With a range of details to consider, from the perspective of UK businesses, employers, and their employees, what are the key points of discussion in the chancellor’s Autumn Budget, 2017?
Most UK autumn budget predictions included some amount of money allocated to Brexit preparations and the associated transition period. To this end, the government has allocated an extra £3 billion over the next two years - adding to the existing fund of £700 million.
Income Tax Thresholds:
Following through on previous policy announcements, the chancellor announced that in 2018-19 the UK’s personal income tax threshold would rise to £11.850, while the higher rate threshold would rise to £46,350.
Given the increase, it is estimated that in 2018-2019, the average UK taxpayer will pay around £1,075 less than they did in 2010-2011. The move is part of the effort to increase the personal threshold to £12,500, and the higher rate threshold to £50,000, by 2020.
The existing Marriage Allowance policy permits higher-rate taxpayers to transfer up to 10% of their unused personal allowance to their partner or spouse, a measure which could have potentially reduced their combined tax bill by up to £230 a year in 2017-18.
The government has now announced that it will allow claims in cases where a partner or spouse has died before the claim was made. These types of claims may be backdated by up to a maximum of 4 years.
Capital Gains Tax (CGT):
- Payment window: The proposed introduction of a 30-day payment window between a capital gain arising on a residential property and the subsequent tax payment being due, has been deferred until April 2020.
- Corporate capital gains: The government is to amend the existing Substantial Shareholding Exemption legislation and the Share Reconstruction rules. The changes are intended to avoid unintended chargeable gains being triggered in circumstances where a UK company incorporates foreign branch assets in return for shares in an overseas company.
Seafarers’ Earnings Deduction and the Royal Fleet Auxiliary:
Under current rules, in certain circumstances Seafarers are entitled to an income tax deduction on foreign earnings. Under new legislation, the existing extra-statutory treatment of the Royal Fleet Auxiliary is to be placed on a statutory basis.
The existing R&D expenditure credit has been increased from 11% to 12%. Additional measures to ensure businesses pay their fair share of taxes, including those using offshore structures to evade or avoid tax, have been introduced.
National Insurance Contributions (NICs):
- NIC Bill: The government has confirmed its decision to delay by one year the implementation of a series of policy changes to National Insurance contributions.
- Class 2 NIC: The postponements include the abolition of Class 2 NICs for self-employed individuals, changes to the NIC treatment of termination payments, and changes to the NIC treatment of sporting testimonials.
- Class 4 NIC: Similarly, the proposal to increase the main rate of Class 4 NICs from 9% to 10% in April 2018, and to 11% in April 2019, has been put on hold
VAT Registration Threshold:
The government has announced that it will consult on the design of the VAT registration threshold - and that it will be maintained at the current level of £85,000 for two years - from April 2018.
Corporate Indexation Allowance :
From 1 January 2018, the corporate indexation allowance is to be frozen. No relief will be available, when calculating corporate chargeable gains, for inflation accruing after that date.
Expenses & Benefits In Kind:
Following an earlier consultation, the government has announced changes to aspects of the taxation of employee expenses and benefits-in-kind, including:
- Self-funded training: The government announced a further consultation in 2018 on the possibility of extending current tax relief available to employees and the self-employed, for expenses incurred in work-related training.
- Subsistence benchmark scale rates: From April 2019, employers will no longer be required to check receipts when reimbursing employees who are claiming subsistence using the published benchmark scale rates. The existing scale rates, for overseas accommodation and subsistence provided by employers, are to be placed on a statutory basis - in an attempt to provide greater certainty for businesses.
- Guidance for employee expenses: HMRC is to work with external stakeholders and tax agents to improve the quality of the published guidance around employee expenses. Focus will be placed on the process for claiming tax relief on non-reimbursed employment expenses.
- Electric vehicle benefits-in-kind: Effective from April 2018, the budget confirms there will be no benefit-in-kind charge on electricity provided by employers to charge employees’ electric vehicles.
Off-Payroll Private Sector Work:
Back in April 2017, the government changed the off-payroll working rules (known as IR35 regulations) for engagements within the public sector - and has indicated that compliance has increased as a result of these changes. The changes are intended to ensure that individuals who effectively work as employees, are indeed taxed as employees - even in circumstances where they choose to structure their work through a company.
Given this success, the chancellor has announced a consultation on tackling the same kind of non-compliance in the private sector. The consultation period will take into account the needs of business and individuals in the implementation of any reforms.
Employment Status Discussion Paper:
In response to contractual issues thrown up by organisations like Uber, The government has announced the publication of a discussion paper focusing on employment practices in the modern economy. The paper will explore longer-term options for reform, specifically to make employment status tests, for both employment rights and tax, clearer. Recognising the complexity of the issue, the government is planning to work with stakeholders to ensure any legislative changes are carefully considered.
Wages, Aid & Social Care:
- National Living Wage rise: From April 2019, the national living wage for workers over 25 will rise by 4.4%, from £7.50/hour to £7.83/hour.
- Qualifying Care Relief (QCR) & Shared Lives payments: QCR is an existing tax simplification measure covering expenses incurred in the provision of care - while the relief aspect ensures carers only need to keep similarly simplified records. Under changes introduced in the budget, as a way to encourage the use of the incentive, the scope of QCR is to be extended to cover self-funded ‘Shared Lives’ care payments.
- Gift Aid donor benefit: In wake of a review of the rules concerning Gift Aid donor benefits, the existing three monetary thresholds will be reduced to two, while all existing extra-statutory concessions will be written into legislation. These changes will come into effect from April 2019.
- Stamp duty abolished: From 22 November 2017, stamp duty has been abolished for first-time buyers - for the first £300,000 of any home that costs up to £500,000. Estimates suggest the measure will exclude 80% of first-time buyers from paying stamp duty altogether. The changes apply to purchases by first-time buyers in England, Wales and Northern Ireland – there is no change for buyers in Scotland.
- Capital investment: To boost the housing market, the government will introduce £44 billion of capital investment - part of an effort to have 300,000 homes built in the UK every year by 2020.
- Council tax: The government is planning legislation to charge a 100% premium on council tax for empty properties.
- Starting rate for savings: The government has confirmed that the savings income band subject to the 0% starting rate will be maintained at its current level of £5,000 for the 2018-2019 tax year.
- Individual Savings Account (ISA) annual subscription limits: For 2018-2019, the annual subscription limit for Junior ISAs and Child Trust Funds will be uprated - in line with CPI - to £4,260. The annual subscription limit for ISAs will remain unchanged at £20,000 for 2018-2019.
- Lifetime allowance for pensions: The lifetime allowance for pension savings will increase to £1,030,000 for the 2018-19 tax year.
- Save As You Earn scheme: Under current rules, employees on maternity and parental leave may take a pause - of up to 6 months - from contributing to their Save As You Earn employee share scheme. From 6 April 2018, the pause length will be increased to 12 months.
Tax Evasion, Avoidance, And Compliance:
The government has reiterated its commitment to tackling tax evasion and avoidance, aggressive tax planning, and non-compliance. This commitment includes a focus on those individuals and corporations seeking to evade or avoid tax by utilising offshore structures.
The move is built on HMRC’s previous success in securing almost £160 billion in additional tax revenue since 2010 - steps which helped the UK achieve one of the lowest tax gaps in the world, at 6.0%, in 2015-2016. The measures the 2017 budget introduces include:
- Offshore structures: A consultation response is to be published concerning the proposed requirement for designers of certain offshore structures to notify HMRC about these structures - and the clients using them. The initiative is focused on situations in which these structures could be misused to evade taxes.
- Extending offshore time limits: The assessment time limit for non-deliberate offshore tax non-compliance is to be extended to allow HMRC the option to assess at least 12 years of back taxes without needing to establish deliberate non-compliance. This reform will follow a consultation in spring 2018.
- NIC Employment Allowance: The government has identified instances of employers abusing the Employment Allowance (EA) to avoid paying correct NICs - often by utilising offshore arrangements. In an effort to stop this practice, HMRC will require an upfront security from employers who have a history of avoiding paying NICs in this way. The measure will take effect from 2018, and is expected to raise up to £15 million a year.
- Disguised remuneration: The government will tackle disguised remuneration avoidance schemes, used by companies with five or fewer participators (close companies), by introducing the close companies’ gateway. The gateway will ensure all liabilities from a new loan charge are collected from the appropriate individual.
- Double Taxation Relief: In effect from 22 November 2017, relief for foreign tax incurred by an overseas branch has been restricted. Specifically, the measure concerns circumstances in which a company has already received relief overseas for any losses against profits incurred by a branch. The measure is designed is to ensure tax relief is not available twice for the same loss.
- Making Tax Digital (MTD): As legislated by the Finance (No. 2) Act 2017, the transition to digital tax returns will not be mandatory until April 2019. Only companies with turnover in excess of the VAT threshold will be mandated at that point, and even then, this will only apply to VAT obligations.
- Late Submission Penalties and Late Payment Interest: The government will reform the penalty system for late or missing tax returns by introducing a new points-based approach with a focus on fairness and simplicity. Consultations will gauge whether it would be beneficial to simplify penalties and interest on late payments and repayments. Final decisions on both measures will not be taken until after the latter consultation.
- Faster recovery of Self-Assessment debt: HMRC will utilise new technology in a bid to recover additional Self-Assessment debts, in as close to real-time as possible, by adjusting the tax codes of individuals with Pay As You Earn (PAYE) income. These changes will take effect from 6 April 2019.