Autumn Statement 2016
The Autumn Statement was released on Wednesday by Chancellor Philip Hammond and, if you listened closely, amongst the doom and gloom that was the forecasts for this country’s post-Brexit economy, you may have heard a number of tax changes being announced. If however you happened to miss the Chancellor’s riveting speech, we have summarized the key points for you below.
Companies
- It was confirmed that the loss relief reforms announced in the Budget 2016 will be going ahead. The main change is that the amount of profit that can be offset by carried-forward losses being restricted to 50% from April 2017, while allowing greater flexibility over the types of profit that can be offset by losses. This restriction will be subject to a £5 million allowance for each standalone company or group.
Our view: These reforms are an example of take with one hand and give with the other, although HMRC no doubt believe they are getting the better end of the deal!
- As the government promised in the Budget earlier this year, new rules will come into force that limit the tax deductions that can be claimed by large groups against UK interest expenses. This new rule will apply 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.
VAT
One of the few significant changes announced in the Autumn Statement is that from April 2017, a new 16.5% rate for those on the VAT flat rate scheme will be introduced for business that fall into a new category called “limited cost traders”.
Is your business a “limited cost trader”?
A limited cost trader will be a business which:
- spends less than 2% of their VAT inclusive turnover on goods.
- spends more than 2% of their VAT include turnover on goods but less than £1,000 per year.
Goods excludes expenditure on services and the following items; capital expenditure, food or drink, and motor expenses.
This change will mainly affect those businesses who purchase very few goods, particularly those in the service industry (e.g. IT contractors who currently pay 14.5%).
Our view: Whilst this is bad news for those who will be affected, few can deny it was a loophole in the system that allowed them to make a bit of extra money from the taxman, and unfortunately the game is now up!
Personal Taxation
- The government will phase out the tax and employee’s national insurance advantages of salary sacrifice schemes from April 2017, with exceptions to those relating to childcare, pension contributions, cycle to work and ultra-low emissions cars.
Our view: This is of course bad news for those currently on the receiving end of such a scheme. We question how much additional revenue this will raise for HMRC, but at least it will remove some unfairness in the system.
- From April 2017, the National Living Wage will increase from £7.20 to £7.50 per hour, which is an increase of £1,400 per year for a full-time worker (based on working 35 hours per week). The government will also increase the National Minimum Wage rates from April 2017 as follows:
| National Minimum Wage (NMW) | Current | From April 2017 |
|---|---|---|
| 21 to 24 year olds | £6.95 per hour | £7.05 per hour |
| 18 to 20 year olds | £5.55 per hour | £5.60 per hour |
| 16 to 17 year olds | £4.00 per hour | £4.05 per hour |
| Apprentices | £3.40 per hour | £3.50 per hour |
Our view: This is good for those who earn at their respective minimum wage, however struggling employers may have to reduce their workforce as a result.
- From April 2017, the employee’s and employer’s National Insurance thresholds will be aligned, with both parties starting to pay contributions on earnings above £157 per week. Furthermore, as announced at Budget 2016, Class 2 National Insurance Contributions will be abolished in April 2018.
Our view: Hallelujah! A rare instance of the tax system being simplified; enjoy this one as it doesn’t happen very often.
- The government will introduce two new income tax allowances – a £1,000 trading income allowance and a £1,000 property income allowance. Where individuals are earning trading or property income that is below these allowances, the income will no longer need to be declared and will not be subject to tax.
Our view: Whilst the allowances are small, we are always happy to see changes that benefit those earning a little extra income on the side (e.g. people who rent their home out on Airbnb when they go on holiday!).
Letting Agencies
- Tenants will no longer have to pay letting agency fees, as they are being banned by the government.
Our view: Whilst this sounds like good news at first, you can rest assured that the letting agencies will find another way to get their money, most likely by charging the landlord instead. This means that either the landlord takes the hit (yet another attack on the buy-to-let industry), or the landlord will pass the cost on in the form of higher rents.
Rate & Allowance Changes
- The tax free personal allowance will increase from £11,000 to £11,500 in April 2017, with the government planning to increase the allowance to £12,500 by the end of this parliament.
- The government confirmed it is committed to reducing the Corporation Tax rate to 17% by 2020 from the 20% that it is today (starting with a cut to 19% in April 2017). With this decrease, the UK will have the lowest corporation tax rate of all countries in the G20.
- The insurance premium tax rate is set to change from 10% to 12% from 1 June 2017.
- Fuel duty will remain unchanged, as it has done since 2010.