ICAS reaction to the Spring Budget

Houses of Parliament
By ICAS Tax Team

8 March 2017

ICAS presents its insight into the final Spring Budget.

Anton Colella, Chief Executive of chartered accountancy body ICAS, said: “It might be that the Brexit budget and forecasts of robust growth, record employment and a reduced deficit, provide a ray of light, but uncertainty is still significant and the test for the Chancellor is whether he has done enough to weather any storm.

“It was a mixed bag for small business but one announcement which gets a standing ovation from ICAS is his decision to delay the introduction of Making Tax Digital for businesses below the VAT threshold. ICAS supports the overall objectives of Making Tax Digital, but has long been concerned with the unrealistic timescale for the project. This shows a Chancellor who has listened.”

Income tax rates, thresholds and allowances

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

“The Conservative manifesto promised that the personal allowance would be increased to £12,500 by 2020/21. It had already reached £11,000 for 2016/17 and the Chancellor has confirmed the increase to £11,500 for 2017/18. This takes it closer to the £12,500 goal – which the Chancellor confirmed will be achieved by the end of this parliament. This is good news for some lower paid taxpayers as it will remove them from tax completely.  

“The point at which people start paying the higher rate of tax (40%) is £43,000 for 2016/17 and increases to £45,000 from April 2017 (although not in Scotland, where it remains at £43,000 on earnings and pensions). The Chancellor also confirmed a continued commitment to the manifesto pledge to increase the higher rate threshold to £50,000 by the end of the parliament.  

“The number of people paying tax at 40% has been increasing for some years; it is worth noting that the threshold was £43,875 in 2010/11.  Increasing the threshold to £45,000 marks movement in the other direction, which it seems will be continued in the remainder of this parliament.  

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

Tackling tax differences between employees and other workers

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

“The self-employed currently pay two types of NIC - Class 2 and (subject to the level of their profits) Class 4. The main Class 4 rate is 9% compared to a 12% rate for employees.  Class 2 (paid at a flat weekly rate) is being abolished from April 2018 which would have increased further the differential between employees and the self-employed.

“The Chancellor has announced that to reduce the gap between the NIC paid by employees and the self-employed and to better reflect their respective entitlements to State benefits, the Class 4 rate will increase to 10% from April 2018 and to 11% from April 2019.  

“Taken together, the abolition of Class 2 NIC and the increases to Class 4 NIC, should mean that only a self-employed person with profits over £16,250 will have to pay more.

“The Chancellor also noted the increase in the number of incorporations designed to reduce the tax paid by those working through a company. In order to reduce the gap between the tax paid by the self-employed and those working through companies the Chancellor announced that the tax-free dividend allowance of £5,000 will be reduced to £2,000 from April 2018.  

“This will impact adversely on some pensioners who rely on income from investment portfolios.”

Making Tax Digital delayed for many small businesses

Philip McNeill, ICAS Head of Taxation (Practice & Small Business), said:

“The headline announcement of deferral by one year of the start date for Making Tax Digital quarterly submissions for businesses below the VAT threshold is welcome.

“There is a new exemption for those businesses which are not liable to income tax or class 4 National Insurance. MTD for VAT now applies only where businesses are registered for VAT and make payments.

“Primary producers, such as farmers and fishermen, loss making businesses and those with low net profit percentages will all benefit.

“Unincorporated businesses and landlords with turnover under £10,000 will be exempt, as will those in employment who have secondary sources of incomes of £10,000 or less per year from self-employment or property income.

“There are still some unanswered questions, but overall, the Budget changes bring welcome adjustment to a challenging timetable.”

Corporate Taxation

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

“The Chancellor confirmed that the corporation tax rate will reduce to 19% from April 2017 and to 17% in 2020. This continues the trend of recent years which has seen the rate for large companies fall from 28% in 2010. However, the headline rate is not the only thing which matters. Many large companies will be affected by major changes already announced to corporate losses and interest deductibility and would probably welcome more stability. They may therefore be relieved at the absence of further major changes in the Budget.  

“There were positive announcements for companies on changes to the R&D tax credit regime intended to deliver a reduction in the administrative burdens associated with the scheme and for North Sea oil and gas producers with a promise to provide some support, through the tax regime, for the transfer of late-life UK oil and gas assets.  

“Following an initial discussion document last year, a response and further consultation will be published in Summer 2017 to consider changes to the tax rules related to plant and machinery leasing. Changes are needed due to the new accounting standard for leasing (IFRS16) which comes into effect on 1 January 2019.  

“There will also be a change to the tax rules relating to the appropriation of capital assets to trading stock. These appropriations are treated as taking place at market value and can give rise to chargeable gains or allowable losses. However, prior to today, an election could be made which had the effect of reducing the gain or the loss to zero and instead rebasing the transfer value for the purpose of calculating trading profits. This could effectively convert what would have been a capital loss into a more flexible trading loss. For appropriations into trading stock made on or after 8 March 2017 an election will only be allowed where the appropriation would give rise to a chargeable gain and not where it gives rise to an allowable loss. The capital loss will therefore crystallise and will remain within the chargeable gains rules for any future set off.

Optional Remuneration Arrangements (Salary Sacrifice as was)

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

“From April 2017, what we once called Salary Sacrifice or Exchange is now to be termed ‘Optional Remuneration’. From April 2018, optional remuneration will be closed to all new schemes unless they are specifically created to cater for the provision of pensions, cycle to work and child care. Existing schemes which cater for the provision of cars, vans and fuel; living accommodation; school fees are allowed to continue until they are phased out in April 2021, with the exception of ultra-low emissions cars, with emissions not exceeding 75g CO2 per kilometre. All other types of salary sacrifice arrangements must cease from April 2017.”

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