The Chancellor, Philip Hammond delivered his final springtime Budget today.
Going forward the Budget will be moved to the Autumn with a Spring Statement replacing the Budget. This means that for this year there will be another Budget in the Autumn when the Autumn statement is replaced. The rationale behind these changes are that Government and taxpayers do not have sufficient time to debate the Finance bill and make business adjustments to take account of changes before the changes are implemented at the start of the new tax year on 6 April.
So what was in this Budget?
Much of what was included in the Budget was already known through the draft Finance Bill and various consultations throughout the Summer and Autumn of 2016. However, there were a few announcements that weren’t altogether expected. These were:
The newly introduced tax-free allowance for dividend income introduced in April 2016 will be reduced from April 2018 from its current £5,000 to £2,000.
Increase rate in Class 4 National Insurance Contributions (‘NIC’)
As a result of the abolishment of Class 2 NIC from April 2018, the main rate of Class 4 NIC will be increased with effect from 6 April 2018 from 9% to 10% and increased further from 10% to 11% with effect from 6 April 2019.
Reform of Tax treatment of Termination Payments
There is a complete overhaul to the taxation of termination payments making all contractual and non-contractual payments in lieu of notice taxable as earnings with an alignment of Income Tax and NIC on amounts over £30,000. The first £30,000 will remain exempt. However, the changes include the removal of the Foreign Service Relief and apply from 6 April 2018.
Some of the other measures previously known about include:
Trading and property income allowances
There will be 2 new Income Tax allowances of £1,000 each for trading and property income. This allowance can be deducted from income instead of claiming actual expenses.
Off-payroll working in the public sector
In order to improve compliance in the public sector the responsibility for operating the off-payroll working rules, and deducting any tax and NICs due will move to the public body sector.
Reducing the money purchase annual allowance
The money purchase annual allowance (for those who have accrued benefits under the new pension freedoms) is to reduce from £10,000 to £4,000 from April 2017.
Reform of domicile rules and Inheritance Tax (‘IHT’)
Non-UK domiciled individuals will be deemed domiciled in the UK for tax purposes where they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK with a domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax purposed while they are UK resident.
From April 2017 IHT will be charged on all UK residential property even when indirectly held by a non-domiciled individual through an offshore structure.
Those who become deemed domicile in April 2017 and have paid the Remittance Basis Charge, excepting those who were born in the UK with a UK domicile of origin, will be able to treat the cost base of their non-UK based assets as the market value of that asset on 5 April 2017.
Non-domiciled individuals will be able to segregate amounts of income, gains and capital within their overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed. This has been helpfully extended to cover all tax years.
Tax avoidance and evasion
The Government continue to tighten the penalties for non-compliance and offshore avoidance and evasion. It is intended that individuals will have a requirement to correct previous non-compliance or be subject to higher penalties.
Increasing the cash basis entry threshold
The trading cash basis thresholds for unincorporated businesses making it easier for businesses to work out if their expenditure is deductible for tax from the 2017/18 tax year will be increased to £150,000. (For Universal Credit claimants, the entry threshold will be increased to £300,000.) The exit threshold will be increased to £300,000 for all users of the trading cash basis.
Simplified cash basis for unincorporated businesses
The Government will provide a simple list of disallowed expenditure to simplify the rules for allowable deductions within the cash basis.
Simplified cash basis for unincorporated property businesses
Most unincorporated property businesses (other than Limited Liability partnerships, trusts, partnerships with corporate partners or those with receipts of more than £150,000) may calculate their taxable profits using a cash basis of accounting. Landlords will continue to be able to opt to use Generally Accepted Accounting Principles (GAAP) to prepare their profits for tax purposes.
Those with both a UK and an overseas property business will be able to choose separately whether to use the cash basis or GAAP for each. Those with a trade as well as a property business both eligible for the cash basis, will be able to decide separately for each of these, and persons other than spouses or civil partners who jointly own a rental property will be able to decide individually.
To align the treatment with those who opt to use GAAP, the initial cost of items used in a dwelling house will also not be an allowable expense under the cash basis. The existing ‘replacement of domestic items relief’ will continue to be available for the replacement of these items when the expenditure is paid. Interest expense will be treated consistently between those using the cash basis and those using GAAP.
The changes will have effect from 6 April 2017.
Making Tax Digital for Business
Digital record keeping and updating by businesses, the self-employed and landlords, as part of Making Tax Digital for Business will be implemented but for unincorporated businesses and landlords with gross income (turnover) below the VAT registration threshold this will be deferred until April 2019. The legislation includes powers to make regulations, including on the form and content of periodic updates and ‘end of period statements’. There are also powers to set out the scope and operation of certain exemptions by regulations. Following consultation, the legislation published in draft on 31 January 2017 has been revised and expanded.
Our full Budget Summary will be available for download from the website from 9am tomorrow morning.
For further information about how these issues could affect your own tax affairs, please contact Phil Moss, Steven Pinhey or your usual Lubbock Fine contact.