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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Key Announcements from the Summer Budget 2015

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This is a Budget that puts security first. It ensures economic security for working people by putting the public finances in order and setting out a bold plan for a more productive, balanced economy. It supports national security by investment in defence. It sets out bold reforms on tax and welfare, and introduces a National Living Wage so we move Britain from a low wage, high tax, high welfare economy to a higher wage, lower tax, lower welfare economy. It delivers on the promises on which the government was elected.
 

This Budget sets out the action the government will take to:

• Eliminate the deficit and run an overall surplus to start paying down debt, while increasing spending on defence and the NHS.
• Reward work and back aspiration, by introducing a new National Living Wage, cutting taxes so people can keep more of what they earn, and reforming the welfare system to make it more affordable and fair to the taxpayers who pay for it.
• Back business and make the economy more productive, by cutting corporation tax and increasing the permanent level of the Annual Investment Allowance, and by undertaking major reform of funding for skills and infrastructure to ensure higher standards of living for everyone in the UK .
• Secure a truly national recovery, by devolving powers and budgets to build a Northern Powerhouse, and create the right conditions for strong growth throughout the UK.

 

Here are the key announcements made by George Osborne in the summer Budget (8 July):

 

1) New national living wage

From April 2016, a new national living wage of £7.20 an hour for those over 25 will be introduced. This will increase to more than £9 an hour by 2020.

 

2) Tax-free personal allowance increased

The tax-free personal allowance – the amount people earn before they have to start paying income tax – will increase to £11,000 in 2016 to 2017.

The government has an ambition to increase the personal allowance to £12,500 by 2020, and a law will be introduced so that once it reaches this level, people working 30 hours a week on the national minimum wage won’t pay income tax at all.

 

3) Welfare system cuts

Working-age benefits, including tax credits and local housing allowance, will be frozen for four years from 2016 to 2017, however this excludes maternity allowance, maternity pay, paternity pay and sick pay.

As speculated, the household benefit cap will be reduced to £20,000 across the country and £23,000 in London.

Support through the child tax credit will be limited to two children for children born from April 2017.

Those aged 18 to 21 who are on universal credit will have to apply for an apprenticeship or traineeship, gain work-based skills, or go on a work placement six months after the start of their claim.

Rents for social housing will also be reduced by 1 per cent a year for four years.

 

4) Reforming dividend tax

The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016.

Tax rates on dividend income will be increased.

 

5) Family home taken out of inheritance tax

Currently, inheritance tax is charged at 40 per cent on estates over the tax-free allowance of £325,000 per person. From April 2017, couples will be offered a £1m family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017 to 2018.

The allowance will be gradually withdrawn for estates worth more than £2m.

 

6) Limits to paying into pensions

The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced so that for every £2 of income they have in excess of £150,000, then their annual allowance is reduced by £1. Most people can contribute up to £40,000 a year to their pension tax-free.

 

7) Higher rate threshold will increase

The amount people will have to earn before they pay tax at 40 per cent will increase from £42,385 in 2015 to 2016 to £43,000 in 2016 to 2017.

 

8) Corporation tax will be cut

The main rate of corporation tax has already been cut from 28 per cent in 2010 to 20 per cent, in order to boost UK competitiveness but will fall further to 19 per cent in 2017, and then to 18 per cent in 2020.

 

9) Annual investment allowance will be increased

The annual investment allowance, which has previously been increased temporarily, will be set permanently at £200,000 from January 2016.

 

10) Employment allowance will increase

Businesses will have their employer national insurance bill cut by another £1,000 from April 2016, as the employment allowance rises from £2,000 to £3,000.

 

11) Insurance premium tax will increase

From November 2015 the standard rate of insurance premium tax will be increased from 6 per cent to 9.5 per cent.

 

12) Clamping down on claims management companies

The amount that can be charged by claims management companies – such as those that encourage claims for payment protection insurance or personal injury insurance – will be capped.

 

13) Restricting tax relief for wealthier landlords

Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax.

Wealthier landlords receive tax relief at 40 per cent and 45 per cent. This tax relief will be restricted to 20 per cent for all individuals by April 2020.

 

14) Ending permanent non-dom status

Non-domiciled individuals live in the UK but consider their permanent home to be elsewhere.

The UK rules allow non-doms to pay UK tax on their offshore income only when they bring it into the UK. However, permanent non-dom status will be abolished from April 2017.

From that date, anyone who has been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes.

 

15) Changing the way banks are taxed

Following increasing bank profits, and to reflect changes in bank regulation, the government is introducing a new 8 per cent tax on banking sector profits from January 2016.

The government is also introducing a phased reduction in the rate of the bank levy (which is charged on banks’ balance sheets) from 0.21 per cent to 0.1 per cent between 2016 and 2021.

 

16) Student maintenance grants will be replaced with loans

From the 2016 to2 017 academic year, cash support for new students will increase by £766 to £8,200 a year, the highest level ever for students from low-income households.

New maintenance loan support will replace student grants.

 

17) Road tax reform

The road tax system will be revised to make it fairer and sustainable.

From 2017, there will be a flat rate road tax of £140 for most cars, except in the first year when tax will remain linked to the CO2 emissions that cars produce. Electric cars won't pay any road tax at all and the most expensive cars will pay more.

 

 

References:

 

1. HM Treasury 2015, Summer Budget 2015, accessed 9 July 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443232/50325_Summer_Budget_15_Web_Accessible.pdf

 

2. FT Adviser 2015, Summer Budget 2015: All the key announcements, accessed 9 July 2015: http://www.ftadviser.com/2015/07/08/pensions/personal-pensions/summer-budget-all-the-key-announcements-Kav7rhGXQS2fZ9psvrFVnI/article-2.html?ftar=true

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