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 Should an individual wish to make contributions towards their retirement, the funds, including the bonus, may be withdrawn from age 60 tax-free.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.
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.