Here is a quick summary of the Chancellor’s Autumn Statement from 23.11.16, focusing on the main points for small business, directors and their employees.
In what was a relatively uncontroversial Autumn Statement one of the commonly agreed positives was that this will be the final Autumn Statement. In future just the Annual Budget will remain.
The Government have committed to cutting Corporation Tax to 17% by 2020 to make UK a centre point to attract foreign investors.
The main rate of corporation tax has already been cut from 28% in 2010 to 20%, and will be cut again to 17% by 2020, by far the lowest in the G20 and benefitting over 1 million businesses.
It is therefore predicted that we will see a change for April 2017 with the current Corporation Tax of 20% expected to be lowered to 19%. Any change would be for all companies.
Tip: Apportion the rate across the year if your company does not have a March year end.
Loss relief can now be off-set within group companies and against different income streams. This requires a step change in planning for group companies, but provides much more flexibility. However at the same time there is to be a reform of loss relief which will restricts the amount of profit that can be offset by carried-forward losses to 50% from April 2017. The restriction will be subject to a £5 million allowance for each standalone company or group.
Capital allowances are at a rate of 18% for plant & machinery, 8% for integral features. 100% (previously 18%) of first year capital allowances is allowed for new companies (eg for a company who acquires energy saving equipment including energy efficient vehicles, and electric charging points). Tip: this is available until 31st March 2019 only and is not allowed if profits exceed £5m
PERSONAL AND EMPLOYEE TAX
Income Tax Personal Allowance is increasing from £11,000 to £11,500 from April 2017. The Personal Allowance is the amount of income you can earn before you start paying Income Tax. The point at which you pay the higher rate of Income Tax will increase from £43,000 this year, to £45,000 from April 2017.
The band rates remain the same: Basic rate band of Income Tax remains at 20%. The higher rate is 40%, then for incomes above £150,000 there is no change at 45%.
The National Living Wage and the National Minimum Wage will increase from April 2017. The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour. The National Minimum Wage will also increase for: 21 to 24 year olds – from £6.95 p/h to £7.05; 18 to 20 year olds – from £5.55 p/h to £5.60; 16 to 17 year olds – from £4.00 p/h to £4.05; Apprentices – from £3.40 p/h to £3.50
New tax relief is to be created for individuals with small scale activities only, such as car boot sales, internet auction sales, where income is under £1000 it not subject to tax or reporting. This is the same for letting a room of a property eg via Airbnb.
National Insurance Rates to be aligned for employee and employer. That is for the class 1 and class 2. It is the weekly value (not the % rate) which is to be aligned, simplifying records and calculations.
Salary Sacrifice Schemes are being scaled back with most becoming subject to the same tax as cash income. In Salary Sacrifice Schemes, employees exchange some of their salary for a non-cash benefit in kind (previously included areas such as mobile phone, gym memberships and school fees). Both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all. Importantly pension, child care vouchers, cycle to work schemes continue, and mobile phones remain a tax exempt item.
Tips: Schemes in place prior to April 2017 will be protected for 1 year, with childcare and car schemes protected for 4 years.
Inheritance Tax. There will be a new transferable main residence allowance for descendant inheriting property. £100,000 limit at April 2017 will rise to £175,000 by 2021. This allowance is added to the nil rate band of £325,000 so is a total of £425,000 from April 2017. This becomes £850,000 per couple, increasing to £1M per married couple in 2021
Flat Rate Scheme changes: IT contractors among many other freelancers, often use the Flat Rate Scheme, which is where they charge output VAT at the relevant standard rate, and repay VAT at a fixed lower rate. With the condition that no input tax can be deducted. The fixed % rate is different depending on the sector.
The government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses ie service providers. This will help level the playing field, while maintaining the accounting simplification for the small businesses. To use the lower rates, other traders will need to prove they have certain outgoings on goods (not capital items such as cars) as a percentage of sales costs.
Further information, and a summary of other areas, can be found on HMRC website.
Important note: the information contained in this summary is subject to change, is not full or complete and is not intended for the basis of any calculations or returns. For the latest facts and figures always consult the HMRC website.