INTRODUCTION & HEADLINE ANNOUNCEMENTS
The Chancellor delivered his first Budget to the House of Commons yesterday calling for a “stronger, fairer, more global Britain”. With the rise in National Insurance Contributions for the self-employed making headlines across Britain, Mr Hammond is facing a backlash over the announcement, with many claiming it clearly breaks the Tories 2015 manifesto pledge not to raise taxes.
Overall however, the first Budget has not delivered anything which was completely unexpected, with the exception of the new reduced dividend allowance. Understandably, the focus was on introducing measures to strengthen and develop the economy in light of Brexit.
We have summarised below the main points of interest which will be of relevance to our clients. This release is not intended to provide a detailed coverage of the Budget and you should refer to the supporting and related documents for an in-depth review.
Here is a summary of the principal tax changes announced:
- National Insurance Contributions – Class 4 NICs are set to increase to 10% from April 2018 with a further increase to 11% from April 2019
- Dividend Allowance – the dividend allowance is to be reduced to £2,000 from April 2018.
- Employment Taxes- Consultation will be issued in due course covering various methods of employee remunerations (including employee expenses and benefits).
- Business Rates – Business rates measures to be introduced to counter the impact of the revaluations taking place from April 2017.
- Making Tax Digital – The digital administration system planned for April 2018 will be deferred by a year for unincorporated businesses and landlords with turnover less than the VAT t
- Offshore Property Developers – offshore property developers developing land in the UK will be subject to UK charging provisions from 8th March 2017.
In order to align the NICs treatment between the employed and self-employed, Class 4 NICs payable in respect of trading profits, will increase from 9% to 10% from April 2018. The rate will increase further in April 2019 to 11%. As mentioned previously, Class 2 NICs will be abolished from April 2018.
The dividend allowance was introduced in April 2016 as part of a simplification process of the UK dividend tax regime. However, one of the key benefits of the new regime is to be short-lived as the current dividend allowance of £5,000 is set to be reduced to £2,000 from April 2018. The rationale behind the move is again to bring those who are employed/self- employed on equal footing to those operating their business via a private limited company.
The government will be consulting on the current methods of employee remuneration with a view to making the tax system fairer and more coherent. Focus will be given to the taxation of benefits in kind, accommodation benefits and also employee expenses.
The government will introduce the lifetime ISA (another addition to the ISA family) this April providing added incentive to young adults to save towards their first property purchase. The government will top up every £4 saved by £1 with an annual limit of £4,000 being eligible for the 25% bonus.
Making Tax Digital
In light of the increasing concern expressed by businesses in meeting the making tax digital deadline, the government has deferred the commencement date for unincorporated businesses and landlords to April 2019 where their turnover is less than the VAT threshold.
Three measures were announced to alleviate the burden of business rates. Any business no longer being able to benefit from the small business rate relief will benefit from a cap limiting any monthly increase by £50. Local authorities will obtain access to a £300m hardship fund for small businesses worse affected by the rates and pubs with a rateable value of less than £100,000 will get a £1,000 discount on rates they pay.
Cash Basis Accounting
As part of a concerted effort to simplify tax administration for smaller businesses, the government will increase the cash basis threshold to £150,000 (with the exit threshold increasing to £300,000) and also enabling unincorporated landlords to opt for cash basis accounting.
Offshore Property Developers
From March 2017, all offshore property developers generating profits from trading in UK land will be subject to UK tax. Previously, those developers who entered into contracts of sale prior to July 2016 where exempt from those rules however they are likely to be caught under the latest provisions.
Research & Development Expenditure
The UK has been a leader in encouraging scientific innovation by providing attractive tax breaks through it’s R&D incentives. In order to remain competitive and encourage more investment, the government will be aiming to further simplify (and raise awareness) of the tax credit available to small and medium enterprises.
INDIRECT TAX, AVOIDANCE & NON-COMPLIANCE
VAT Registration Threshold
From April 2017, the VAT registration threshold will increase from £83,000 to £85,000 and the de-registration threshold will increase from £81,000 to £83,000
Insurance Premium Tax
As mentioned previously, the standard Insurance Premium Tax rate will increase from 10% to 12% from June 2017. The government has also provided updated anti-forestalling measures essentially preventing pre-paying premiums or extending policies to avoid the increased IPT.
Appropriation to Trading Stock
Where businesses appropriate capital assets to trading stock, an election can be made to essentially defer the crystallisation of the gain or loss. The election has enabled businesses to effectively convert capital losses into more flexible trading losses. From March 2017, the election can only be made where the asset is standing at a gain.
Avoidance: Promoters of Tax Avoidance Schemes
The government will extend the scope of POTAS by introducing extensive “look through” provisions to ensure that promoters cannot circumvent the existing rules by restructuring their business affairs through sharing control of promoting businesses or interposing individuals/entities between themselves and the promoting business.
WHAT WE ALREADY KNEW ABOUT
- Personal Allowance – As expected, the Personal Allowance is set to increase to £11,500 from April 2017.
- Basic Rate Threshold – The basic rate threshold is due to increase to £33,500 from April 2017, which combined with the increased personal allowance, will mean the 40% rate will apply once an individual earns at least £45,000.
- Savings Tax – As previously mentioned, the government will be increasing the ISA limit to £20,000 per annum from April 2017.
- Corporation Tax – The corporation tax rate is scheduled to be reduced to 19% from April 2017
- Substantial Shareholding Exemption – The SSE rules will be simplified from April 2017 by relaxing the trading requirements of the investor company
- Enabling Avoidance – As previously mentioned, the government will impose penalties on individuals who assist other individuals/businesses to use a tax avoidance arrangement.
Contact Animo Associates
In March and April, a member of the Animo team will be travelling to and within:
- Lugano, Zurich, Geneva, Malta, Liechtenstein, Czech Republic (Prague), Slovakia (Bratislava), South of France, Morocco, Mauritius, Monaco and the Isle of Man.
If you would like to meet with one of the Animo team, please let us know by contacting: firstname.lastname@example.org