The Budget 2017 – headlines
The Budget 2017 – headlines
Chancellor Philip Hammond used his first Budget to deliver an upbeat speech to help prepare Britain for a new chapter in its history after Brexit.
The chancellor’s focus was on equipping the UK to meet the challenges of a rapidly changing economy and extra money was promised for social care in England, and also to help firms facing steep business rate rises.
Our experts were glued to the coverage and some of the initial headlines from this lunchtime are detailed below.
The last Spring budget?
Mr Hammond opened his budget speech by declaring that his “last Spring budget” was not the first! Apparently Norman Lamont presented the first “last Spring Budget” 24 years ago. However the tax landscape has changed greatly since then and the system of announcing intentions, running consultations and only then introducing legislation, appears to be one that is here to stay. There may not have been many new announcements in this budget, but April 2017 will still see the start of many changes which have been announced previously. Here are just a few:
- The income tax and employer NIC advantages of using a salary sacrifice arrangement for benefits in kind will be removed for new arrangements
- Non-contractual payments in lieu of notice (as well as contractual ones) will be taxable as earnings
- The substantial shareholding exemption will be simplified ensuring relief for qualifying institutional investors
- New flexibility will be available for corporate losses made from 1 April 2017 onwards
- A restriction on the offset of corporate losses against profits above £5 million will be introduced
- A limit will be imposed on corporate interest relief above £2 million
- The annual allowance for contributions to a money purchase pension by someone who has flexibly accessed their pension savings will be restricted to £4,000
- All profits from dealing in or developing land in the UK, irrespective of the residence of the person making the disposal will come within the charge to UK tax
Research & Development Tax Relief is Safe!
Many businesses have been concerned that the economic impact of Brexit might have a detrimental effect on the enhanced tax relief and tax credits currently available for R&D expenditure. The fact that the government were conducting a review was regarded by many as an indication that they might be considering cutting the benefits.
In his budget speech however, Mr Hammond told us that the review had confirmed that the UK system of R&D tax credits is globally competitive. He promised a reduction in the administrative burdens of the scheme to increase certainty and simplicity around claims and further action to improve awareness of the scheme among small and medium sized enterprises.
Big changes planned for NICs payable by the self-employed
Mr Hammond was keen to point out that the self-employed are paying less in NIC than the employed, a fact which he described as unfair. In his comparison he conveniently made the difference appear greater by quoting both employee’s and employer’s NIC contributions when describing how much NIC was paid in respect of an employed individual. In terms of NIC contributions actually suffered by the individual, the difference between what is paid by an employed individual and a self-employed individual is only currently 3%. Despite the Chancellor’s reference to the fact that the new State Pension for those reaching retirement age on or after 6 April 2016 gives the self-employed access to the same State Pension as employees, there remain differences in entitlements to parental benefits, job-seekers allowance, statutory sick pay and holiday pay.
Class 2 NICs will be abolished from April 2018. This was something announced by George Osborne in 2016, but would increase the differential in the amount of NICs paid by employed and the self-employed. However, as Class 2 NICs are a flat rate of £2.80 a week, Mr Hammond is going ahead with the abolition and instead increasing the rate of Class 4 NICs by 1% from April 2018, bringing the rate to 10%. A further 1% rise will be applied from April 2019.
The true reason for these changes can be found in the detailed background information published on gov.uk. The proportion of the work-force who are self-employed has been rising steadily since 2000. It is estimated that the lower rates paid by the self-employed cost the Exchequer £5.1 billion in 2016-17.
The changes are however designed to protect those with the lowest profits. Only someone with annual profits in excess of £16,250 in 2019/120 will have to pay more NIC than under the current rules and when combined with the increases in the personal allowance, (based on these changes alone) only someone with profits in excess of £32,900 in 2019/20 will pay more in tax and NICs than in 2015/16.
Budget changes to soften the impact of 2017 rates revaluation
Many businesses are dreading the impact of the five yearly revaluation which will take effect in April 2017. Details of a transitional relief were announced in the 2016 Autumn statement, ensuring that no small property would see more than a 5% increase before inflation due to the revaluation. Three further measures were announced in the Spring budget:
- Small businesses coming out of small business rates relief will pay no more than £600 per annum more in business rates than they did in 2016-17
- Pubs with a rateable value of up to £100,000 will be able to claim a £1,000 business rate discount
- Additional funding will be made available to local authorities to provide discretionary relief to the businesses most affected by the revaluation.