Income tax and National Insurance contributions
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.
The taxation of different forms of remuneration
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.
• Employee business expenses – the Government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer.
It is good news that the Government has decided to omit ultra-low emission cars from the proposed salary sacrifice changes as this would have undermined the effectiveness of the company car regime as an incentive to choosing low-emission cars.
New tax allowance for property and trading income
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.
See also comment in the Property taxes section.
Pensions and savings tax
As previously announced, the ISA limit will increase from £15,240 to £20,000 in April 2017.
Starting rate for savings
The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017-18.
Money purchase annual allowance
The money purchase annual allowance will be reduced to £4,000 from April 2017. The Government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them. The Government will consult on the detail.
The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. The Government will also close specialist pension schemes for those employed abroad (so-called ‘section 615’ schemes) to new savings, extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
Simplifying the Pay As You Earn Settlement Agreement (PSA) process
As announced at Budget 2016 and following consultation, the Government will legislate in Finance Bill 2017 to simplify the process for applying for and agreeing PSAs. This will have effect in relation to agreements for the 2018-19 tax year and subsequent tax years.
Dates for “making good” on benefits in kind
As announced at Budget 2016 and following consultation, the government will legislate in Finance Bill 2017 to ensure an employee who wants to “make good” on a non-payrolled benefit in kind will have to make the payment to their employer by 6 July in the following tax year. “Making good” is where the employee makes a payment in return for the benefit in kind they receive. This reduces its taxable value. This will have effect from April 2017.
Assets made available without transfer of ownership
The government will introduce provisions in Finance Bill 2017 to clarify existing legislation so that employees will only be taxed on business assets for the period that the asset is made available for their private use. This will take effect from 6 April 2017.
Life insurance policies
As announced at Budget 2016 and following consultation, the Government will legislate in Finance Bill 2017 regarding the disproportionate tax charges that arise in certain circumstances from life insurance policy part-surrenders and part-assignments. This will allow applications to be made to HMRC to have the charge recalculated on a just and reasonable basis. This will lead to fairer outcomes for policyholders. The changes will take effect from 6 April 2017.
Junior Individual Savings Accounts (ISAs) and Child Trust Fund limit
The annual subscription limit for Junior ISAs and Child Trust Funds will be uprated in line with the Consumer Prices Index (CPI) to £4,128, alongside the ISA subscription limit increase from £15,240 to £20,000, which was previously announced at Budget 2016. This will be effective from 6 April 2017.
National Insurance contributions
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.
Corporation tax and business tax
Corporation tax rates
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.
Corporation tax losses
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.
Property income and gains
£1,000 property 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.
In his Autumn Statement speech, the Chancellor said that, as part of “sticking to the Business Tax Roadmap” set out at March 2016, the Government would “implement the business rates reduction package worth £6.7 billion”; further, that the Communities Secretary “will lower the transitional relief cap from 45% next year to 43%, and from 50% to 32% the year after”.
Full-fibre infrastructure relief
A new 100% business rates relief for new full-fibre infrastructure, for a five year period, will be provided from April 2017.
This is part of a package which involves £1bn government investment to support the private sector to roll out more full-fibre broadband by 2020-21, and to support trials of 5G mobile communications.
Rural rate relief
The Government says that to remove the inconsistency between rural rate relief and small business rate relief it will double rural rate relief, from 50% to 100%, from 1 April 2017, saving a business up to £2,900 a year.
This relief is available to businesses in rural areas with a population under 3,000, where that business is:
• the only village shop or post office with a rateable value of up to £8,500, or
• the only public house or petrol station with a rateable value up to £12,500.
Insurance premium tax
The standard rate of insurance premium tax (IPT) is due to rise to 12% from 10% with effect from 1 June 2017.
Energy and transport taxes
The fuel duty rate is frozen for the seventh successive year.
Company car tax
For company car tax in 2020-21:
• there will be new and lower bands for the lowest emitting cars; and
• the appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point.
Air passenger duty
After the UK has left the EU, there should be a review of supporting regional airports in England from the potential effects of the devolution of air passenger duty (APD). Given the interaction with EU law, the government does not intend to legislate now.
VAT 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 a href=”http://bit.ly/2fuyABb” target=”_blank”>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.