Phillip Hammond gave his first announcement since being appointed Chancellor on 23 November 2016. It was heavy on reduced growth figures and deficits further in to the future blamed, in the main, on the vote to leave the European Union.
Here are some of the key points from our detailed newsletter:
Here are some of the key points from our detailed newsletter:
VAT flat rate scheme
The Chancellor skimmed over this major announcement and has brought on a major attack on businesses operating the Flat Rate Scheme (FRS). Our view is that this will move many traders on to a 16.5% limited cost rate from the current industry specific rate.
This may lead many traders to move away from the FRS for VAT to being registered on a conventional basis. It seems the Government think there is abuse here when in fact they brought in a scheme to reduce the time it takes small businesses to undertake their VAT on a quarterly basis albeit with a small cash reduction.
These new measures apply for VAT periods starting after 1 April 2017 and the government have asked HMRC to publish detailed guidance on this by 5 December 2016. We will liaise directly with the clients impacted by this once the detailed rules are published.
This may lead many traders to move away from the FRS for VAT to being registered on a conventional basis. It seems the Government think there is abuse here when in fact they brought in a scheme to reduce the time it takes small businesses to undertake their VAT on a quarterly basis albeit with a small cash reduction.
These new measures apply for VAT periods starting after 1 April 2017 and the government have asked HMRC to publish detailed guidance on this by 5 December 2016. We will liaise directly with the clients impacted by this once the detailed rules are published.
Corporation tax
Disappointingly, there are no changes here. We had anticipated some further reductions may be announced. This means the current rate of 20% will reduce to 19% for profits after 1 April 2017 and to 17% from 1 April 2020
Personal allowance and basic rate band
The Chancellor confirmed previous plans that the personal allowance (tax free income) will rise to £12,500 by 2020 and the point at which 40% tax starts will be £50,000 by that date. He also confirmed the personal allowance for the tax year starting 6 April 2017 which will be £11,500 with the point at which higher rate tax starts to £45,000 (although the Scottish Government have imposed a lower banding for individuals resident in Scotland).
Salary sacrifice
Big changes are happening here. Where a staff member has asked to sacrifice part of their salary in return for benefits in kind, such as gym membership, pension and many others, there has been a national insurance saving for the employee which could be worth 12% of the sacrificed amount to the employee. The Employer's National Insurance position is the same on most benefits because the benefit carries a Class 1A national insurance charge once a year.
Now, sacrificed salary for pensions, cycle to work schemes, low emission cars and childcare will continue as before and the new rules will not apply. All other benefits will now give rise to the extra 12% National Insurance charge for the Employee. If you have sacrificed salary or have employees that have done so, you may want to review the arrangements. Existing arrangements in place at April 2017 are protected until at least April 2018.
Now, sacrificed salary for pensions, cycle to work schemes, low emission cars and childcare will continue as before and the new rules will not apply. All other benefits will now give rise to the extra 12% National Insurance charge for the Employee. If you have sacrificed salary or have employees that have done so, you may want to review the arrangements. Existing arrangements in place at April 2017 are protected until at least April 2018.
Money purchase annual allowance for pension contributions
The government have closed a perceived loophole that allowed those that had started to draw their pension to effectively recycle the amounts received in to further contributions. The limit of contributions once you have started to draw benefits is now reduced to £4,000 per annum from £10,000. For those of us that have not drawn benefits the £40,000 per annum, allowance still exists with the ability to mop up unused contributions of the prior 2 years.
IR35
If your contract falls within these rules and your ultimate client is in the public sector, the 5% deduction before calculating salary is being removed. This completely removes any benefit of operating through a limited company. This will apply from April 2017. As such, it is important that any such contracts are reviewed to ensure they fall outside IR35. If not, it may be better to go on the payroll as an employee of the client.
Change to a regular Autumn budget
One welcome change is that the Chancellor has decided to switch the Spring Budget and Autumn Statement around. This means that the formal Budget where most tax and spend announcements are made will be in the Autumn, so we will have more time to plan for their impact. We will have one last Spring Budget in March 2017. This also means there will be two Budgets in 2017.
Naturally, if you have any specific concerns, please do not hesitate to contact us.