Chancellor Philip Hammond has delivered his first, and seemingly last, Spring Budget Statement. At the 2016 Autumn Statement, the Chancellor announced that, following the spring 2017 Budget, the government would be moving to a single major fiscal event each year. Future Budgets will be delivered in the autumn, which means there will now be a second Budget before the end of 2017 to switch to the new timetable. The aim of the new system is for the Finance Bill, which is normally published after the annual Budget, to reach Royal Assent stage in the spring of each year, before the start of the following tax year. The change in timetable is designed to help Parliament to scrutinise tax changes before the tax year where most take effect.
In line with pre-Budget speculation, the Chancellor said that, as the government starts its negotiations to exit the European Union, this Budget would take forward its plan to prepare Britain for a brighter future, providing a strong and stable platform for those negotiations.
The Office for Budget Responsibility (OBR) has reported that last year, the British economy grew faster than the United States, Japan, and France. Unemployment in the UK is at an 11 year low with over 2.7 million more people in work than in 2010. The Chancellor was also pleased to report on International Women’s Day, that there is now a higher proportion of women in work than ever before. But, Mr Hammond said, there is ‘no room for complacency’ and ‘we must focus relentlessly on keeping Britain at the cutting edge of the global economy’. Whilst the deficit is down, debt is still reportedly too high. This Budget therefore focused on taking ‘the next steps in preparing Britain for a global future’.
There was much focus on measures designed to promote fairness within the tax system, ensuring that ‘those with the broadest shoulders bear the heaviest burden’. The Chancellor said that as a result of the changes made since 2010, the top 1% of income tax payers now pay 27% of all income tax. However, he went on to say that ‘a fair system will also ensure fairness between individuals, so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax’. This led on to proposed changes concerning the dividend allowance (to be reduced from its current level of £5,000 a year to £2,000 a year from April 2018); and increases in the rate of Class 4 National Insurance Contributions (a proposed increase of 1% to 10% from April 2018 and a further increase of 1% in April 2019).
The Chancellor said that whilst the government believes that people should have choices about how they work, those choices should not be driven primarily by differences in tax treatment. That said, he confirmed that Matthew Taylor, Chief Executive of the RSA, has been asked to consider the wider implications of different employment practices, with a final report expected this Summer. This may indicate that there will be further announcements in this area later this year.
Regarding tax, highlights from this Spring Budget Statement, most of which were originally announced in the 2016 Autumn Statement or earlier, include:
– confirmation that the main rate of corporation tax will be 19% for the 2017 financial year, reducing to 17% in 2020;
– confirmation that the tax-free personal allowance will be £11,500 in 2017/18 and that it will rise to £12,500 before the end of the current Parliament;
– from September 2017, free childcare for three and four year olds will increase from 15 to 30 hours, worth up to £5,000 for each child;
– the rollout of tax-free childcare will be completed by the end of the year;
– as promised, the R&D tax credit regime has been reviewed and the government has concluded that it is globally competitive;
– for businesses with turnover below the VAT registration threshold, the introduction of quarterly reporting will be delayed by one year; and
– from 1 April 2017 the VAT registration threshold will rise to £85,000 and the deregistration threshold will be £83,000.
This newsletter provides a summary of the key tax points from the 2017 Spring Budget based on the documents released on 8 March 2017. It also provides a reminder of some of the main points announced at the 2016 Autumn Statement, which will be legislated for in Finance Bill 2017. We will keep you informed of any significant developments.