Introduction and Headlines
With Philip Hammond’s first and now last Autumn Statement* delivered, the general consensus is that there were no headline grabbing tax changes which were not previously expected.
What is clear is that April 2017 will bring a whole host of changes impacting both corporates and individuals (particularly the former) and it remains to be seen whether the changes will provide an element of stability to the UK economy amid the uncertainty surrounding Brexit.
We have summarised below the main points of interest which will be of relevance to our clients. This release is not intended to be a full review of the Statement and you should refer to the supporting and related documents for an in-depth review.
*The chancellor announced his intention to end the Autumn Statement in 2016, instead issuing a Budget in the Autumn, and a Spring Statement.
Here is a summary of the principal tax changes announced:
- Corporation Tax – Continued commitment to the business roadmap with a 17% rate objective by 2020
- Corporate Losses – Increased flexibility with how brought forward losses are utilised
- UK Resident Non-Domiciled:
- Deemed UK Domiciled if resident for 15 out of past 20 years
- UK residential property held via companies and/or trusts will fall within the UK IHT net
- Business Investment Relief rules to be widened and simplified to encourage investment
- Personal Allowance – Increase in tax free amount to £11,500 on April 2017
- Income Tax Banding – The higher rate band will increase to £45,000 on April 2017
- Registering Offshore Structures – The government will consult on a new legal obligation for individuals to disclose offshore structures.
As expected, the personal allowance will rise to £11,500 from April 2017 onwards with future increases expected up to £12,500 by the end of current Parliament (expected 2020).
Income Tax – Higher Rate Banding
The higher rate threshold (currently set at £43,001) is scheduled to increase to £45,000. Future increases are expected with a final threshold expected at £50,000 by the end of the current parliament.
As recommended by the Office of Tax Simplification the National Insurance Contribution (NIC) threshold for employees and employers will be aligned from April 2017. Employees and employers will only start paying National Insurance when weekly earnings reach £157.
Class 2 NICs will be abolished from April 2018, essentially simplifying National Insurance for self-employed. Self-employed contributory benefits will instead be accessed via class 3 and 4 NICs.
At present, any termination payment in excess of £30,000 is not subject to any NICs. From April 2018, any payments in excess of the threshold will be subject to employer’s NICs. The first £30,000 of any such payment will remain exempt from income tax and NICs.
The Chancellor announced that the ‘Living’ wage will increase from £7.20 to £7.50 per hour from April 2017 (a c.4% increase) with an eventual target of £9 per hour by 2020
The income tax and employer National Insurance advantages of salary sacrifice schemes will effectively be removed from April 2017 with the exception of pension arrangements, childcare and low emission cars (amongst others). Certain existing arrangements will be safeguarded until 2018 and 2021.
Property & Trading Income
Individuals with trading income or property will benefit from two new income tax allowances of £1,000 each. Those falling within the allowance will not need to declare or pay tax on that income.
- From April 2017, all non-domiciled individuals that have been UK resident for 15 out of the past 20 years will be considered deemed UK-domiciled;
- Inheritance tax will be charged on UK residential property where it is indirectly by a non-domiciled individual through offshore structures (e. a company and/or trust);
- The Business Investment Relief rules will be simplified with a view to encourage inward investment in UK businesses.
In line with previous announcements, the government will be increasing the ISA limit from £15,240 to £20,000.
Employee Shareholder Status
The tax advantages associated with employee shareholder status will be abolished from April 2017. Essentially this means, the capital gains tax exemption and the income tax and NICs relief for shares awarded under Employee Shareholder Status agreements will be closed down.
The government has recommitted to its intention of reducing the UK corporation tax rate to 17% by 2020. Corporation tax is scheduled to be reduced to 19% on April 2017.
The worldwide debt cap will no longer apply from April 2017. In its place, the government will introduce rules that limit the tax deductions which large groups can claim for their UK interest expenses. Broadly, there is expected to be a fixed ratio rule limiting the company’s interest deductions to 30% of its EBITDA.
From April 2017, companies will have more flexibility with how they utilise brought forward losses. However a cap will be introduced limiting the offset to 50% of the profits (subject to a £5 million allowance).
Non Resident Companies
The government is considering bringing all non-resident companies in receipt of UK taxable income within the charge to UK corporation tax. The government will consult on the case and options for implementing the change with a view to delivering equal tax treatment for all companies benefitting from UK income irrespective of residence.
Substantial Shareholding Exemption
The substantial shareholding exemption rules will be simplified from April 2017 with the effect that the investor company will no longer need to satisfy the trading requirements.
INDIRECT TAX, AVOIDANCE & NON-COMPLIANCE
Soft Drink Industry Levy
The government will publish draft legislation for the soft drinks industry levy on 5th December.
Insurance Premium Tax
The standard Insurance Premium Tax rate will increase from 10% to 12% from June 2017. This is likely to have a knock-on effect on insurance premiums however this will be a commercial decision to be taken by insurers.
Avoidance: Disguised Remuneration Rules
The government will extend the scope of changes previously announced in the Budget in respect of disguised remuneration schemes for self-employed individuals. Furthermore, the government intends to discourage the use of disguised remuneration schemes by denying tax relief for employer contributions unless tax and NIC is paid within a specified time.
Avoidance: Enabling Avoidance
In order to provide a strong deterrent to anyone enabling tax avoidance, the government will introduce a new penalty to any person who has enabled another person or business to use a tax avoidance arrangement which is later defeated by HMRC. A defence of “reasonable care” will not be available to anyone who may have sought independent advice before enabling someone to partake in an arrangement.
The government will consult on a new legal requirement for intermediaries implementing complex offshore structures for clients holding funds overseas to register such structures by notifying HMRC.