Welcome once again to Rutton’s budget round up for Spring 2017.
What rabbits did the Chancellor pulled out of the hat this time around?
I think the simple answer is, not very many.
This was an unexciting budget with no huge shocks or opportunities to panic, and no need to make too many life changing decisions.
However, there were some points that our clients may well find useful as set out below:
In terms of
– personal allowances, that is the amount you can earn or receive tax-free and
– the basic rate bands, the amount you can earn or receive without paying the next, higher rate of tax:
Not very exciting news, but worth noting: there is an increase in both the personal allowance for individuals and the basic rate tax limit:
In line with the Government’s objective to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this parliament, it was announced for 2017/18 that:
– the personal allowance for individuals will be increased to £11,500 as well as
– the basic rate band being increased to £33,500 from 6 April 2017.
(Previously £11,000 and £32,000)
Every little helps. And it’s better than freezing the allowances, which occasionally ‘They’ do.
But don’t forget, the higher rate threshold of £33,500 is part of a complex calculation, because it is matched with income (and allowances) which whilst totalled, are then taxed in different ways. So, no easy answers here as to when you start paying higher rate tax. If in doubt, please ask!
For higher income taxpayers:
Other bands are unchanged.
– you start to lose your tax-free allowance at £100,000 of taxable income, and
– you start to pay 45% tax when income exceeds £150,000
Reduction in dividend allowance
In April 2016, the Dividend Tax Credit was replaced with a £5,000 dividend allowance.
At the same time the rate of tax on dividends was increased to 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate).
With effect from 6 April 2018, the dividend allowance will reduce to £2,000.
There are no planned changes to the rates of tax that apply to dividends in excess of £2,000.
The reduction in the allowance is aimed at director shareholders and is intended to reduce the attractiveness of operating through a company. BUT it affects anyone receiving dividends, including those with a genuine investment portfolio.
So, more politics. The investment incentive taxpayers of last year are the naughty unfair tax savers of this year.
How things change quickly.
But don’t panic. The £5,000 allowance was only worth £375 to a basic rate taxpayer – so the reduction to £2,000 is hardly headline news. Tabloids excepted.
The reduction will however hurt the higher rate taxpayers. But frankly, the £5,000 was a bit of a gift in the first place.
At the time of writing the government the government have done a much publicised U-turn. They propose no changes to class 4 NI during the lifetime of this parliament.
Class 2 NI
As previously announced Class 2 NIC will be abolished from 6 April 2018. At the time of writing we believe this is still the case.
In my view, this was much ado about nothing. Under the original proposals a self employed person earning £25K would have felt little or no tax increase in any case.
Value Added Tax (VAT) Registration and deregistration thresholds:
With effect from 1 April 2017 the VAT registration threshold increases from £83,000 to £85,000, and the deregistration threshold increases from £81,000 to £83,000.
VAT – changes to the flat rate scheme
This was in last year’s Budget, but…
Just a quick reminder that the new 16.5% rate comes into play in April 2017. In most cases, you should consider de-registering for VAT (if under the limit) or else changing back to usual VAT output and input tax accounting and bookkeeping.
If in doubt – you guessed it – please ask!
The CGT annual allowance increases by £200 to £11,300
Making tax digital (MTD)
This is huge for the self-employed, for partnerships/partners and for landlords with gross sales/rental income over £10,000
As advised previously, this is coming in next year, and requires quarterly returns, new software to make the returns – directly into your new digital tax account – or face a quarterly penalty.
But good news – a late change:
The government has decided to provide 3.1 million small businesses with more time to prepare for Making Tax Digital.
Businesses (including the self-employed and landlords) that have annual turnover below the VAT registration threshold (soon to be £85,000 p.a.) will have an extra year before they are required to keep records digitally and send HMRC quarterly updates.
(Although they will be able to start doing so voluntarily from April 2017 if they are REALLY THIRSTY for some more tax compliance pain!)
Those with annual turnover above the VAT threshold will still be required to keep digital records and send HMRC quarterly updates from April 2018
The exemption threshold, previously announced, will remain at £10,000.
Well, amazingly, the Government listened to its own Treasury Select Committee – there’s a first – and delayed the compulsory introduction of MTD for all but the larger landlords and the self-employed with earnings/income over £85,000.
But it’s only a postponement, and we still don’t know the details.
However, they ignored the Committee’s advice on raising the £10,000 limit – a real pity. This new regime will cause a lot of pain to the smaller landlord or self-employed client with income of, say, £11,000
There are many unanswered questions. For example, what about trusts with rental income? And will the rules change yet again before implementation? What about clients who flit under and over the £10,000 limit? (Never mind whether the unwritten and untested software will work!)
We will, of course, be advising our clients further as this scheme develops, and providing low-cost solutions if you need help.
Is this linked to the so-called death of the personal tax return?
Yes, it is. The tax return is on death row. And that was sold as good news by the previous Chancellor.
But don’t cheer too loudly. Something similar (and more complex) will take its place – the fifth adjusting end of year MTD return. Life will not get simpler for the taxpayer – it will get more complex.
And why? Because HMRC have convinced the Government that the only way to recover their eight billion pounds lost in tax (the supposed ‘tax gap’) is to not use human beings to track down the fraudulent and the negligent, (because that’s expensive). Rather, it is SO much easier and cheaper to use computers to automatically receive taxpayer information. Because, obviously, that will solve the problem.
So, let’s make people already in the system incur additional cost and trouble, by forcing them to use (new untested) software four times a year, plus the fifth correcting return. Because that improves accuracy, you see, and does so much to track down the people outside the system.
(Apparently, people who add up their shoe box of receipts just once a year, and not four times a year, are crooks or careless, or both. Apparently. No, I don’t get it either, and the Treasury committee weren’t too convinced by the plethora of HMRC statistics.)
Naturally, we will be on hand to help clients transition and explain the changes as we go along. But this change will undoubtedly bring cost and trouble before it settles down.
As stated in the 2016 autumn statement, the government will reduce corporation tax to
– 9% from April and then
– to 17% in 2020.
The chancellor reiterated the fact that the UK’s corporate tax rate is the lowest in the G20.
Well, no real surprise that the previous decrease has been confirmed, on the basis that ‘if we do not get a good Brexit deal, we can come back and reduce it as a way to attract businesses and compete with the likes of Ireland’.
Except that I thought global companies who choose low tax countries were meant to be baddies and not paying their fair share of tax? Gosh, isn’t life confusing? I’m off to order a Starbucks on Amazon…
Trading and Property Income Allowances
From April 2017 two new annual allowances of £1,000, for trading and property income will be introduced.
This means that from 2017/18 individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income.
Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way, or by simply deducting the relevant allowance.
This will only help those with very little trading or rental income, or those with almost no trading/rental expenses (who will benefit from the £1,000)
Rent a Room Relief
Rent a Room relief allows an individual to receive up to £7,500 (2016/17) per year tax-free from letting out furnished accommodation in their home.
Currently, the relief does not stipulate a minimum length of letting for the relief to apply. The Budget introduces proposals to investigate denying the relief for shorter term lets.
The £7,500 is generous, but it only applies to your main residence, where a room is rented out. So any change for short term lets should only affect a small minority of taxpayers.
Changes to tax treatment of foreign pensions
A UK resident individual in receipt of a foreign pension is only taxable on 90% of income arising in the tax year (section 615 scheme).
This has now gone from 6 April 2017.
Foreign pension schemes paid to a UK resident individual will be chargeable to tax on 100% of the income as it arises.
This will only affect a very small number of UK clients who receive a pension from abroad. Put simply, the 10% reduction is no longer available.