The Spring Budget 2017 Summary was the last of its kind is replaced in 2018 by a Spring Statement. The 2016 Autumn Statement was also the last of its kind and later this year and in subsequent years we will have a winter Budget. One of the reasons for this change is to allow draft Finance Bill clauses to be announced with sufficient time for Parliament to scrutinise the proposed legislation and reach Royal Assent before the start of the new tax year. Our summary of new announcements is largely based upon material made available on the gov.uk website following the Chancellor’s statement. Many of the forthcoming tax changes were announced or confirmed in the 2016 Autumn Statement and a reminder of and update on some of those changes is included later on.
Tax rates and allowances
Most rates and allowances for 2017-18 have been previously announced and are not reproduced in this summary but can be found here: 2017-18 rates and allowances
Making Tax Digital (MTD)
The MTD start date for self-employed business and landlords with turnover below the VAT threshold will be delayed by a year to April 2019.
Income Tax: Dividend allowance
The tax free dividend allowance is to be reduced from £5,000 to £2,000 from the 2018-19 tax year. This has been reported by some to be in response to the number of businesses incorporating primarily to convert taxable profits into tax-free dividends.
Income Tax: Increase in cash basis threshold
The threshold for the simplified cash basis of accounting for individuals and unincorporated businesses will rise to £150,000 on 6 April 2017. This was previously announced in a policy paper dated 31 January 2017 but is included again in the Budget announcements. The earlier announcement included details of prohibitions on deductions for specific items of capital expenditure including land, cars and items which are not depreciating assets.
Income Tax: Rent-a-room relief
The Government intends to consult on a reform of rent-a-room relief to ensure it better achieves its original intended purpose to increase the supply of affordable long-term lodgings.
Income Tax: Image rights
HMRC are to publish guidelines for employers who make payments of image rights to their employees. This announcement is included in a Treasury Budget summary in a section on compliance and is presumably in response to criticisms in the Commons Public Accounts Committee’s report of January 2017 which recommended urgent action in the next Finance Bill.
Income Tax and Corporation Tax: UK land disposals
Finance Act 2016 included legislation, which took effect on 5 July 2016, to ensure that profits from dealing in or developing UK land are taxed in the UK irrespective of the residence of the person making the disposal. The exclusion for contracts entered into before 5 July 2016 is to be removed in cases where the profits are recognised in the accounts for a period beginning on or after 8 March 2017 or would be recognised in a notional accounting period beginning on that date.
Income Tax and Corporation Tax: Appropriations to trading stock
An appropriation of a capital asset is treated as taking place at market value resulting in a capital gain or allowable loss but it has been possible to elect to substitute a value which created neither a gain or a loss. In the event of a loss, the election could have the effect of converting a capital loss into a more flexible trading loss. With effect from 8 March 2017 the election may only be made in cases where the appropriation to trading stock creates a chargeable gain
National Insurance: Increase in rate of Class 4 contributions
The previously announced abolition of Class 2 contributions with effect from the 2018-19 tax year will now go hand in hand with an increase in the Class 4 rate from 9% to 10%. Self-employed persons with profits over £16,250 will pay more national insurance as a result. The Class for rate will be increased again to 11% in 2019-20.
National Insurance: Employment allowance
A Treasury Budget summary reveals HMRC have concerns over avoidance schemes involving Employment Allowance and action will be taken if the avoidance continues.
Pensions: Reducing the money purchase annual allowance (MPAA)
As expected following the recent consultation exercise, the MPAA will be reduced from £10,000 to £4,000 with effect from 6 April 2017. The reduction is intended to limit the extent to which individuals can “recycle” their pension schemes and gain a second round of tax relief on pension contributions.
Pensions: Qualifying recognised overseas pension schemes (QROPS)
Transfers to QROPS requested on or after 9 March 2017 will be taxed at 25% unless both the individual and the QROPS are in the same country, both are within the European Economic Area or the QROPS is provided by the individual’s employer. The charges can be imposed or refunded in the following five years according to certain changes in circumstances.
VAT: Registration and deregistration thresholds
From 1 April 2017 the VAT registration threshold will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000. By increasing the VAT registration threshold HMRC estimate that it will prevent 4000 small businesses from having to register for VAT by the end of 2017-18.
VAT: Use and enjoyment provisions for business to consumer mobile phone services
The government will remove the VAT use and enjoyment provisions for business to consumer mobile phone services. Currently UK VAT applies to mobile phone use by UK residents when in the UK or EU but not when they are outside the EU. Going forward 20% VAT will also apply to mobile telephone use, including data, where the device is used by a UK resident outside the EU. It is estimated that this will raise £65 million in a full year.
VAT: Fraud in the provision of labour in the construction industry
The government will launch a consultation on 20 March 2017 on a range of policy options to combat supply chain fraud in supplies of labour within the construction sector. Options include a VAT reverse charge mechanism so the recipient accounts for VAT. The government is consulting to ensure any option taken forward is targeted effectively, is simple to operate and minimises impacts on businesses, while tackling the fraud as effectively as possible.
VAT: ‘Split Payment’ model
Some overseas businesses avoid paying UK VAT thus undercutting UK online and high street retailers. Building on the measures introduced in Budget 2016, the government will shortly publish a call for evidence on the case for a new VAT collection mechanism for online sales. This would harness technology to allow VAT to be extracted by the Exchequer from on-line transactions at the point of purchase. This is often referred to as a ‘Split Payment’ model and is the next step for HMRC in tackling the non-payment of VAT by some overseas businesses selling goods online to UK consumers.
VAT: Penalty for participating in fraud
As announced at Autumn Statement the government will legislate in Finance Bill 2017 to introduce a new penalty for participating in VAT fraud. The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud.
Following consultation on the draft legislation some minor changes have been made to improve the clarity of the measure and also to limit the naming of a company officer to instances where the amount of tax due exceeds £25,000. The new penalty will take effect once the Finance Bill receives Royal Assent.
Changes are being introduced which are designed to prevent promoters circumventing the Promoters of Tax Avoidance Schemes legislation
These are some of the proposed changes we already knew about …..
Some proposed changes which were announced by the Chancellor in the 2016 Budget and Autumn Statement and which appeared in our previous summaries are due to be enacted.
Income Tax: Benefits in kind
Draft Finance Bill 2017 clauses having effect from the 2017-18 tax year allow an employee to make a payment in return for a benefit in kind and reduce the taxable value of the benefit as long as the payment is made by 6 July in the following tax year.
There are also draft clauses clarifying existing legislation so that employees will only be taxed on business assets for the period the assets are made available for private use and removing the tax charge on certain legal costs and costs of pension advice borne by employers.
Income Tax: Property and trading income allowance
The draft Finance Bill 2017 introduces two new income tax allowances of £1,000 each for property and trading income. Individuals with income below the level of the allowances will no longer need to declare or pay tax on that income. If income exceeds the relevant allowance then the individual may choose to pay tax on the amount by which income exceeds the allowance. The trading income allowance will also apply to certain income from providing services or assets.
Income Tax and National Insurance: Salary sacrifice schemes
The proposed changes affecting salary sacrifice schemes or “optional remuneration arrangements have been announced and will be included in Finance Bill 2017. The new measures, to take effect from the 2017-18 tax year, are intended to ensure that most benefits provided as part of a salary sacrifice scheme will be treated the same as cash income. Pensions, pension advice, childcare, cycle to work schemes and ultra-low emission cars will be exempt from the new rules. Arrangements in place before April 2017 will be protected from the new rules for up to a year and arrangements involving cars, accommodation and school fees will be protected for up to four years.
Taxation of investments
Draft Finance Bill 2017 clauses will allow taxpayers to apply for a recalculation of “wholly disproportionate” taxable gains arising on some surrenders and assignments of life insurance policies. If successful, the gain will be recalculated on a just and reasonable basis.
Income Tax and Capital Gains Tax: Tax-advantaged venture capital schemes
Draft Finance Bill 2017 clauses include clarification of the pre-arranged exit rules for Enterprise Investment Schemes and Seed Enterprise Investment Schemes. There are also changes to the rules for certain follow-on investments in Venture Capital Trusts with effect from 6 April 2017.
Income Tax and Capital Gains Tax: Employee shareholder status
Draft Finance Bill 2017 clauses confirm that new issues of employee shareholder shares no longer qualify for income tax and capital gains tax reliefs and exemptions
Corporation Tax: Patent Box
Draft Finance Bill 2017 clauses include detailed rules dealing with the tax treatment of costs incurred by two or more companies carrying out research and development under a “cost sharing arrangement”.
Corporation Tax: Contributions to grassroots sport
Draft Finance Bill 2017 clauses include a new tax relief for certain contributions to grassroots sport from 1 April 2017.
Draft Finance Bill 2017 clauses confirm that expenditure incurred on charging points for electric vehicles will qualify for a 100% first-year allowance. The allowance is available until 31 March 2019 for corporation tax purposes and 5 April 2019 for income tax purposes.
Finally, here is a reminder of some recent proposed tax changes which are also included in published Finance Bill 2017 draft clauses ….
Corporation Tax: Losses
There will be greater flexibility for relieving various types of loss which arise on or after 1 April 2017 and which are carried forward to a later accounting period. Such brought forward losses may be relieved against the company’s total income rather than specified classes of income. In addition, losses carried forward to a later accounting period will, in certain circumstances, be capable of being surrendered as group relief.
Corporation Tax: Substantial shareholding exemption
The condition that the investing company is a trading company or member of a trading group is to be withdrawn, as is the condition that the company being sold is a trading company or the holding company of a trading group, unless the disposal is to a connected person. Currently, a substantial shareholding must have been held for minimum period of twelve months starting not more than two years prior to the disposal. The two year period is to be extended to six years. These changes apply to disposals on or after 1 April 2017.
Inheritance tax: Deemed UK domicile
Non-domiciles who are long-term UK residents or who previously had a UK domicile and are resident in the UK will, from 6 April 2017, be treated as UK domiciled for income tax and capital gains tax purposes.
Employment status: Working for the public sector through intermediaries
From 6 April 2017 public authorities will have responsibility for determining whether the workers they engage fall within the intermediaries legislation (IR35). If the public authority decides the rules apply it will be required to deduct income tax and national insurance from the payments it makes to the worker or the worker’s intermediary. The new rules will also apply where work is completed before 6 April 2017 but payment is made on or after that date.