The Chancellor Philip Hammond presented the Budget on 8 March 2017.
In his speech he was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals. He announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. The Budget included changes to national insurance contributions and the dividend allowance, which will hit the self employed and small businesses trading through a limited company.
In December and January the government issued a number of the clauses, in draft, of Finance Bill 2017 together with updates on consultations. The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2017 and some take effect at a later date.
A summary of the main measures are:
Rates and allowances
| 2016/17 | 2017/18 | |
| £ | £ | |
| Income tax rates – (non-dividend income) | ||
| 0% lower rate tax – savings rate only | Up to 5,000 | Up to 5,000 |
| 20% basic rate tax | 11,001 to 43,000 | 11,500 to 45,000 |
| 40% higher rate tax | 43,001 – 150,000 | 45,001 – 150,000 |
| 45% additional rate tax | Above £150,000 | Above £150,000 |
| Scottish Income tax rates – (non-dividend income) | ||
| 0% lower rate tax – savings rate only | Up to 5,000 | Up to 5,000 |
| 20% basic rate tax | 11,001 to 43,000 | 11,500 to 43,000 |
| 40% higher rate tax | 43,001 – 150,000 | 43,001 – 150,000 |
| 45% additional rate tax | Above £150,000 | Above £150,000 |
| Personal allowance | ||
| Personal allowance | 11,000 | 11,500 |
Marriage allowance
This applies from 6 April and allows for the transfer of £1,150 of a personal allowance to a spouse or partner.
Self-employed National Insurance Contribution
The main rate of Class 4 NICs will increase (from the current rate of 9%) to 10% from April 2018 and to 11% from April 2019.
Dividend Allowance
The tax-free dividend allowance was introduced from April 2016 so that the first £5,000 of dividend income would be tax free. The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.
Corporation tax
The corporation tax rate will be reduced from 20% to 19% for the 2017/18 tax year and to 17% by 2020.
Annual Investment Allowance
The annual investment allowance of £200,000 per annum remains available for companies and for unincorporated businesses.
Making Tax Digital
Rollout beginning April 2018; however for unincorporated businesses with a turnover below the VAT registration threshold there would be a delay of one year to the introduction of quarterly reporting.
UK Deemed Domicile
Individuals who are not domiciled in the UK will be deemed to be UK domiciled for tax purposes if they are either resident in the UK for 15 of the past 20 tax years, or if they are born in the UK with a UK domicile of origin and return to the UK having obtained a domicile of choice elsewhere
VAT
| 2016/17 | 2017/18 | |
| £ | £ | |
| VAT | ||
| Standard rate | 20% | 20% |
| Registration threshold | 83,000 | 85,000 |
| Deregistration threshold | 81,000 | 83,000 |
Relief from business rates increases
The Chancellor has announced funding of £435 million to support small businesses affected by the business rates relief revaluation. The help comes in the form of a standard cap on the actual increases and also discretionary relief from local authorities.
ATED
From 1 April 2015 the annual charges for the annual tax on enveloped dwellings (ATED) will be increased by 50% above inflation (Consumer Prices Index).
| 2016/17 | 2017/18 | ||
| £ | £ | ||
| Annual Tax on Enveloped Dwellings (ATED) | |||
| More than £0.5m but not more than £1m | 3,500 | 3,500 | |
| More than £1m but not more than £2m | 7,000 | 7,050 | |
| More than £2m but not more than £5m | 23,350 | 23,550 | |
| More than £5m but not more than £10m | 54,450 | 54,950 | |
| More than £10m but not more than £20m | 109,050 | 110,100 | |
| More than £20m | 218,200 | 220,350 | |
Audit threshold to increase for small co-operatives
The government will bring forward legislation to increase the turnover threshold for which co-operatives are required to conduct a full audit from £5.6 million to £10.2 million, and the assets threshold from £2.8 million to £5.1 million. This will align the thresholds of co-operatives with those of companies.
The Income Tax reliefs and Capital Gain Tax exemption
With effect from 1 December 2016 income tax relief and capital gain tax exemption will no longer be available on any shares acquired in consideration of an employee shareholder agreement entered into on or after that date.
IR35 and public sector
Where a public sector organisation engages an off-payroll worker through their own limited company, that organisation (or the recruitment agency where the worker is engaged through that agency) will become responsible for determining whether the rules should apply, and, if so, for paying the right tax and NICs.
Tax Avoidance
The government will introduce a new penalty for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.
NS&I Investment Bond final rate of 2.2% over a term of three years
The Budget confirms the rate on the NS&I Investment Bond announced at Autumn Statement 2016 will offer a market-leading rate of 2.2% over a term of three years and will be available for 12 months from April 2017. The Bond will be open to everyone aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000.
Increase in Individual Savings Accounts (ISA) limits
From 6 April 2017; the annual ISA allowance will increase from £15,240 to £20,000.
LISA
A new savings product called LISA (Lifetime ISA) is available. It is designed to help young people save flexibly for the long-term throughout their lives receive a bonus of up to £1,000pa.
IHT
The Nil-rate band remains at £325,000. The residence nil-rate band for deaths in the following tax years will be:
- £100,000 in 2017 to 2018
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
Changes to the VAT flat rate scheme
From April 2017, if affected, businesses will need to apply a new, higher flat rate percentage. This could potentially make the flat rate scheme much more expensive and may even mean a switch to another method of VAT calculation.
Restrictions on the tax deductibility of interest
Companies and groups that have at least £2 million of net interest per year will face restrictions on the amount they can claim against tax. The measure comes in from April 2017 and is calculated using a ratio based on the results of the business.
IHT and Non-domicile
As of 6 April 2017 the changes to the IHT rules apply which ensure that non-doms cannot hold a UK property indirectly through an offshore company. From April 2017, the deemed domicile rule will be modified in two key respects:
- the 17 year rule will become the ‘15 year rule’; and
- this rule will apply for all UK tax purposes, and not just IHT.
Interest relief for landlords
Landlords will be able to obtain relief as follows:
Finance cost allowed in full Finance cost allowed at basic rate
Year to 5 April 2016 100% 0%
Year to 5 April 2017 100% 0%
Year to 5 April 2018 75% 25%
Year to 5 April 2019 50% 50%
Year to 5 April 2020 25% 75%
Year to 5 April 2021 0% 100%
Apprenticeships
All apprenticeships will be funded according to the new rules. A non-levy paying employer will need to co-invest 10% and will benefit from government funding to cover the remaining 90% of the cost.
Cash accounting
Unincorporated property businesses (other than Limited Liability partnerships, trusts, partnerships with corporate partners or those with receipts of more than £150,000) will by default calculate their taxable profits using a cash basis of accounting.
Cash accounting
The trading cash basis thresholds for unincorporated businesses is increased to £150,000.