Autumn Statement 23 November 2016
These are my views on the announcements made today by Philip Hammond, the Chancellor of the Exchequer.
It was confirmed that the personal allowance (the amount you can earn tax free) will rise to £ 11,500 in April 2017 and should rise to £ 12,500 by May 2020.
The personal allowance is given to all taxpayers, unless their income exceeds £ 100,000, where it is reduced by £1 for every £2 of income in excess of £ 100,000.
The point at which a taxpayers start to pay tax at 40% (higher rate taxpayers) will rise from the current £ 43,000 to £ 45,000 in April 2017 with a pledge to increase this to £ 50,000 by May 2020.
From April 2017, the point at which employees and employers will pay NI is to be the same.
Class 2 NI (paid by the self-employed) is to be abolished in April 2018. This used to be collected by monthly direct debit and for 2015/16 onwards via the tax return. From April 2018 the benefits associated with paying Class 2 NI are to be transferred to Class 3 (voluntary) and Class 4 (self-employed) NI.
From April 2018, redundancy payments in excess of £ 30,000 will now be subject to NI as well as income tax.
Off payroll workers
People who work via their own limited company and who are engaged within the public sector will find that from April 2017 the responsibility for reviewing the client/worker relationship will fall to the client. This will mean that the public sector body will be operating PAYE and NI on payments to the company.
Salary sacrifice schemes
With the exception of pensions, cycle-to-work and childcare, any salary sacrifice schemes will now have those benefits taxed. This applies where, for example, an employee voluntarily reduces his or her salary by an amount in order to receive a benefit such as a mobile phone or gym membership.
The Chancellor re-confirmed that the rate of corporation tax will be reduced from the current 20% to 17% by May 2020.
Insurance Premium Tax
The rate of IPT is to increase from 10% to 12% from 1 June 2017.
VAT flat rate scheme
From 1 April 2017 a new FRS rate of 16½% is to be introduced for “businesses with limited costs”. This will increase the amount of VAT payable for any businesses caught by this new measure, as they currently use FRS flat rates ranging from 8½% to typically 12%.
HMRC has published guidelines stating that a “business with limited costs” is defined as one whose VAT inclusive expenditure on goods is either:
• less than 2% of their VAT inclusive turnover in a prescribed accounting period
• greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
• capital expenditure
• food or drink for consumption by the flat rate business or its employees
• vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)
National Living Wage
As widely reported over the weekend, the NLW will increase by 30p/hour to £ 7.50/hour from 1 April 2017.
The rates for the National Minimum Wage are also set to increase from 1 April 2017.
Employee’s income tax and NI
The Office of tax simplification has suggested that the way NI and income tax for employees is calculated is brought into alignment. Broadly speaking, income tax is based on annual income whereas NI is calculated on each week or month in isolation to what happens over the year.
This is a major project and likely to be at least five years before anything is implemented.