Philip Hammond has delivered his first Autumn Statement. From 2018 onwards, he will use this will be replaced by the budget speech. The reason is to give us all more time to prepare for the tax changes that will come into effect in the April. This is a good idea, and one which the tax profession has been requesting for a long time.
The budget speech will be renamed the Spring Statement, so we will still have two set piece announcements that have the potential to change the tax landscape.
So what did he announce today? It was fairly dull. In truth, he had little room to manoeuvre.
Economic growth and forecasts
Issue: Brexit has made the outlook more uncertain, and this is reflected in the growth forecasts issued by the OBR. Growth will hover around 2% per annum for the foreseeable future.
Action: Business owners must implement their own growth plan as general economic growth is not going to deliver the sales growth needed to keep pace with inflation. Living standards will fall further, as profits will come under pressure.
Thankfully, Mr Hammond announced far fewer than his predecessor. Here are the main changes
Issue: Salary sacrifice schemes are being restricted. From, April 2017, only pensions, child care, Cycle to work and ultra low emission cars will qualify. Schemes in place at April 2017 will be protected until April 2018, with school fees, cars and accommodation being protected until April 2021.
Action: If you want to implement a salary sacrifice scheme, do it before April 2017 to get the maximum benefit. Otherwise, you’ll be restricted to a very small range of benefits. Arguably the most valuable (pension contributions) remains available.
Review all schemes where the current arrangement/asset needs replacing after the stated expiry date, to consider alternative forms of remuneration, or perhaps moving renewal dates forward to extend the life of the tax efficient arrangement.
Issue: the new tax allowances of £1,000 for property income, and trading income will be implemented. The trading income exemption is now extended to the provision of services and assets (i.e. renting them out).
Acton: Look at your current asset holding arrangements and consider whether holding them differently may enhance the tax efficiency.
Personal allowance and NIC threshold
Issue: the thresholds are being raised from April 2017.
Acton: Review the tax efficiency of your current business structure and remuneration arrangements to ensure they are still the most tax efficient.
Issue: Class 2 NIC is to be abolished, with access to benefits for the self-employed being through Class 3 or Class 4 contributions.
Action: This is likely to increase the cost of accessing state benefits. Review your circumstances to see if it would be cheaper to insure privately (e.g. income protection, critical illness cover may be cheaper than making higher NICs)
Issue: The rate of clawback on Universal credit is being cut from 65% to 63%.
Action: The clawback is still very high, but workers may be able to maximise their claim by using salary sacrifice arrangements and some of the new tax free allowances. Consider whether planning is a) legal, b) possible, and c) cost effective.
Issue: 100% allowances are available for businesses who invest in electric car charging points.
Action: It may be of limited appeal, but if you are investing in ultra low emission cars, possibly as part of a salary sacrifice arrangement (see above), it may be worth planning the timing of installing charging points, to maximise the allowances claim.
Issue: Cuts in corporation tax, and relief for business rates remain
Action: Businesses should review their structure to see if incorporation is tax efficient, and whether they can qualify for any business rates relief.
Issue: tax deductions for losses brought forward and interest expense are to be restricted. This should only affect large companies/ groups of companies
Action: Keep aware of development sin the consultation. The Government have promised to legislate away any “unintended consequences” so inform your tax adviser if you foresee your SME being impacted by the proposals.
Capital Gains Tax
Issue: CGT reliefs are being restricted for shares issued under Employee Share Status after 1 December 2016.
Action: Review all existing and proposed new schemes and ensure that eligible employees understand that the potential benefits have been reduced.
Issue: The VAT flat rate scheme is to be amended to counter “abuse”. A new 16.5% rate will be introduced from April 2017 to be used by businesses with “limited” costs. This will effectively eliminate any savings from the scheme, leaving only the reduction in boxes to be completed as the advantage from using the scheme.
Action: Every business using the flat rate scheme will need to assess whether it is caught as a “limited” cost trader. If so, the new rate will have to be applied from April 2017.
Pensions and savings taxes
Issue: Currently people who are drawing pensions can reinvest up to £10,000 per annum and get full tax relief. This limit is being cut to £4,000.
Action: If you are making contributions of between £4,000 and £10,000 and are drawing a pension or extracting value from a fund by way of drawdown, you need to review your arrangements and assess whether they are still tax effective. Other forms of saving may be more attractive.
Insurance Premium Tax
Issue: The rate increases from 10% to 12% in June 2017.
Action: All of us need to ensure we shop around for the best insurance deals, as the savings are multiplied 1.12 times. Build in the extra cost to cashflow forecasting, as the “Red Book” shows this raises more tax than any other measure announced today (£840m in a full year).
National Living Wage
Issue: The rates are increasing to £7.50 per hour for an employee aged 22 and over, from April 2017.
Action: Review your 2017 forecasting to reflect these new rates. Make a diary note to inform your payroll provider of the new pay rates in late March. Consider salary sacrifice arrangements if employee costs are excessive, and review your own prices if further cutbacks in expenditure are not possible.
The Chancellor announced a massive program of infrastructure spending, so those in the construction industry should take time to read the proposals, and seek work in the funded areas, if they feel capable of benefitting, and it fits with their business strategy.
This is a general overview of the changes announced today, and is no substitute for taking professional advice on the detail. We are happy to discuss your individual circumstances in more detail. Contact us in the usual way.