Posted by James Pearson on 25 Nov 2016
Autumn Statement 2016
On 23 November 2016, Philip Hammond gave his first (and last) Autumn Statement as Chancellor. The main Autumn Statement 2016 tax announcements are set out below.
In a low key Autumn Statement 2016 (in terms of tax changes) many of the tax announcements were confirming policies announced in the 2016 Spring Budget by his predecessor. However, there were a few announcements of note for our clients:
The general news for companies was good, as the intended reductions to corporation tax (to 19% from 1 April 2017 and 17% from 1 April 2020) will go ahead as planned. In addition, UK Research & Development (R&D) will be encouraged by increasing funding for R&D and reviewing the tax environment for R&D to look at ways to build on the introduction of the ‘above the line’ R&D tax credit.
In order to maintain the incentive of providing low emissions cars to employees, new, lower Company Car Tax (CCT) bands will be introduced in 2020-21 for the lowest emitting cars. On top of this, a 100 per cent first year capital allowance for electric car charge-points will be introduced. At the same time, the appropriate CCT percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point.
However, remuneration strategies may need to be redesigned from April 2017, as most salary sacrifice arrangements will no longer receive beneficial tax and National Insurance treatment, although arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars will still receive beneficial treatment. In addition, the amount of tax relieved pension contributions that can be made after starting to draw a pension (money purchase annual allowance) will be reduced from £10,000 to £4,000 from that date. The Treasury will also undertake a review of non-cash payments, benefits in kind and reimbursed expenses by employers, which may have further impact on the remuneration of employees.
Also affecting remuneration packages, the tax advantages linked to shares awarded under Employee Shareholder Status (ESS) will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity. We understand that the take-up of the ESS opportunity has been lower than expected, and Government research has shown that most schemes that have been put in place are for tax avoidance purposes, so the ESS scheme is to end.
From April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin. At the same time, UK residential property held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust will no longer be excluded property, so that inheritance tax will be chargeable on that property.
It is proposed that the tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by removing the current 10% reduction for foreign pension income, bringing foreign pensions and lump sums fully into tax for UK residents, i.e. to the same extent as domestic pension schemes.
A brief overview of the other tax announcements made in the Autumn Statement 2016 is as follows:
- The personal allowance will increase to £12,500 by 2020, with the higher rate threshold reaching £50,000 by that date. These thresholds will then rise in line with CPI.
- The ISA limit will increase from £15,240 to £20,000 in April 2017, and the annual subscription limit for Junior ISAs and Child Trust Funds will be uprated in line with the Consumer Prices Index (CPI) to £4,128.
- As announced at Budget 2016, Class 2 NICs will be abolished from April 2018.
- There will be two new income tax allowances (of £1,000 each) for trading and property income, meaning that 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 Government intends to align employer and employee NIC thresholds from April 2017, as recommended by the Office of Tax Simplification.
- The National Living Wage (NLW) will increase by 4.2% from £7.20 to £7.50 from April 2017.
- From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer.
- The government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company.
- Rural rate relief for business rates will double to 100% from 1 April 2017.
- Following consultation, the government will introduce rules that limit the tax deductions that large groups can claim for their UK interest expenses from April 2017.
- Rules will also be introduced to restrict the offset of carried forward losses to 50% from April 2017, subject to a £5 million allowance, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date.
- The government will consult on bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime.
Inheritance Tax and Domicile
- The government will change the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses.
- Inheritance tax relief for donations to political parties will be extended to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections.
The government will close specialist pension schemes for those employed abroad (“section 615” schemes) to new saving, extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
VAT and Other Announcements
- From April 2017, “low cost traders” (whose goods purchases are less than 2% of turnover) using the VAT flat rate scheme will have to use a flat rate of 16.5%, effectively removing the benefit of the scheme to such traders.
- The government will introduce a new penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. Substantial Shareholding Exemption (SSE) reform – Following consultation, the government will make changes to simplify the rules, to take effect from April 2017.
- The standard rate of Insurance Premium Tax (IPT) will rise from 10% to 12% from 1 June 2017.
- The government will now extend the scope of the changes to tackle use of disguised remuneration schemes by employers and employees announced in the Budget 2016 to tackle the use of disguised remuneration avoidance schemes by the self-employed.
- The government will introduce a new penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.
- The Budget will be moved to the Autumn, allowing the Finance Act to receive Royal Assent before the start of the tax year, with a Spring Statement in March each year. The Spring Statement will only have tax amendments where they are economically required.
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