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The Spring Budget 2017: A Summary

On 8 March 2017 the chancellor Philip Hammond announced his first (and last) Spring Budget.

Post Brexit vote, the Chancellor stated that this budget aimed to build the ‘‘foundations of a stronger, fairer, more global Britain’’. He stated that despite higher employment levels, Britain’s productivity remained low. Therefore, with these opening comments, it was initially expected that the Chancellor would be incentivising businesses (and business owners) who operate in Britain, whether they trade through limited companies, partnerships or sole trader entities. 

Some announcements in the budget did this, in terms of potential reliefs available on business rates, lower administrative burdens for the research and development scheme, and more incentives for childcare costs. However, these advantages were significantly outweighed by the increase in Class 4 National Insurance contributions for the self-employed (sole traders and partners of partnerships), and by the reduction of the dividend allowance to £2,000 (which has an impact on owner managed director-shareholder companies).

We have summarised the key changes as follows:

Personal Taxation

  • The main rate of Class 4 National Insurance contributions (which are based on profits for self-employed sole traders and partners) are to increase from 9% to 10% in April 2018 and to 11% in April 2019
  • Class 2 National Insurance, a separate flat rate contribution paid by self-employed individuals making a profit of more than £5,965 a year, will be abolished (as previously announced) in April 2018
  • No changes to National Insurance paid by the employed and employers or to income tax or VAT
  • Personal tax-free allowance to rise (as previously announced) to £11,500 for the 2017/18 tax year and increase to £12,500 by 2020
  • The higher rate threshold to be set at £45,000 for the 2017/18 tax year (as previously announced) and increase to £50,000 by 2020
  • Reduction in the tax-free dividend allowance from £5,000 to £2,000 (effective from April 2018)
  • Dividend income paid on shares held in a stocks and shares ISA will remain tax free
  • Measures to tackle abuse of overseas pension schemes will be introduced

Businesses

  • Administrative requirements for the research and development scheme are to be reduced (measures to be announced)
  • The effect of the 2017 business rates revaluation is to be mitigated by a potential reform of the revaluation process. Thresholds will be raised on rates so that 600,000 small businesses are excluded from having to pay rates
  • No business (losing small business rate relief) will see their rates bill increase next year by more than £50 per month, and subsequent increases will be capped at either transitional relief cap or £50 per month (whichever is higher)
  • Pubs with a rateable value of less than £100,000 to get a one-year £1,000 discount in 2017 on rates they would have paid (according to the Chancellor this will affect 90% of pubs)
  • The Chancellor has advised that the government will find a way of taxing the digital economy
  • Measures to be introduced to stop businesses converting capital losses into trading losses
  • Introduction of UK VAT on roaming telecoms services outside the EU
  • Privately-owned SMEs with turnover below the VAT registration threshold will get extra year to prepare for tax digitisation and quarterly reporting
  • Review of taxation of North Sea oil producers
  • No increases in alcohol or tobacco duties on top of those previously announced
  • A new minimum excise duty on cigarettes based on a packet price of £7.35
  • Tobacco will rise by 2% above Retail Price Index (RPI) inflation, with a packet of 20 cigarettes costing 35p more
  • Duty on beer, cider, wine and spirits will increase in line with RPI inflation. This will equate to 2p on a pint of beer, 1p on a pint of cider, 36p on a bottle of whisky and 32p on a bottle of gin
  • Fuel duty frozen for a further year
  • Vehicle excise duty rates for hauliers and the HGV Road User Levy frozen for another year
  • Most sugary soft drinks to be taxed at 24p per litre as part of plans to reduce childhood obesity

Other Announcements

  • Parental benefits for the self-employed to be reviewed this summer. Presently self-employed fathers cannot receive paternity pay/allowance and it is thought this may change
  • Next month the introduction of the Tax Free Childcare Policy will allow working families to receive up to £2000 per year in childcare costs for each child under 12 (for eligible parents only)
  • From September, working parents with 3 and 4 year olds will have free childcare entitlement doubled to 30 hours per week
  • Regarding the funding of care for the elderly, the Chancellor will set out the options for this funding in the Green Paper this year. He has confirmed that those options will not include an additional death tax (Labour had previously proposed an additional 15% death tax levy to the 40% inheritance tax rate to fund social care for the elderly)
  • From July 2017 financial penalties will be imposed on professionals who enable a tax avoidance arrangement that is later defeated by HMRC
  • £300m to support 1,000 new PhD places and fellowships in STEM (science, technology, engineering and maths) subjects
  • Free school transport extended to all children on free school meals who attend a selective school
  • £320m of funding for 110 new free schools and grammar schools
  • Number of hours of training for technical students aged 16 to 19 increased by more than 50%, including a high-quality, three-month work placement
  • £100m to place more GPs in accident and emergency departments for next winter
  • Additional £325m to allow the first NHS Sustainability and Transformation Plans to proceed
  • Transport spending of £90m for the North of England and £23m for the Midlands to address pinch points on roads
  • £690 million competition fund for English councils to tackle urban congestion
  • £270m for new technologies such as robots and driverless vehicles
  • £16m for 5G mobile technology and £200m for local broadband networks
  • £250m in funding for Scottish Government, £200m for Welsh Government and £120m for Northern Ireland Executive
  • Funding of £5m to support people returning to work after a career break

Should you have any queries on the above, please do not hesitate to contact a member of the Spirare team.

The VAT Flat Rate Scheme: What’s changing from 1 April 2017?

 

In November 2016, the Autumn Statement announced significant changes for businesses who use the flat rate scheme for VAT. These changes will be brought into effect from 1 April 2017, and will impact businesses with costs which are predominantly for services, as opposed to goods.

The flat rate scheme is a VAT scheme which essentially simplifies VAT for smaller businesses and allows for a set industry based percentage to be applied to the gross sales figure to ascertain the VAT payable. Previously, this therefore had advantages for service based businesses. However, this will change on 1 April 2017.

Any business that is defined as a ‘limited cost trader’ will be subject to the new 16.5% flat rate percentage with effect from 1 April 2017. Therefore, businesses can continue to use the flat rate scheme, although the business could be subject to the new rate if defined as a ‘limited cost trader’.

What is a ‘limited cost trader’?

A limited cost trader is defined as one whose VAT inclusive expenditure on goods is either:

  • Less than 2% of their VAT inclusive turnover in a prescribed accounting period

  • Greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year

Please note that the above relates to goods NOT services.

Furthermore, goods for the purposes of this measure must be used exclusively for the business, and exclude the following items:

  • Capital expenditure (asset additions)

  • Food or drink for consumption by the flat rate business or its employees

  • Vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)

     

Who will this affect?

This will affect labour-intensive businesses where the amount of expenditure on goods is minimal. For example, this may effect consultants, architects, IT firms, hairdressers, estate agents, agricultural workers, recruitment agencies, builders who provide services only, and other tertiary sector businesses.

 

If you are a business and you would like further advice on the flat rate scheme and flat rate scheme changes, please contact a member of the Spirare Team.

The Autumn Statement: A Summary

The Chancellor of the Exchequer Philip Hammond has delivered his first Autumn Statement. Avoiding what he referred to as ‘‘rabbit out of hat’’ announcements, there have been comparatively few surprises.
The predominant surprise being that this will be the final Autumn Statement, and it will be replaced with an annual budget, from Autumn 2017 onward, followed by a Spring fiscal statement.
The Chancellor has advised that his priority is to ensure that Britain remains the number one destination for business.
We have summarised the key announcements and confirmations from today’s Autumn Statement as follows:

Businesses
• Corporation tax will decrease to 17% from 2020 (the lowest rate of corporation tax in the G20)
• Business rates reduction package has been confirmed - transitional relief cap lowered, and there will be an increase of rural rate relief to 100% providing small businesses in rural areas a tax break
• Corporation tax loss relief - changes to rules with effect from April 2017
• Employers National Insurance Contributions on redundancy payments- If an employee is made redundant, the first £30,000 of termination payments will remain tax free, however from April 2018 termination payments over £30,000 which are already subject to income tax will also be subject to Employers National Insurance Contributions
• Capital allowances will be available at 100% on the installation on charging stations for electric cars
• Further investment in research and development

Individuals (including employees)
• The personal allowance will rise to £11,500 in April 2017, and to £12,500 by 2020, thereafter rises will be in line with CPI
• The point at which individuals will start paying the higher rate for tax will be increased to £50,000 by 2020, £45,000 from April 2017
• National insurance contributions for employees and employers will aligned to £157 per week from April 2017
• Class 2 NIC for the self-employed to be scrapped from April 2018, as previously announced
• Tax advantages for employees who previously benefitted from salary sacrifice services such as mobile phone salary sacrifice schemes will be removed. However, childcare, cycle to work and ultra-low emission car schemes will be unaffected, as will saving for your pension in this way
• Insurance premium tax to increase from 10 to 12% from June 2017
• National Living Wage will be raised to £7.50 from £7.20 from April 2017
• Universal Credit taper rate will be reduced from 65% to 63%
• New savings bond through NS&I with 2.2% interest rate over three years. Savers will be able to deposit up to £3,000. There will be more detail on this in the Budget next year
• Tax free childcare roll-out will begin in 2017, and will be kept under review to ensure it is "delivering the support it needs to working families". Mr Hammond has advised this would represent a saving of £2,000 per child.
• No fuel duty increase for the seventh successive year, saving motorists £130 a year
• A ‘‘triple lock’’ on the state pension will remain
• The annual allowance for those who have started to ‘‘draw down’’ their pension savings will be cut from £10,000 to £4,000
• The tax treatment of foreign pensions will align more with UK tax treatment rules (currently there are opportunities to extract money without paying UK tax)

Tax Avoidance
• Tax advantages for employee shareholder schemes are to be reviewed
• The use of the flat rate scheme for businesses use is to be targeted- The government announced it will bring in "a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. This will help level the playing field, while maintaining the accounting simplification for the small businesses that use the scheme as intended."

Other
• Letting agent’s fees charged to tenants are to be banned. This will result in letting agents charging the landlords costs for services such as credit and immigration checks
• The Help to Buy ‘‘equity loan’’ and the Help to Buy ISA will remain in force
• Right-to-buy for housing association tenants
• Working families will be eligible for 30 hours a week of free childcare for all 3 and 4 year olds from September 2017
• No further welfare savings measures

Should you require any further details, please do not hesitate to contact a member of the Spirare team.

National Minimum Wage Increases with effect from 1 October 2016

Following on from recommendations made by the Low Pay Commission (LPC), the National Minimum Wage will increase from today – 1 October 2016.

The Government announced no increase in the rate for over 25 year-olds (which remains at £7.20 per hour); an increase in the rate for 21 to 24 year-olds of 25p (from £6.70 to £6.95 per hour); an increase in the rate for 18 to 20-year-olds of 25p (from £5.30 to £5.55 per hour); a 13p increase in the rate for 16 to 17-year-olds (from £3.87 to £4 per hour) and a 10p increase in the rate for apprentices (from £3.30 to £3.40 per hour).

However, not all workers qualify for the national minimum wage. It is important to distinguish the difference between apprentices and standard employees. An apprentice is an individual aged 16 to 18 (and aged 19 or over who are in their first year of their apprenticeship). Apprentices qualify for the apprentice minimum wage, and not the standard worker minimum wage. All apprentices aged 19 and over and in the second year of their apprenticeship qualify for the standard national minimum wage rates for their age.

Employees who qualify for the minimum wage are workers of school leaving age (aged 16 the last Friday in June of the school year). Those workers can be part-time, casual workers, agency workers, trainees and workers on probation, disabled workers, agricultural workers, foreign workers, seafarers and offshore workers. It is important to note that contracts for payments below the minimum wage are not legally binding. The worker is still entitled to the minimum wage.

Holiday days also need to be taken into consideration when employing a worker/apprentice. Apprentices are entitled to a minimum of 20 days of holiday per annum, excluding bank holidays which is the same as standard employees working a 5 day week.

If you require any further information on the national minimum wage increases, employee classification, or holiday entitlements please contact the team at Spirare.

Making Tax Digital

In March 2015 the Chancellor, George Osborne announced an initiative which will see a major leap in the modernisation of the tax system, by way of the development of ‘digital tax accounts’. This change may lead to a reduction and potentially signals the end of the Self-assessment tax return as we know it.

What does it mean for individuals?

The initial proposal suggested that by 2016 all individuals will have their own online ‘Personal Tax Account’. The online account will hold information from third parties, such as employers, pension providers and banks. This information will be updated on a regular basis.

An individual can login into their own online secure account and review, update and check the information held.

The benefit to the individual is that all the information held will be in ‘real time’. This will enable the individual to monitor the amount of tax due at any given time. Additionally, repayments will be identified early and steps can be taken to reclaim this over the remainder of the tax year. The whole system is deemed to make it easier to file, pay and update your tax information online at any time.

An individual will be able to authorise their agent to monitor and review their ‘Personal Tax Account’ on their behalf.

However, on the contrary to this, the automatic system may not apply certain tax reliefs where applicable, due to the specific eligibility guidelines, therefore many individuals who may enter their information and may think it as a more cost effective way to do so, may not claim all of the tax reliefs available. This is particularly relevant for capital gains disposals and the application of tax reliefs such as rollover or entrepreneurs relief. Thus for those who do not seek advice, this ‘easy’ option could prove a less cost efficient option.

What does it mean for businesses?

The initiative is for businesses to be able to link their business accounting software to their personal online tax account. The Government has announced that compatible software will be free of charge to small businesses. For some ‘small businesses’ this may be their first experience of reporting their business activities on accounting software. Additionally, the software may not be suitable for all businesses.

Businesses will be required, although full details are yet to be disclosed, to submit ‘summaries’ of their income and expenditure on a quarterly basis through their online account.

It is anticipated that small, non-VAT registered businesses and landlords will be required to make submissions for accounting periods starting after April 2018. All VAT registered businesses will need to be compliant from April 2019 and companies from April 2020.

Advantages to small business

The quarterly reporting will enable small business to plan more effectively and manage cash flow. There will be an option for businesses to align all taxes and pay on a quarterly basis.

Disadvantages to small business

Further compliance in respect of filing accounting information

Tax reliefs which the business may be eligible for may not be automatically applied due to the specific rules for eligibility

Time and resources in producing further data for reporting purposes

Overhaul of current accounting processes in order to comply with new regulations

Quarterly reporting is unlikely to take into account certain tax adjustments, such as capital allowances, private use adjustments. These adjustments can make significant differences when calculating potential tax liabilities. This could result in under or overpayments of taxes, thus overriding the reason for real time reporting.

Therefore the long term proposal for a new tax system, which aims to make it easier for all taxpayers — individuals and businesses — to manage their tax affairs and pay the right tax at the right time, should be promising from a cash flow perspective, although it may not be as cost effective as initially suggested, as there will undoubtedly still be a need to check and apply for specific tax reliefs where available.

If you are using the new personal tax account, and you would like to seek advice on any forms of tax relief that the online account is not currently applying, please do not hesitate to contact the team at Spirare.

Annual Confirmation Statement to replace current Annual Return for Limited Companies

From 30th June 2016, the current Annual Return for limited companies (an annual administrative requirement) will be replaced by the new Confirmation Statement. The Confirmation Statement serves a similar purpose as the Annual Return - to supply information for inclusion on the public register - and is also filed once every 12 months.

So what’s different?

Rather than providing a current statement of data at the time of submission, the requirement will be to simply ‘check and confirm’ the information held is correct. Any changes or updates to information can be reported with the Confirmation Statement throughout the year.

The date of which a Confirmation Statement is to be filed can be chosen, providing at least one statement every 12 months is delivered. Positive implications of this would be that the filing date can be aligned with other statutory filing dates for administrative ease, although it is important to be aware that the initial deadline will be 12 months from the last annual return submission or before. Once submitted, the next due date will be twelve months from the day of submission. For example, if your first confirmation statement is due on 1st September 2016, but you submit the statement on 1st August 2016, the following year’s deadline will be 1st August 2017. 

A key important change to be aware of is that filing must now be completed within 14 days of the due date as opposed the Annual Return’s 28 days leniency.

Once filed, unlike the Annual Return, you can update the information as many times during the year as needed without paying any additional fees. The yearly filing fee to Companies House remains the same; £13 when filed online or £40 when filed on paper.

Another difference, particularly notable for its introduction in 2016, is that the Confirmation Statement includes the information held in an entity’s PSC register.

What is a PSC Register?

From April 6th 2016, companies, Limited Liability Partnerships (LLPs) and Societates Europaeae (SEs) must start keeping details of People with Significant Control (PSC). The PSC Register has been introduced as part of the Small Business, Enterprise and Employment (SBEE) Act 2015, with the intended purpose being to improve corporate transparency to the public by disclosing who owns and controls UK-registered corporations. A person with significant control can be defined by meeting one or more of the conditions listed: 

  1. Owns in excess of 25% of the company’s issued shares

  2. Holds 25% or more of the company’s voting rights

  3. Has the right to appoint or remove the majority of the board of directors

Further, less common, conditions include:

  1. Any individuals who have the right to, or actually exercise significant control or influence over the company

  2. Where a firm or trust meets one of the initial three statements, PSC’s are individuals with significant control or influence over that trust or firm

Changes to PSC details should be reported on submission of the Confirmation Statement. Failure to keep the information up to date can result in a criminal offence. Any companies incorporated after 30th June will need to complete a statement of initial control containing the company’s PSC information when registering.

Overall therefore the abolition of the Annual Return and the introduction of the Confirmation Statement will undoubtedly result in a more transparent view of all companies registered in the UK, as the percentage of interest and personal details of previously undisclosed individuals (and legal entities) will now require disclosure on public record. It will also undoubtedly further the administrative requirements of UK registered companies.

If you require any further information on the above changes, please do not hesitate to contact a member of the Spirare team.