio in the UK exceeds that of the worldwide group. The Government says it will widen the provisions proposed to protect investment in public benefit infrastructure. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.
The rules will also restrict the amount of profit that can be offset by carried forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group. In implementing the reforms the Government says it will take steps to address unintended consequences and simplify the administration of the new rules. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25% in recognition of the exceptional nature and scale of losses in the sector.
Small income allowance
At March Budget 2016, the Government announced the introduction of a £1,000 allowance for property income, from 6 April 2017 (the 2017-18 tax year). The Budget materials indicated that individuals (emphasis added) with property income below £1,000 in a tax year would no longer need to declare or pay tax on that income. Those with income above the allowance would be able to calculate their taxable profit either by deducting their expenses in the normal way or by deducting the allowance from their gross income.
The Government confirmed that this measure will be brought forward in Finance Bill 2017. A similar (and separate) allowance is confirmed in respect of trading income, which will now also apply to certain miscellaneous income from providing assets or services.
VAT and the flat rate scheme
A new 16.5% rate will apply from 1 April 2017 for limited cost traders. The government hopes that this measure will “level the playing field”, bringing in a staggering £695m of additional revenues by 2021-22, without impacting on “the small businesses that use the scheme as intended”.
In a Technical Note the term “limited cost trader” is defined as a trader whose VAT inclusive expenditure on goods is either:
•less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
•greater than 2% of their VAT inclusive turnover but less than £1,000 per annum.
The government will introduce an online tool that will help businesses determine whether they should use the new rate.
The new rate will apply from 1 April 2017. Legislation intended to prevent a limited cost trader from continuing to use a lower flat rate beyond 1 April 2017 has been published (see s. 8.2 and 9.7 of VAT Notice 733: Flat rate scheme for small businesses).
Draft secondary legislation providing for the new rate will be published on 5 December 2016. Interested parties will have 8 weeks to comment on the draft legislation.