ICAS reaction to the November 2017 Budget

Nov 2017 Budget
By ICAS Policy Leadership Team

22 November 2017

ICAS reacts to the November 2017 Budget

A predominantly English Budget

Charlotte Barbour, Director of Taxation at ICAS, said:

“It is interesting to see the full effects of the Smith Commission and the Scotland Act 2016 now taking effect. This is brought home when listening to the Budget taking place in Westminster today, much of which focused on targeted expenditure which is not relevant to Scotland. The true impact on Scotland will not become apparent until the draft Scottish Budget is delivered on 14 December.

“Measures that do affect Scotland include:

  • The corporation tax main rate, confirmed at 19% for 2017/18 to 2019/20, and which will apparently still be reduced to 17% for financial year 2020, as provided by Finance Act 2016.
  • The freezing of the VAT threshold for the next two years and the related fiscal lag that may bring more businesses into VAT registration and, consequently, into Making Tax Digital.
  • The rise in the income tax personal allowance to £11,850: by increasing this, the revenues available to Scotland are effectively reduced.
  • The raising of the higher rate threshold for income tax in the rest of the UK may increase the differences north and south of the border – if the threshold is held down in Scotland.

“Measures that do not affect Scotland, but do lead to a combined amount of £2bn extra being paid to the Scottish Government via the Barnett Formula, include:

  • Business rates
  • A series of training investment initiatives
  • Capital and resource funding for the NHS
  • A number of measures targeted at housing
  • A stamp duty land tax relief for first time buyers of residential properties with purchasers benefiting on homes up to £500,000.

“This Westminster budget also offers challenges to the devolved administrations: how much will the regimes mirror one another – for example, will LBTT offer similar reliefs? Or, how much are the devolved taxes going to move further apart, as could be indicated by the recent paper from the Scottish Government on the role of income tax in Scotland’s Budget? Most commentators expect income tax in Scotland to increase, particularly at the higher income end.”

Intergenerational measures and pensions news

Christine Scott, Head of Pensions at ICAS, said:

“This was a quiet Budget for pensions and savings.

“Inter-generational fairness had been trailed as a possible driver for the reform of pensions tax relief and it may well be at a future date.  In the meantime, the new stamp duty exemption for first time buyers, in England, with purchasers benefiting on homes up to £500,000, is a nod to this.

“The most significant pensions news is in the context of long-term investment or ‘patient capital’ where the UK Government aims to give pension funds confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio.  There are no details yet as to how this is to be achieved and The Pensions Regulator is to provide guidance for pension trustees on investments with long-term investment horizons.

“With over £2 trillion in UK pension funds, small changes in investment have the potential to transform the supply of capital to innovative firms.

“In other pensions news:

  • The basic State Pension is to increase by the triple lock in April 2018.  This means a rise of 3% or £3.65 per week for a full basic State Pension.  The new single tier State Pension will also rise by the triple lock, a rise of £4.80 per week.
  • The lifetime allowance for pension savings will increase in line with CPI, rising to £1,030,000 for 2018-19.  No change to the annual allowance is proposed and it will remain at £40,000, creating some fiscal drag.  The lifetime allowance has been the target of cuts in some Budgets of late, and it’s welcome that this Chancellor is to maintain the more recent commitment to uprating in line with CPI.”

Personal taxes

Susan Cattell, ICAS Head of Taxation (England and Wales), said:

“The 2017 Conservative manifesto retained their pledges that the personal allowance would be increased to £12,500 by 2020/21 and that the point at which people start paying higher rate tax (40%) would increase to £50,000.

“The personal allowance had already reached £11,500 for 2017/18 – the Chancellor announced that it will increase to £11,850 from April 2018, taking it closer to the £12,500 goal. This is good news for some lower paid taxpayers as it will keep them outside tax completely.

“The point at which people start paying the higher rate of tax (40%) is £45,000 for 2017/18 (outside Scotland where it remained £43,000 on earnings and pensions). The Chancellor announced that it will increase to £46,350 from April 2018 (outside Scotland), moving slightly closer to the £50,000 target.

“The number of people paying tax at 40% had been increasing for some years; it is worth noting that the threshold was £43,875 in 2010/11. Increasing the threshold to £45,000 last year and now to £46,350, marks ongoing movement in the other direction.

“The threshold for the additional rate of 45% remains at £150,000.”

Employment taxes and taxable benefits

Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community), said:

“The act of charging electric vehicles at work will not attract a benefit in kind fuel scale charge from 2018/19 which will no doubt encourage employers to purchase hybrid and all-electric fleet vehicles.  This is in contrast to the additional 1% levy from 2018/19 on diesel vehicles which do not meet emissions targets, making driving diesel company cars ever more punitive.  Currently, the fuel scale change is an expensive luxury for most employees with company cars.

“Although the Chancellor stated that 3 million new apprenticeships will have been conceived by 2020, it is disappointing to note that no measure of understanding appears to have been developed about the success or otherwise of the bedding in of the Apprenticeship Levy, which many employers view as ‘just another tax’.  Having different apprenticeship schemes and access to funding in Scotland and England is also causing concern for some employers.

“Whilst the Chancellor's speech doffed its hat to the notion of fairness in the workplace no measures were brought in to tackle the Taylor Report recommendations, the gig economy, or erosion of the tax base caused by non-alignment of self-employed with employed NICs.”

Owner managed businesses

Philip McNeill, Head of Taxation (Tax Practice and Owner Managed Business Taxes) at ICAS said:

“There was little directly impacting owner managed businesses in the Budget, but there were some indications of changes ahead.

“Maintaining the VAT registration threshold at £85,000, rather than a reduction, may be welcome news for many smaller business, but the future direction of travel beyond the next two years remains undecided. The other side of the coin is that a frozen threshold is likely to bring more businesses into MTD for VAT – and there has been no revision to the April 2019 starting date for MTD.

“Off payroll rules, introduced to the IR35 rules, were not extended to the private sector, but there will be further consultation on possible change.

“A number of minor anomalies are resolved, with the promise to extend Seafarer’s deduction to the Royal Fleet Auxiliary by legislation rather than concession; and the extension of Qualifying Care Relief to cover self-funded Shared Lives care payments. The anomaly of marriage allowance claims for a deceased spouse will be resolved, allowing backdated claims where one spouse has died before making a claim.

“Rent-a-room relief is to be reviewed to ensure it is better targeted at longer-term lettings. There is a promise to look at extending tax relief on self-funded training for employees and the self-employed for work-related training costs.”

Corporate Tax

Susan Cattell, ICAS Head of Taxation (England and Wales), said:

“Compared to recent years there were fewer major changes to Corporate Taxation, which will no doubt be a relief, particularly for large companies which are already having to deal with major changes to the tax treatment of corporate interest and corporate losses. However, there will be some changes, including:

“The Chancellor announced that indexation relief for company chargeable gains will be removed going forward. For disposals on and after 1 January 2018, indexation relief will be frozen at the amount that would be due based on the Retail Price Index for December 2017. Indexation allowance for individuals and unincorporated businesses was abolished in 2008.

“The rate of the Research and Development expenditure credit will be increased from 11% to 12% from 1 January 2018, to support business investment in R&D.

“The government has published a paper on corporate tax and the digital economy setting out the challenges presented by multinational companies and the digital economy – and the government’s proposed approach to dealing with them. The government supports an international approach to tackling these challenges. However, it had already unilaterally introduced the Diverted Profits Tax in 2015 and the Chancellor has now announced another interim UK measure targeted at multinational groups, primarily in the digital sector. After a consultation the government intends to introduce legislation to tax profits made by multinational groups from selling products and services to UK customers, where the profits have been transferred to an entity in a low-tax country which has been given ownership of the group’s intangible assets. This will be implemented through an extension of UK withholding tax to cover royalties paid, in connection with sales to UK customers, to no or low-tax jurisdictions.”

VAT refunds to combined authorities, fire and rescue authorities, the Scottish Fire and Rescue Service, and the Scottish Police

Susan Cattell, ICAS Head of Taxation (England and Wales), said:

“Local authorities and other specified bodies have been able to recover VAT they incur undertaking their statutory duties since 1973.  However, in recent years there has been a move to provide some services through ‘combined authorities’ (across two or more local government areas), which are not covered by the relevant legislation. A Treasury Order has therefore been required to allow any newly established combined authority to recover VAT.  Other mechanisms for providing services are also being developed (for example, linked to police and crime commissioners).

“Controversially, the Scottish Fire and Rescue Service and the Scottish Police authority have been unable to recover VAT since their establishment in 2013. The predecessor local police and fire services were able to recover VAT, but not the new national bodies because they did not fall within the legislation.

“The Budget announcement provides that the legislation will be amended to include combined authorities, fire authorities which are a function of police and crime commissioners, the London Fire Commissioner, the Scottish Fire and Rescue Service and the Scottish Police Authority.  This will remove the need for individual Treasury Orders to allow VAT recovery when specified new bodies are established in future.  It is also a response to pressure from the Scottish government to address the unfavourable VAT treatment of the Scottish national police and fire authorities introduced in 2013.”


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