Autumn Budget 2016
Philip Hammond, the new Chancellor of the Exchequer, announced his first Autumn Statement to Parliament on Wednesday 23rd November 2016.
Small businesses, which make a huge contribution to the economy, are already facing ever increasing responsibilities and pressures. These include workplace pension schemes, dividend taxation changes and the national living wage.
Some tax breaks for small business owners would have been welcome to encourage growth. We can at least be thankful that the Chancellor did not announce any major new burdens either. Instead he confirmed his adoption of the business tax road map set out by the previous Chancellor, George Osborne.
This summary describes the key points of the Autumn Statement 2016 relevant to small business owners. It also reminds you of some changes that had already been announced, but are first coming in during 2017.
VAT Flat Rate Scheme
The Flat Rate Scheme was introduced to reduce the administrative burden imposed on small businesses operating VAT. Instead of identifying all VAT received and paid, the business applies a fixed percentage to their turnover instead. The percentage is based on the nature of their business, and is considered to be an average VAT bill for businesses of that nature.
In belief that the scheme is being abused by some traders, a new rate of 16.5% has been introduced for “limited cost traders”. The previous highest rate was 14.5%
A limited cost trader is defined as one who incurs less than 2% of turnover on goods in any accounting period (minimum £1,000 annually). Goods for this purpose excludes capital expenditure, food and drink and vehicle costs (unless offering a transport service such as a taxi).
This will take effect from April 2017 onwards. All flat rate registered businesses should review their position before then.
As previously announced, from April 2017 the rate of corporation tax will fall to 19%. It has been confirmed that the proposed cut to 17% from 2020 will proceed as planned.
Letting agent fees to tenants
The government will ban letting agents from charging fees to tenants, to give renters greater clarity and control over what they will pay. There will be a consultation before any legislation is introduced. Although this measure does not directly affect landlords, it is feared that letting agents may increase landlords’ fees to compensate.
Increase to the National Living Wage
The National Living Wage will increase from £7.20 to £7.50 per hour from April 2017. Workers aged 25 or over and not in the first year of an apprenticeship, are legally entitled to the National Living Wage.
National Minimum Wage rates
The National Minimum Wage rates (last increased in October 2016) will increase from April 2017 as follows:
- Aged 21 to 24 an increase from £6.95 to £7.05 per hour.
- Aged 18 to 20 an increase from £5.55 to £5.60 per hour.
- Aged 16 to 17 an increase from £4.00 to £4.05 per hour.
an increase from £3.40 to £3.50 per hour.
Fuel duty will remain frozen for the seventh successive year.
As previously announced, the Personal allowance will rise again from £11,000 to £11,500 from April 2017 and the basic rate band will also increase from £32,000 to £33,500. The combination of these changes means that the higher rate of tax will not apply until your income reaches £45,000 (up from £43,000). This will result in a maximum reduction in income tax of £500.
The plan is still in place to increase the personal allowance to £12,500 and the higher rate tax of 40% to apply on income when it exceeds £50,000 by the end of the current parliament.
The starting point for paying contributions will be aligned from April 2017 at £157 per week (£8,164) for both employee and employer contributions.
The Upper Earnings level/ Profit limits is aligned to the higher rate threshold for income tax. This increases the employee charged at 12% by nearly £188 for an employee earning above £45,000.
As previously announced, Class 2 contributions will be abolished from April 2018. Self-employed women will continue to be entitled to the standard rate of Maternity Allowance. Self-employed people with profits below the Small Profits Limit will can obtain entitlement to Contributory Employment and Support Allowance through voluntary Class 3 contributions. These are currently £14.10 per week. There will be provision to support self-employed individuals with low profits during the transition.
The tax and employer National Insurance advantages of salary sacrifice schemes (giving up gross pay to receive certain benefits) will be removed from April 2017. Exceptions to this are arrangements relating to pensions (including advice), childcare, Cycle to Work Schemes and ultra-low emission cars. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
Benefits in Kind Valuation of benefits in kind
The government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer- provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017
Employee business expenses
The government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer Insurance Premium Tax (IPT)
The standard rate of IPT will rise to 12% from 1st June 2017. This will make insurance more expensive for individuals and businesses.
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.
The government aims to extend their powers for data-gathering to identify those operating in the hidden economy. They will also consider the case for making access to licences or services for businesses conditional on them being registered for tax. They will also target those who repeatedly and deliberately participate in the hidden economy. This will encourage new businesses to register early, especially when they move towards Making Tax Digital.
Research & Development
The government will review the tax relief available on Research & Development with a view to making the UK an even more competitive place to do Research & Development. To date, very little detail has been released on this measure though.
Rural rate relief
The government will double rural rate relief to 100% from 1st April 2017, which will bring it in line with small business rate relief. Rural rate relief may be available if your business is in a rural area with a population below 3,000 and your business is:
- the only village shop or post office, with a rateable value of up to £8,500
- the only public house or petrol station, with a rateable value of up to £12,500.
To discuss these or any other accounts and tax matters, contact Steve Brown at TaxAssist accountants (01424 211800).