Welcome to the Autumn Statement 2016 edition of Tax Tips & News.
In this analysis we have mainly concentrated on the tax measures that will directly affect individuals, employers and small businesses.
We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary.
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Chancellor Philip Hammond has delivered his Autumn Statement 2016, which is the first major review of government finances since the EU Referendum, and Mr Hammond’s first major statement since taking responsibility for the work of the Treasury in July 2016. As previously speculated, this will be Mr Hammond’s only Autumn Statement as it was confirmed that the government is to move to a single major fiscal event each year. This means that following the Spring 2017 Budget and Finance Bill, Budgets will be delivered in the Autumn, with the first one scheduled to take place in Autumn 2017. However, the Office for Budget Responsibility (OBR) is required by law to produce two forecasts a year – one of these will remain at the time of the Budget, the other will fall in the Spring and the government will therefore respond to it with a new ‘Spring Statement’. This change means that we can expect a Finance Bill in Spring/Summer 2017 following the 2017 Budget. The effect of this new approach is that Finance Bills will be introduced following the annual Budget in Autumn, with the desired aim of reaching Royal Assent in the following Spring, before the start of the new tax year. This change in timetable is designed to help Parliament to scrutinise tax changes before the start of the tax year where most will take effect.
In addition to the Budget timetable changes, it has also been confirmed that, from next year, HMRC will publish customer service performance data more regularly and in greater detail. This will include the monthly publication of digital, telephony and postal performance data, as well as new customer complaints data.
Regarding tax, highlights from this Autumn Statement include:
– confirmation of the government’s commitment to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament. From that point the personal allowance will rise in line with the Consumer Prices Index (CPI);
– affirmed commitment to the ‘business tax road map’, which sets out plans for major business taxes to 2020 and beyond, including cutting the rate of corporation tax to 17% by 2020, the lowest in the G20, and reducing the burden of business rates by £6.7 billion over the next 5 years;
– fuel duty will be frozen from April 2017 for the seventh successive year. This will save the average driver around £130 a year, compared to pre-2010 fuel duty escalator plans;
– certain changes will be implemented to promote fairness in the tax system, including: – to tackle tax avoidance, the government will strengthen sanctions and deterrents and will take further action on disguised remuneration tax avoidance schemes;
– to ensure multinational companies pay their fair share, following consultation, the government will go ahead with reforms to restrict the amount of profit that can be offset by historical losses or high interest charges;
– Insurance Premium Tax will rise from 10% to 12% in June 2017; and
– to promote fairness and broaden the tax base, the government will phase out the tax advantages of salary sacrifice arrangements.
This newsletter provides a summary of the key tax points from the 2016 Autumn Statement based on the documents released on 23 November 2016. The overview of legislation in draft, providing further information on all tax changes and updates on all tax consultations, will be published on 5 December 2016. Draft Finance Bill clauses, explanatory notes, tax information and impact notes, and responses to consultations will also be published on this date. We will keep you informed of any significant developments.
Personal allowance and basic rate limit for 2017-18
The personal allowance for 2017-18 will be increased to £11,500 (£11,000 in 2016-17), and the basic rate limit will be increased to £33,500 (£32,000 in 2016-17). The additional rate threshold will remain at £150,000 in 2017-18. It was announced that the allowance will rise to £12,500 by the end of Parliament.
The marriage allowance will rise from £1,100 in 2016-17 to £1,150 in 2017-18.
Blind person’s allowance will rise from £2,290 in 2016-17 to £2,320 in 2017-18.
Starting rate for savings
The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017-18.
Dates for ‘making good’ on benefits-in-kind
As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include provisions to ensure an employee who wants to ‘make good’, on a non-payrolled benefit in kind will have to make the payment to their employer by 6 July in the following tax year. ‘Making good’ is where the employee makes a payment in return for the benefit-in-kind they receive. This reduces its taxable value. This will have effect from April 2017.
Assets made available without transfer of ownership
Existing legislation is to be clarified to ensure that employees will only be taxed on business assets for the period that the asset is made available for their private use. This will take effect from 6 April 2017. – Read more here
As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include provisions to simplify the process for applying for and agreeing the Pay as You Earn Settlement Agreement (PSA) process. Broadly, a PSA allows an employer to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for employees. Further details will be published in due course. The changes will have effect in relation to agreements for the 2018-2019 tax year and subsequent tax years.
Capital allowances: first-year allowance for electric charge-points
From 23 November 2016, businesses will be able to claim a 100% first-year allowance (FYA) in relation to qualifying expenditure incurred on the acquisition of new and unused electric charge-points. The allowance will be available until 31 March 2019 for corporation tax purposes and 5 April 2019 for income tax purposes.
The measure complements the 100% FYA for cars with low carbon dioxide (CO2) emissions, and the 100% FYA for cars powered by natural gas, biogas and hydrogen.
Employee shareholder status
The income tax reliefs and capital gains tax exemption will no longer be available with effect from 1 December 2016 on any shares acquired in consideration of an employee shareholder agreement entered into on or after that date. Any individual who has received independent advice regarding entering into an employee shareholder agreement before the 23 November 2016 will have the opportunity to do so before 1 December (but not later) and still receive the income and CGT tax advantages that were known to be available at the time the individual received the advice. The effective date is to be the 2 December where independent legal advice is received on 23 November prior to 1.30pm. Corporation tax reliefs for the employer company are not affected by this change.
New tax allowance for property and trading income
As announced at Budget 2016, the government will create two new income tax allowances of £1,000 each, for trading and property income. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will now also apply to certain miscellaneous income from providing assets or services.
Expanding the museums and galleries tax relief
The new museums and galleries tax relief is to be expanded to include permanent exhibitions. The new relief, which starts in April 2017, was originally only intended to be available for temporary and touring exhibitions. The rates of relief will be set at 20% for non-touring exhibitions and 25% for touring exhibitions. The relief will be capped at £500,000 of qualifying expenditure per exhibition. The relief will expire in April 2022 if not renewed. In 2020, the government will review the tax relief and set out plans beyond 2022. – Read more here
Tackling aggressive abuse of the VAT Flat Rate Scheme
A new 16.5% VAT flat rate for businesses with limited costs will take effect from 1 April 2017.
The VAT Flat Rate Scheme (FRS) is a simplified accounting scheme for small businesses. Currently businesses determine which flat rate percentage to use by reference to their trade sector. From 1 April 2017, FRS businesses must also determine whether they meet the definition of a limited cost trader, which will be included in new legislation.
Businesses using the scheme, or thinking of joining the scheme, will need to decide whether they are a limited cost trader. For some businesses – for example, those who purchase no goods, or who make significant purchases of goods – this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate.
Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.
A limited cost trader will be 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 (if it is not one year, the figure is the relevant proportion of £1000).
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
– capital expenditure;
– 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).
These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
Updating the VAT Avoidance Disclosure Regime
As announced at Budget 2016 and following consultation, legislation will be introduced in Finance Bill 2017 to strengthen the regime for disclosure of avoidance of indirect tax. Provision will be made to make scheme promoters primarily responsible for disclosing schemes to HMRC and the scope of the regime will be extended to include all indirect taxes. This will have effect from 1 September 2017.
Penalty for participating in VAT fraud
As announced at Budget 2016, Finance Bill 2017 will introduce a new and more effective penalty for participating in VAT fraud. It will be applied to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The penalty will improve the application of penalties to those facilitating orchestrated VAT fraud. The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud. This will be implemented following Royal Assent of the Finance Bill 2017.
Power to examine and take account of goods at any place
The government will introduce legislation in Finance Bill 2017 to extend the current customs and excise powers of inspection. This will amend the Customs and Excise Management Act 1979 and enable officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture and open or unpack any container. This will take effect from Royal Assent of the Finance Bill 2017.
Retail Export Scheme
The government is to consult on VAT grouping and provide funding with a view to digitising fully the Retail Export Scheme to reduce the administrative burden to travellers.
Tackling exploitation of the VAT relief on adapted cars for wheelchair users
The government is to clarify the application of the VAT zero-rating for adapted motor vehicles to stop the abuse of this legislation, while continuing to provide help for disabled wheelchair users.
As announced at Budget 2016, the definition of a taxable disposal for landfill tax purposes is to be amended in order to bring greater clarity and certainty. This will come into effect after Royal Assent of Finance Bill 2017, on a day to be appointed by Treasury Order
Insurance Premium Tax increase
Insurance Premium Tax (IPT) will increase from 10% to 12% from 1 June 2017. IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers.
Air Passenger Duty (APD): regional review
A summary of responses is to be published shortly relating to a recent consultation on how the government can support regional airports in England from the potential effects of APD devolution. Given the strong interaction with EU law, the government does not intend to take specific measures now, but intends to review this area again after the UK has exited from the EU.
Freeplays in Remote Gaming Duty
Following the consultation announced at Budget 2016, the government will legislate in Finance Bill 2017 to bring the tax treatment of freeplays for remote gaming more in line with the treatment for free bets under General Betting Duty. The changes will take effect for accounting periods beginning on or after 1 August 2017.
Tobacco Illicit Trade Protocol: licensing of tobacco machinery and the supply chain
Following consultation the government will legislate in Finance Bill 2017 to introduce a licensing scheme for tobacco machinery to allow officials to quickly determine whether machines are being held legally. Applications for licences will be accepted from January 2018 and the scheme will come into force on 1 April 2018.
Implementation of the Fulfilment House Due Diligence Scheme
As announced at Budget 2016 and following a consultation on the scope and design of the scheme, the government will legislate in Finance Bill 2017 to introduce a new Fulfilment House Due Diligence Scheme in 2018. This will ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. The scheme will open for registration in April 2018.
Soft Drinks Industry Levy
Draft legislation for the Soft Drinks Industry Levy will be published on 5 December 2016.
Tax evasion and compliance
Emerging insolvency risk
HMRC intend to develop their ability to identify emerging insolvency risk, using external analytical expertise. HMRC will use this information to tailor their debt collection activity, improve customer service and provide support to struggling businesses.
Offshore tax evasion
A new legal requirement is to be introduced to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so.
Requirement to register offshore structures
The government intends to consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.
Hidden economy and money service businesses
The government will legislate to extend HMRC’s data-gathering powers to money service businesses in order to identify those operating in the hidden economy.
Tackling the hidden economy
Following consultation, the government will consider the case for making access to licences or services for businesses conditional on them being registered for tax. It will also develop proposals to strengthen sanctions for those who repeatedly and deliberately participate in the hidden economy. Further details will be announced in Budget 2017.
Making Tax Digital
In January 2017, the government will publish its response to the Making Tax Digital consultations and provisions to implement the previously announced changes.
Tax Enquiries: Closure Rules
The government will legislate to provide HMRC and customers earlier certainty on individual matters in large, high risk and complex tax enquiries.
Disguised remuneration schemes
Budget 2016 announced changes to tackle use of disguised remuneration schemes by employers and employees. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. Further, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer’s contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period.
HMRC counter avoidance
The government is investing further in HMRC to increase its activity on countering avoidance and taking cases forward for litigation, which is expected to bring forward over £450 million in scored revenue by 2021-22.