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ONLINE ACCOUNTANTS & TAX ADVISERS

Budget 2017



The Chancellor of the Exchequer presented his Budget to Parliament on 8th March 2017.


Summaries of the main announcements which affect Small businesses, Contractors / Freelancers, Private individuals and Landlords are outlined below.


All applicable clients will automatically receive an expert and bespoke review (not a standard mail shot) of their tax affairs to identify any specific and relevant tax planning opportunities or restrictions arising from the legislative changes.


The proposals below are subject to change upon the passing of the actual legislation (Update 25/04/17: Following the announcement of a general election, the government have delayed or altered certain provisions below. Please contact us).


Rate and threshold changes


(Click here)


For 2017/18, individuals with income over £123,000 will not receive any personal allowance.


Corporation tax rate

The CT rate will be reduced from 20% to 19% from 01/04/17 and to 17% from 01/04/20.

Class 2 NIC

From April 2018, Class 2 NICs will be abolished. Subsequently, traders whose profits are below the Class 4 threshold and who are not eligible for NIC credits may need to pay Class 3 contributions in order to accrue entitlement to State Pension and other contributory benefits.

Class 4 NIC (This change has been scrapped by the chancellor 15.03.17)

From April 2018, the rate of class 4 NIC will increase to 10% and then from 6 April 2019 to 11%.

Dividend allowance

The tax free dividend allowance will reduce to £2,000 from April 2018. The maximum impact is £225 a year in additional income tax.

Trading stock

The conversion of capital losses to trading losses by using an election to appropriate property to trading stock has been removed.

This means that a capital loss will be crystallised when the appropriation takes place and the loss will be a capital loss rather than an income loss.


Childcare


A new tax free childcare scheme will be introduced from April 2017. This will allow working families across the UK to receive up to £2,000 a year towards the cost of childcare for each child under 12. It replaces the current childcare voucher scheme and is open to both employees and the self employed.


The new tax free childcare scheme will not be open to those earning more than £100,000 a year. Parents with incomes in excess of this figure should consider signing up for the childcare voucher scheme ahead of April 2018.


Salary sacrifice

From 6 April 2017 restrictions will apply to all benefits provided under salary sacrifice arrangements with the exception of pensions contributions, ultra-low emissions vehicles, childcare, and cycle to work schemes. Essentially all other benefits will have a tax and employer’s NIC Class 1 charge on the higher of the benefit value if the benefit was not provided under salary sacrifice, or the amount of salary sacrificed. There are transitional arrangements for salary sacrifice arrangements already in place at 6 April 2017.


Pension contributions - Overseas transfers

A 25% tax charge will be introduced on transfers of pension assets to another jurisdiction. Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the EEA.

Pension contributions - Annual allowance

The money purchase annual allowance (MPAA) will reduce from £10,000 to £4,000 from 6 April 2017.

Any unused MPAA cannot be carried forward for later years.

It is only when pension benefits have been flexibly accessed that the MPAA applies

Digital tax reporting

Traders or landlords with income of more than £10,000 each year will need to make quarterly reports of their income and expenses using an online tax account.  It is intended that this quarterly reporting will replace the annual tax return.  Digital tax reporting is due to start from April 2018.  

For unincorporated businesses with an annual turnover of less than the VAT registration threshold, the start of online reporting has been delayed until April 2019.  

R & D tax relief


Measures will be introduced to reduce the administrative burden of making R & D tax claims.

Consultation on VAT avoidance in the construction sector

The government has announced that it will publish a consultation document on options to address the supply of labour in the construction industry. Possibilities could include introducing a reverse charge (operating in the same way as services bought in from abroad) requiring the recipient of the services to account for the VAT.

The qualifying criteria for gross payment status within the Construction Industry Scheme will also be reconsidered.

VAT flat rate scheme

As we previously announced, from 1st April 2017, all businesses under the flat rate scheme will be required to determine whether they fall under the definition of a ‘limited cost trader’. A new 16.5 flat rate percentage will apply to limited cost traders.

A limited cost trader is one whose VAT inclusive expenditure on ‘goods’ is either:

Anti-forestalling legislation applies to prevent any trader continuing to use a lower flat rate by issuing an invoice or receiving a payment before 1 April 2017 for services supplied after that date.

Utilisation of brought forward losses

Losses arising on or after 1 April 2017 can be offset, when carried forward, against profits from other income streams and will be available for surrender to other group companies via group relief.

Public sector contractors

As we previously announced, from April 2017, where individuals are working for the public sector, the responsibility for determining whether IR35 apples and ensuring the correct tax / NIC is paid will fall onto the public sector departments and organisations, rather than the intermediary themselves. If, however, the public sector body engages with an agency or other form of intermediary the responsibility for carrying out the employment status assessment and deducting PAYE and NIC will pass to the agency or intermediary.

The new HMRC status check has been published below:


 https://www.gov.uk/guidance/check-employment-status-for-tax


Key points from new guidance is as follows:





Employers - The National Living Wage

The Government's National Living Wage applies to all working people aged 25 and over. From April 2017 the rate will increase to £7.50.

Scottish rates of income tax

The main higher rate threshold will increase from £43,000 to £45,000 but income subject to the Scottish Rate of Income Tax (SRIT) will remain subject to the current threshold of £43,000. The new threshold only applies to non-savings and non dividend income. Where Scottish taxpayers have taxable savings or dividend income, this income will instead be subject to the main £45,000 threshold.


Benefits in kind


Legislation will be introduced to align the dates for making good on benefits in kind. From 2017/18 onwards, the date for an employee to make a payment in return for a benefit in kind (to reduce the taxable value of the benefit) will be 6 July following the end of the tax year.


Termination payments

From 2018/19, termination payments in excess of the £30,000 exemption will be subject to employer’s national insurance contributions (NIC).

Foreign service relief will also be removed but if the employment to which the termination payment relates was not taxable as employment income in the UK, the termination payment will not be chargeable to tax in the UK.


If a termination payment is paid with no contractual PILON the new rules will operate by deeming a proportion of the termination payment to be salary, which will be subject to income tax and NIC, and the £30,000 income tax and NIC exemption can apply to the balance remaining.


Tax free property and trading income

From 6 April 2017, tax free allowances of £1,000 each will be introduced for property and trading income (turnover before the deduction of expenses).

Those with income above the allowance can benefit by simply deducting the relevant allowance from their gross income instead of calculating and deducting their exact expenses.

Amendments will be made to the law to prevent the allowances from applying to income of a participator in a connected close company or to any income of a partner from their partnership.


Substantial Shareholding Exemption

The substantial shareholding exemption provides a tax exemption where a parent company disposes of shares in another company. As we previously announced, the conditions for the exemption to apply will be relaxed with effect from 1 April 2017. Under current rules, the company making the disposal must be a trading company or a member of a trading group. This condition will not apply from 1 April 2017.


From 1 April 2017, the company making the disposal must have held at least 10% of the shares for a period of at least 12 months in the previous six years (rather than the previous two years under current rules).


Under current rules, the company being sold must be a trading company or the holding company of a trading subgroup immediately after the disposal. This condition will not apply from 1 April 2017 where the purchaser is not connected with the company making the disposal.


Inheritance Tax

The Residence Nil Rate Band (RNRB) will apply when individuals pass their home down to a direct descendant on death.

The RNRB will be come into force from 6th April 2017 at an additional rate of £100,000 (rising to £175,000 by 6 April 2020). From 6 April 2020, a couple can leave up to £1m without an IHT liability.

The RNRB will increase in line with Consumer Prices Index (CPI) from 2021-22 onwards. Any unused proportion of the RNRB will be able to be transferred to a surviving spouse or civil partner. The RNRB will also be available when a person downsizes or ceases to own a home and assets of an equivalent value, up to the value of the RNRB, are passed on death to direct descendants.  The qualifying residential interest will be limited to one residential property. A property which was never a residence of the deceased (e.g. buy to let) will not qualify.

Where an estate has a value of more than £2m (before reliefs such as business property relief and agricultural property relief), the RNRB will be withdrawn at a rate of £1 for every £2 over this threshold.

Cash basis and simplified accounting


The government will increase the thresholds within which unincorporated businesses can use the cash basis. Legislation will come into force on 6 April 2017 which will increase the threshold for the cash basis from £83,000 to £150,000. The exit threshold will be increased to £300,000 for all users of the trading cash basis.


The new legislation will include a simple list of disallowed expenditure, in order to simplify the rules for allowable deductions within the cash basis.


VAT - Online traders


The Government will look at methods of extracting VAT from online sales using modern technology at the time payment by the customer is made.


Life assurance bonds


From 6 April 2017 individuals who have part surrendered or part assigned their life insurance policies and inadvertently generated a wholly disproportionate tax charge can apply to HMRC to have the charge recalculated on a just and reasonable basis.


EIS - share conversions


A conversion of shares into a new class is a disposal of shares for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) purposes, leading to a clawback of tax relief in some cases. The  Finance Act 2017 will amend this treatment, so the rights to convert shares from one class to another will not lead to a clawback of tax relief for shares issued on or after 5 December 2016.


ISAs

A new ‘Lifetime ISAs’ will be available from April 2017. These will be available to adults under the age of 40 who will be able to contribute up to £4,000 each year to the account (upto the age of 50). The funds which will include a 25% bonus provided by the Government can either be used to buy a first home (upto £450k) or withdrawn from the age of 60.

The overall annual ISA subscription limit will also increase from £15,240 to £20,000 from 6 April 2017.

Clients under the age of 40 now will need to consider whether a traditional pension remains the attractive vehicle for retirement planning instead of this new Lifetime ISA.

Employer provided pensions advice

Tax relief available for employer-arranged pensions advice will increase from £150 to £500 per employee as of April 2017.

Non-domicile status

From 6th April 2017 an individual who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes. A technical consultation will be published later this year.

Individuals who are born in the UK to parents who are domiciled in the UK will no longer be able to claim non domicile status whilst they are resident in the UK.

Non-doms who establish a non-UK resident trust before becoming deemed-domiciled in the UK under the new rules will not be taxed on foreign income and gains (including UK gains) retained in the trust.

Non-doms who become deemed domiciled in April 2017 can treat the cost of their non-UK based assets as being the market value of that asset on 6 April 2017

Tax avoidance

New legislation commencing on 6 April 2017 will:






For these purposes, schemes are defeated when the courts decide an arrangement fails or where the taxpayer’s position is concluded in another way to remove the anticipated tax saving, eg via a follower notice, assessment or contract settlement.


Patent box


The Patent Box is a reduced rate of corporation tax applied to Patent Box profits in companies that develop and exploit patented processes or products. The rate of tax applied to Patent Box profits is currently 11%, compared to the main rate of corporation tax of 20%. From 1 April 2017 the rate will reduce to 10%.