Last Wednesday, Philip Hammond, Chancellor of the Exchequer, rose to deliver his Autumn Budget speech to the House of Commons.
With Brexit 17 months away, a slowing economy, and concerns that declining British productivity and wages rates would dampen tax receipts, many commentators believed that his wriggle room for tax cuts was very limited.
So what did “Spreadsheet Phil” have to offer businesses, employers, and employees against this tough economic backdrop?
Here’s the Smart Team’s summary.
Smart Team – business rates and Budget 2017
Non-domestic rates, the business version of council tax, has been one of the most controversial and newsworthy taxes this year.
The valuations and multipliers upon which business rates are calculated were revalued this year. In addition, some businesses suffered from the imposition of the so-called “staircase tax” on companies occupying more than one floor in a building.
Whilst some businesses benefited from changes to the threshold over which rates are charges meaning they no longer had to pay a bill, others saw their rates double or treble, causing genuine concerns over their ongoing viability.
The Chancellor announced that, instead of using the retail price index in working out year-on-year changes to rates, they would use the consumer price index instead. Plus, the £1,000 discount for pubs was extended to March 2019.
There is a sting in the tail however as the multipliers used in England have been increased by 3%.
|Financial year 2017 to 2018||Financial year 2018 to 2019|
|England standard multiplier||47.9p||49.3p|
|England small business multiplier||46.6p||48.0p|
Smart Team – the VAT threshold and Budget 2017
A week or so before the Budget, the Office of Tax Simplification (OTS) released a report in which it suggested that the government should consider dropping the threshold over which business must register for and charge VAT from the current £85,000 to £26,000 – near the national average wage.
This proposal incensed many business organisations, particularly the Federation of Small Businesses (FSB). OTS argue that 55% of UK businesses are below the threshold and take extraordinary measures to stay beneath it. The FSB argue that VAT is inherently confusing and an unacceptable burden on businesses and that, if dropped to that level, would mean that hundreds of thousands of businesses will simply quit.
The Chancellor announced that the £85,000 level would remain unchanged for the following two financial years but gave no assurances beyond that.
Smart Team – business taxation and Budget 2017
There has been no movement of any significance on general business taxation announced in this Budget.
Corporation tax remains at 19% on its way down to the envisaged target of 17% from 2020/2021. There has been no movement in the annual investment allowances, first year allowances, or R&D tax credits for SMEs.
Smart Team – personal taxation and Budget 2017
Not much change in this Budget when it comes to personal taxation. Income tax, savings rates, dividend tax rates, default rates and savings rates stay as they are. The National Living Wage, the minimum wage for those aged 25 or over, increases 4.4% from April next year to £7.83 per hour.
The dividend tax allowance drops 60% from £5,000 to £2,000 from April 2016.
The personal allowance increases from £11,500 to £11,850 and you’ll only start paying 40% higher rate tax once your earnings are higher than £46,350 (compared to the current £45,000). Higher rate taxes are different in Scotland and, at time of writing, there had been no announcement from the Scottish Government on their intentions.
Company car taxation continues to increase with reasonably significant breaks for the cleanest of cars coming in from the 2020/2021 tax years. Diesel company car drivers face an additional 4% on their company cars from April 2018 however the direction of travel against diesel fuel has been evident for some time now.
National Insurance rates remain unchanged for employees and employers although the thresholds have moved. Class 2 National Insurance, originally due to be abolished from 2018 but given a stay of execution until 2019, has had its small profits threshold increased from £6,025 to £6,205 from 2018 onwards.
Class 3 voluntary contributions will go up from £14.25 to £14.65 per week and the lower profits limit for Class 4 NICs have increased from £8,164 to £8,424.
Pensions tax relief will remain unchanged next financial year and the annual exempt amount for individuals and personal representatives for capitals gain tax increases from £11,300 to £11,700 (and for trustees from £5,650 to £5,850)
Smart Team – business incentives and Budget 2017
Incentives of note include extended relief for large companies that invest in Research and Development. Whilst the change will not stretch to smaller businesses with R&D investments, these larger enterprises will soon benefit from a further 12% relief under the Enhanced R&D scheme.
Hammond stated that £500million will be used on a variety of technological projects in the UK, ranging
from full fibre broadband and 5G technology to artificial intelligence. EIS investment tax reliefs have also been doubled up to £2million for businesses considered “knowledge intensive companies”.
Smart Team – economic forecasts and Budget 2017
Following the financial crisis of 2008, the role of forecasting future growth was given over to the newly-created Office for Budgetary Responsibility (OBR). Both the coalition government and the current Conservative government use the OBR’s figures in Budget statements.
The OBR forecast that the expected 2017/2018 growth of 2% would only be 1.5% and that similar shortfalls in economic growth would be seen for the foreseeable future.
In a separate announcement, more money was made available for the devolved Governments, specifically:
- £2bn for the Scottish Government
- £1.2bn for Wales
- £650m for Northern Ireland.
Smart Team – first-time buyers, stamp duty land tax, and Budget 2017
Those looking to get onto the housing ladder are set to benefit from stamp duty being abolished for first time buyers on purchases of £300,000 or under. For purchases over £500,000, the first £300,000 will not be considered when calculating the stamp duty payable.
For homes under £500,001, this is the new three-tier stamp duty land tax regime:
|Band||Normal Rate||First Time Buyer Rate||Additional Property|
Once the purchase price goes over £500,000, there is a two-tier system:
|Band||Normal Rate||Additional Property|
|£1,500,000 and above||12%||15%|
Smart Team – buy-to-let tax and Budget 2017
Introduced in this tax year and being phased in over a four-year period, buy-to-let landlords are affected by the change in the way that profit is worked out on rent.
In this example, you can see how profitability falls and the tax rises for a property attracting £10,000 rent per annum with £3,750 a year worth of mortgage interest costs and £2,000 worth of deductible costs.
|40% tax payer||Old System||New System||BTL Tax Bill||Net Profit|
Smart Team – talk to us about the Budget 2017
Talk to the Smart Team on 01202 577 500 or email us on [email protected]