UK Autumn Statement 2016

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We weren’t expecting too many financial planning surprises in the Autumn Statement and the biggest news was the Chancellor's decision to abolish the Autumn Statement. Following the spring 2017 Budget and Finance Bill, the actual Budget will be delivered annually in the autumn, with Royal Assent taking place before the tax year begins. We have summarised some highlights of the budget below after a summary of the UK's economic performance to date as set out in the budget itself.  The full 2016 budget policy paper is available on the gov.uk website.

Summary of economic performance to date

Since 2010, the government has made huge progress in turning the economy around following the Great Recession. The employment rate is at a record high and the deficit has fallen by almost two thirds. But more needs to be done. The deficit remains too high and productivity too low. In addition, the government wants to see more people sharing in the UK’s prosperity and ensure that the tax system is one where everyone plays by the same rules.

In the near term, the UK’s economic outlook has become more uncertain. The British people’s decision to leave the EU presents new opportunities, but also new challenges. The Autumn Statement sets out policies which support the economy during this transition. Alongside the forthcoming Industrial Strategy it prioritises investment to improve productivity and ultimately living standards. It provides certainty for business to secure investment and create jobs; and reprioritises spending to build an economy that works for everyone.

Personal Tax

Personal Allowance - The tax-free personal allowance is being increased to £11,500 in 2017-18. For higher rate taxpayers, the Government will also increase the threshold above which higher earners start paying 40% tax. It will increase to £45,000 in 2017-18. The Government has said that it is committed to raising the tax allowance to £12,500 or £50,000 for higher rate tax payers by the end of this parliament, once it has reached that goal then the personal allowance will increase in line with inflation.

Salary Sacrifice - The tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017. There are a few exceptions to this rule: arrangements relating to: pensions, childcare, cycle to work and ultra low emission cars. The result of these changes mean employees swapping salary for benefits will pay the same tax as those who pay for them out of post-tax income. Existing arrangements are protected until April 2018 with arrangements for cars, accommodation and school fees protected until April 2021.

National Insurance – The National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, resulting in some additional cost to employers. Class 2 NICs will be abolished from April 2018. Thereafter, the self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs.

Pensions and Savings

ISAs and Bonds - The annual ISA limit is being increased to £20,000 with effect from 6 April 2017, while the NS&I will offer a new 3 year Investment Bond with an indicative rate of 2.2% from spring 2017. Savings of between £100 and £3000 can be made to savers aged 16 or over.

Starting rate for savings – The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017-18.

Foreign pensions - The tax treatment of pension income and lump sums arising from a foreign pension scheme will be brought into line with the treatment of some payments from a UK registered pension scheme.

Pension scams - The Government will publish a consultation shortly on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers, and making it harder for scammers to abuse ‘small self-administered scheme (SSAS) arrangements.

Corporation Tax

Business Tax Road Map - The new Chancellor confirmed his commitment to the business tax road map set out by George Osborne. This includes cutting the rate of corporation tax to 17% by 2020.

Non-resident companies to enter UK Tax Regime - The Government announced its plans to bring all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the Government will consult on the case and options for implementing this change.

Tax Administration

Tax Avoidance - A new penalty is being introduced for those helping someone else to use a tax avoidance scheme. The penalty is intended to ensure that those who help people tax avoiders whose tax avoidance schemes are defeated by HMRC also face the consequences.

VAT Flat Rate Scheme - A new 16.5% rate is to be introduced from 1 April 2017 for businesses with limited costs, such as many labour-only businesses, to ensure that the scheme is used only as intended.

Requirement to register offshore structures – The Government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.

 

 

References

1. Old Mutual Wealth Autumn Statement 2016 Analysis

2. OneE Group Ltd Autumn Statement 2016 Analysis

3. Gov.uk Policy Paper: https://www.gov.uk/government/publications/autumn-statement-2016-documents/autumn-statement-2016

 

 

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