You will NOT believe what the Chancellor did next!

So what were the main tax changes this year?

Scheduled Corporation Tax Reductions means Scheduled Corporation Tax Reductions

There has been lots of speculation that this first Budget after the EU referendum might be an opportunity for the Chancellor to signal a change of direction in tax strategy for the British economy. Corporation tax has inevitably been part of the focus. Some have said we should put the brakes on the proposed reduction of our corporation tax rates to 17% by 2020, to give us more of a buffer against an uncertain future. Others counsel further cuts to position the United Kingdom as an even better place to do business (to out-Ireland Ireland, as it were).

However the Chancellor has instead sent a clear “steady as she goes” message and confirmed that the roadmap for corporation tax changes will not change. Similarly, he has confirmed that planned increases to the personal allowance / income tax thresholds in this Parliament will go ahead. As part of that, he confirmed that (for individuals) the personal allowance and higher-rate threshold will go up to £11,500 and £45,000 respectively.

Making Tax Digital $&*”?/?/! <error> <error><error>

In the grand tradition of successful government IT projects, it was announced a couple of years ago that businesses would be required to move to increased digital record keeping and quarterly reporting, in order to ensure greater compliance. There was some surprise though when it was announced that the first to be required to adopt these new measures would be smaller, unincorporated businesses (including sole traders and individual landlords).

After quite a lot of lobbying the government has agreed to put back the start date for these businesses, from April 2018 to April 2019.

Levelling the playing field? Or ruining the turf?

UPDATE! Following the writing of this article, the Government has cancelled its plans to raise the Class 4 NIC rate in light of the substantial backlash to the proposal. If a small change like this is treated as political dynamite, it doesn’t bode well for more thoughtful, but more radical, changes which the Chancellor may wish to implement.

In the midst of broad-ranging debates about the gig economy, and rising levels of self-employment, how the tax system adapts is obviously very important. The gap between how the employed and the self-employed are taxed is biggest when it comes to national insurance contributions. There were two changes:-

1.  Aimed at self-employed individuals / partners in partnerships, an increase in the main rate of Class 4 NICs from 9 to 10% this year, and from 10 to 11% next year. However since Class 4 NICs are a flat 2% on profits above the higher-rate threshold, this change is arguably a little regressive.
2. Aimed at people operating through personal service companies (but incidentally affecting a lot of people who get significant dividend income), a reduction in the annual dividend allowance from £5,000 to £2,000. Again, a change that will disproportionately affect smaller companies.

Depending on who you speak to, these changes are the betrayal of the government’s manifesto promises, or a mealy-mouthed half-change that fails to tackle widespread abuse. Both sides can point to the fact that the changes have a bigger impact, in percentage terms, on smaller businesses, and lower-income individuals, than larger businesses, and higher-income individuals. And if the intended impact was on the gig economy, it seems strange to target the lower paid workers in that system.

The Chancellor was clear though that he feels there’s more to be done in this area, so watch this space.

Endless Employment Evolution

Two big changes affecting employers, which had previously been announced in the Autumn Statement, were confirmed. These are:-

1. Changes which imposes employer NICs on termination payments over £30,000, due to come in from April 2018.
2. Changes, which come in from 6 April this year, to effectively prohibit salary sacrifice (or flexible benefits) as a viable tax-planning tool except in a handful of preserved cases – the carve-outs include pensions salary sacrifice, childcare vouchers, cycle to work schemes and ultra-low emission cars.

The government announced that it will be publishing guidance for employers who pay their employees in part for image rights. Sports teams will doubtless watch for developments in this area with interest, although there are no details yet.

There was also a development which doesn’t directly affect employers, but which employers may want to understand so that they can inform their employees. The government is introducing a childcare subsidy for working parents, through tax-advantaged accounts. There is no mandatory role for employers in these arrangements, but you may want to alert your employees to the existence of these benefits so that they can assess whether they are eligible.

(Relatively little) Real Estate Reform

The revaluation of commercial properties for the purposes of assessing business rates has been a hot topic for a while now. The scheduled changes were postponed in 2015, but cannot be put off any longer. It may be surprising that a change which is intended to be revenue neutral would cause such a political stir. However value increases in London and the South East mean that many businesses there will see sharp increases in their rates. The large swathe of businesses which will see a rates decrease are staying judiciously, and understandably, quiet.

The Chancellor announced some new transitional measures intended to smooth the impact of the changes, but ultimately they will still go ahead. The measures will help businesses which find themselves outside the Small Business Rate Relief for the first time, as well as pubs with a rateable value of less than £100,000. Plans to make revaluations more frequent, so that this sort of shock is reduced, will be announced later in the year.

In another welcome development the government has delayed its plans to reduce the reporting and payment window on stamp duty land tax from 30 days to 14 days. The plan is still expected to go ahead, but that will now be April 2018 at the earliest.

Offshore property developers will need to look at their arrangements, as the Chancellor announced that (with immediate effect) rules will be introduced to ensure that all profits from property development in the UK gets taxed in the UK.

Grab-bag of changes for businesses

As usual there were a host of smaller announcements which may impact businesses (too many to go into here) but some of the more eye-catching ones are:-

1. There are plans to reform R&D tax credits to make them administratively easier to claim. It has long been a criticism of the system that they are too complicated for small businesses to realistically access, so good news may come on this front.
2. The nooks and crannies of partnership taxation may get a spring-clean, as promised in the Autumn Statement. Accompanying legislative changes will be made over 2017-18, but no details have been provided yet.
3. There will be changes to VAT rules affecting the provision of mobile phone services to people outside the EU. These will be brought within the scope of UK VAT for greater international consistency, and to cut down on avoidance.

Deemed Domicile Diversions

The government’s changes to personal taxation of those who claim non-domiciled status on a long-term basis are finally coming into force this year. One of the main changes is that individuals who are non-domiciled but have been resident in the UK for 15 of the past 20 tax years will become “deemed domiciled” for income tax and capital gains tax purposes. The other main change is designed to eliminate the inheritance tax advantages, for all non-domiciled individuals, of holding UK property through a corporate wrapper.

This Budget had nothing new to announce on this front, but anyone who claims non-domicile status should consider whether they are affected.

We’ll meet again

So that was the Budget. At least until the next Budget. Which (because this is a double Budget year) is less than 12 months away. Hooray?