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Looking ahead: key changes for 2017/18
The start of the new tax year sees the introduction of a raft of changes to tax and business legislation. Here we outline some of the key measures that take effect from April 2017.
Introducing the Apprenticeship Levy
The new Apprenticeship Levy comes into effect on 6 April, as part of a government target to create three million new apprenticeships in England by 2020. The Levy requires larger employers (those with annual pay bills over £3 million) to invest a percentage of their yearly pay bill in apprenticeships.
The government is introducing a new digital account system for such employers, and payments will be taken each month in order to pay training providers.
The Levy is 0.5% of a business’s ‘pay bill’, although an annual allowance of £15,000 is available. Employers are required to report and pay the Levy using the PAYE process. There will only be a need to report on the Levy if the employer:
- had a pay bill of £3 million in the previous tax year; or
- if the employer considers that the pay bill will be over £3 million during the current tax year.
Many businesses will have no liability to pay the Levy, and therefore no reporting requirements. Non-Levy paying businesses will still be required to contribute towards the cost of training their apprentices. However, some concessions may apply.
Changes to ISAs
From 6 April 2017, the new Lifetime ISA will be available to any adult under the age of 40. Individuals will be able to deposit up to £4,000 per tax year, and receive a 25% bonus from the government on any savings put into the account before their 50th birthday.
The tax-free savings and the government bonus can be put towards a deposit for a first home in the UK worth up to £450,000 at any time, from 12 months after having first saved into the account. Should an individual wish to make contributions towards their retirement, the funds, including the bonus, may be withdrawn from age 60 tax-free.
Lifetime ISA holders can also withdraw money before their 60th birthday for other purposes. However, a 25% government charge will be applied to the amount of the withdrawal, along with a ‘small additional charge’.
Meanwhile, from 6 April 2017 the overall annual ISA subscription limit rises from £15,240 to £20,000. Additionally, the annual Junior ISA subscription limit will increase from £4,080 to £4,128.
An individual will only be able to pay into one Lifetime ISA each tax year, as well as a Cash ISA, a Stocks and Shares ISA and an Innovative Finance ISA.
The Pensions Advice Allowance
Following consultation, the government is to introduce a new Pensions Advice Allowance (PAA) from April. First announced in the 2016 Autumn Statement, the PAA will allow individuals to withdraw up to £500 three times a year from their pension pots tax-free, to put towards the cost of receiving regulated retirement advice.
New rules on inheritance tax (IHT)
April 2017 sees the introduction of the new ‘residence nil-rate band’ (RNRB) for each individual, to enable a ‘family home’ to be passed wholly or partially tax-free on death to direct descendants such as a child or grandchild.
The amount of relief will be phased in over four years and will initially be £100,000 in 2017/18, rising each year thereafter to reach £175,000 in 2020/21.
The RNRB may only be used in respect of one residential property which does not have to be the main family home but must at some point have been a residence of the deceased. Restrictions apply where estates are in excess of £2 million.
The RNRB is in addition to an individual’s own nil-rate band and any unused nil-rate band may be transferred to a surviving spouse or civil partner.
Salary sacrifice
From April 2017 the tax and employer national insurance advantages of many salary sacrifice schemes will be removed.
This will mean that employees swapping salary for benefits will pay the same tax as individuals who buy them out of their post-tax income. However, certain benefits will be exempt from the changes. These include: pension contributions and arrangements (including pensions advice); childcare vouchers; workplace nurseries; Cycle to Work schemes; and ultra-low emission cars with CO2 emissions of up to 75 g/km.
Arrangements made before April 2017 will be protected until April 2018. Arrangements put in place for cars, educational fees and accommodation will be protected until April 2021.
VAT flat rate scheme
A new 16.5% rate will be introduced for businesses with limited costs, such as many labour-only businesses. The new rate comes into effect from 1 April 2017, although anti-forestalling provisions are also in force.
A ‘limited cost trader’ is defined as one that spends less than 2% of its VAT inclusive turnover on goods in an accounting period. A firm will also be defined as a limited cost trader if its expenditure on goods is greater than 2% of its VAT inclusive turnover but less than £1,000 a year.
Autumn Statement Lowlights
Chancellor Phillip Hammond has delivered his first (and probably last) Autumn Statement.
Autumn Statement
Brexit – what are the likely implications for business?
The new Secretary of State for Exiting the European Union, David Davis, has recently indicated that formal Brexit negotiations could begin by the start of 2017 – so what could this mean for UK businesses?
It is important to note that in the short to medium term (until 2018 at least), there will not be any changes to tax and employment laws as a result of the vote.
VAT
However, once Britain’s withdrawal is complete, VAT (which is operated in line with EU law) could be subject to some significant reforms. In theory, the UK could even decide to replace VAT with a sales tax on goods and services, although many experts agree that this is highly unlikely.
The UK currently faces restrictions from the EU over its ability to reduce VAT rates on certain goods and services such as domestic fuel and power. If the UK is no longer obliged to comply with the EU VAT Directive, the UK Government could choose to amend the legislation to apply different rates to goods and services without constraint.
If VAT were to be applied to items that were previously exempt, or if there are changes to the rates of VAT, the financial implications for business could be sizeable. Some commentators have also argued that potential changes to VAT law could lead to more obligations and complexities, and business owners may need to invest time and money adapting their procedures and processes accordingly.
Importing and exporting
The potential restrictions on the free movement of goods between the UK and its EU neighbours could also trigger significant changes to how businesses import and export.
For example, currently when a UK firm buys goods from an EU business it makes an ‘acquisition’. The transaction does not result in any VAT being payable – a book entry in a VAT return being the only consequence, unless the UK business makes exempt supplies. However, following Brexit, the transaction is likely to be treated as an ‘import’ and import VAT would be paid to HMRC at the time of importation. Although this would be reclaimed by the business on the next VAT return (unless the business makes exempt supplies), the changes could have implications for the firm’s cash flow.
Business reliefs
Once Britain leaves the EU, the UK Government could have greater control over business reliefs such as R&D tax credits for SMEs, which currently have constraints placed upon them due to EU State Aid rules. Britain may also gain more flexibility over the rules governing the Enterprise Investment Scheme and Venture Capital schemes.
Employment laws
With much employment legislation derived from Brussels, concerns have been raised over whether this is another area that could be open to reform. However, while the UK Government could choose to amend working rights, many experts have suggested that significant reforms are unlikely.
Other regulations
In a recent blog on the Conservative Home website, David Davis suggested that he will seek to cut red tape with the aim of making ‘Britain a better place to do business’. He claimed the ‘regulation already in place will stay for the moment,’ but he added that the ‘flood of unnecessary market and product regulation’ will be halted. With fewer regulations to comply with, this could be good news for business owners.
A new Chancellor, a new economic policy
With a new Prime Minister and Chancellor at the helm, there could be significant changes to Britain’s economic and fiscal policies in the months and years ahead.
The Government has already axed its plans to achieve a budget surplus by 2020, while the former Chancellor George Osborne suggested that corporation tax rates could be cut further to encourage investment. Of course, this may now change following the appointment of the new Chancellor, Philip Hammond, although we will have to wait until the Autumn Statement for further details on the Government’s latest economic strategy.
Tax Strategies 2016/17
Planning for your business
A sound business tax strategy will include such things as:
- making the most of the available incentives, allowances and reliefs
- choosing the most appropriate structure for your business
- claiming tax deductible expenses
- deciding on the best year end date
- minimising your liability to capital gains tax (CGT)
- optimising the roles of family members
- a tax-efficient business exit strategy.
Planning for your personal finances
A good personal tax strategy will focus on helping to ensure that you, your family and your dependents are financially secure in the long term. It will typically include such elements as:
- a tax-efficient remuneration package
- tax-efficient ways to extract profit from your business
- tax-efficient saving and investment strategies
- retirement planning strategies
- estate and inheritance tax (IHT) planning
- tax-efficient gifting strategies.
2016/17 Reminders
6 April 2016 marked the date when a raft of employment tax changes came into force. Existing dispensations for expenses are obsolete. There are new restrictions on tax relief for travel and subsistence expenses under arrangements involving employment intermediaries. The existing rebate for employers with contracted out salary related (defined benefit) pension schemes came to an end, along with the £8,500 threshold that separates lower and higher paid employees for benefit in kind purposes.
The new regime for taxing dividends will apply with an initial £5,000 annual exemption. Lifetime and annual allowance restrictions take effect. The new exemption for trivial benefits comes into force. Employers have until 5 April 2016 to register for payroll online, specifying which benefits to payroll and to which employees receiving those benefits payrolling will apply. There will be a zero rate of employer’s class 1 NICs for apprentices under 25.
May Diary Dates
1 May
Start of daily penalties for 2015 online Tax Return not yet filed. Additional penalties may apply for further delay.
3 May
Submission date for P46 (Car) for quarter to 5 April.
31 May
Last day to issue 2015/16 P60s to employees
New Tax Measures to Consider
A number of key changes to tax legislation have come into effect, following the start of the new tax year. Here we outline some of the measures affecting businesses and individuals.
Business
National insurance for apprentices
6 April 2016 saw reforms to the rules on national insurance, with employers no longer required to pay Class 1 secondary (employer) national insurance contributions (NICs) on earnings paid to qualifying apprentices under the age of 25. This is effected through the new ‘zero rate’ for ‘relevant’ apprentices on weekly earnings up to the Upper Secondary Threshold (UST), which is set at £827 for 2016/17.
The exemption has been largely welcomed by the business community. Dr Adam Marshall, British Chambers of Commerce (BCC) Acting Director General, stated: ‘Abolishing employer contributions will encourage more businesses to hire young apprentices, at a time when the UK is faced with a growing skills shortage’.
Employment Allowance
Additionally, the Employment Allowance for employer NICs has increased from £2,000 to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance. The Government hopes the higher allowance will help businesses with the increased costs associated with the National Living Wage (NLW), which came into force on 1 April for workers aged 25 or over and has been set at a rate of £7.20 an hour.
Individuals
The new tax year also heralds a number of additional changes affecting individuals, with significant reforms to savings, pensions and dividends now in effect.
Personal Savings Allowance
From the 2016/17 tax year onwards an estimated 95% of savers will no longer pay tax on their savings income, following the introduction of the new Personal Savings Allowance (PSA). The PSA allows basic rate taxpayers to earn up to £1,000 each year in tax-free savings income (such as interest), while higher rate taxpayers can receive up to £500 before paying tax on their savings income. The PSA does not apply to additional rate taxpayers.
ISAs
Those saving into an Individual Savings Account (ISA) can now benefit from increased flexibility. Under new rules, from 6 April 2016 savers can replace cash they have withdrawn from their ISA account earlier in a tax year without this replacement counting towards the annual ISA subscription limit.
New State Pension
The much-anticipated new ‘flat rate’, or ‘single tier’ State Pension has also now come into effect. The rate of payment has initially been set at £155.65 per week – however, this may vary in accordance with an individual’s national insurance record.
Annual allowance
Meanwhile, from 6 April those with adjusted annual incomes over £150,000 will have their pensions annual allowance reduced by £1 for every £2, down to a minimum of £10,000. In addition, the lifetime allowance has fallen from £1.25 million to £1 million.
Changes to dividends
Other significant changes include the introduction of new rules on the taxation of dividends. The 10% dividend tax credit has been abolished from the 2016/17 tax year onwards, and a new Dividend Tax Allowance of £5,000 a year has been introduced. Dividend tax headline rates have also been reformed: the new rates of tax on dividend income exceeding the allowance will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Personal Tax Planning
You might not have millions stashed away in offshore funds but the fact remains that sensible tax planning within the law remains an important part of your financial planning strategy. By making use of the allowances and reliefs that have been made available, you can remain on course to achieve your business and personal goals. We can help you with this process.
Business Taxpayers Quarterly Reporting
HMRC intend that businesses (corporates, the self-employed and partnerships), and including both trading businesses and landlords, will be required to keep track of their tax affairs online, updating HMRC at least every three months via a digital tax account. The rules will not apply to employees or pensioners unless they have secondary income from self-employment or property of more than £10,000 a year. This requirement will be phased in starting from 2018/19 for self-employed businesses and landlords.
There is little detail as yet as to how this quarterly reporting will operate in practice, in particular, what information will be required, and whether it will fully replace the tax return.
It is not clear whether earlier payments and/or more frequent payments will also be needed in respect of business and rental income, but a discussion paper on this subject issued alongside the Making Tax Digital roadmap sets out HMRC’s initial thinking on this matter. Budget 2016 confirmed that a ‘pay-as-you-go’ option for tax payments will be made available by 2018.
Next steps
We expect there to be further announcements and consultations over the next couple of years as the details of the system evolve. In particular consultation documents are expected to be published in 2016 covering the following:
Further details of quarterly reporting
The tax administration framework
Access to third party data
Tax payment dates
We will of course keep clients updated as more information becomes available.
Chancellor presents a Budget 'for the next generation'
16 Mar 2016
Chancellor George Osborne delivered his eighth Budget to the House of Commons, dubbing it a ‘Budget for the long term’ but warning that ‘the storm clouds are gathering again’.
Having proclaimed that the British economy is ‘fit for the future’ and that the Government remains on course to achieve a budget surplus of £10.4bn in 2019/20, the Chancellor warned that a growing tide of global economic gloom threatens to overshadow the UK.
With low productivity and a weak global outlook continuing to present a ‘dangerous cocktail of risks’, the Chancellor revealed that the Office for Budget Responsibility (OBR) has significantly revised down its economic forecasts for the next five years, with UK economic growth forecast to be just 2% in 2016.
Official figures also revealed that the Chancellor has missed his target to reduce debt as a share of GDP. Borrowing forecasts have been revised upwards to £55.5bn for 2016/17, and the Chancellor announced the need for deeper spending cuts, with £3.5bn of additional savings to be made by 2019/20.
With an EU referendum fast approaching the Chancellor was keen to point out that the OBR’s forecasts were predicated on there being no Brexit, and to share its misgivings that leaving the EU could usher in a ‘period of uncertainty’ for the UK.
Business tax roadmap
The Chancellor revealed a package of business tax measures, announcing that the Small Business Rate Relief threshold will rise from £6,000 to £15,000 from April 2017 and promising further radical changes, with the uprating of business rates set to change from RPI to CPI. Greater London will see the complete devolution of business rates from next April.
In additional measures for SMEs, stamp duty on commercial property has been reduced for lower value purchases with effect from midnight, while corporation tax will see another reduction, reaching 17% by April 2020.
Measures for individuals
Meanwhile, for individuals, building on the recent announcement of a new Help to Save scheme, the Chancellor unveiled a new Lifetime ISA for the under-40s, which will allow individuals to save up to £4,000 a year towards buying a home or financing their retirement, which the Government will top up by 25%.
Other key announcements on personal taxation included the next step in the Government’s drive to increase the income tax personal allowance, which will rise to £11,500 from April 2017, at which time the threshold for higher rate tax will also rise to £45,000.
Capital gains tax rates will also be cut, with the headline rate falling from 28% to 20% and the basic rate from 18% to 10% with effect from 6 April.
Fuel duty will remain frozen for the sixth consecutive year, while tobacco duties will rise above inflation, and from 2018 a new sugar levy on the soft drinks industry will aim to combat the problem of childhood obesity.
Other significant measures include additional investment in the nation’s infrastructure, further measures towards the ‘devolution revolution’ and plans to turn every school in England into an academy.