Autumn Statement 2016
The new Chancellor’s first Autumn Statement will also be his last. In future the main Budget announcements will be made in the autumn. There will still be a Budget next March but thereafter the annual Budget will be in the Autumn to allow longer consideration of the announcements and draft legislation before enactment the following summer.
The key tax announcements were not really very exciting:
- Personal allowance to increase to £11,500 in 2017/18, rising to £12,500 by 2020/21
- Higher rate tax threshold to increase to £45,000 in 2017/18, rising to £50,000 by 2020/21
- National Insurance threshold to be raised to £157 a week for employees and employers
- Corporation tax rate to reduce to 17% in 2020
- Business tax “roadmap” to continue, in particular new rules for company losses
- Another insurance premium tax increase from 10% to 12% from 1 June 2017
- More anti-avoidance measures, in particular a new VAT flat rate percentage for “limited cost traders”
HIGHER RATE TAX RELIEF FOR PENSIONS CONTINUES
There has been much speculation that the government would further limit tax relief for pension contributions by removing higher rate tax relief. That measure would save the country £34 billion in tax but the only change announced concerns a new lower limit on amounts that can be saved in a pension when individuals have started drawing down from their private pension.
Currently the net effect of pension tax relief for a higher rate taxpayer is that saving £10,000 in a pension costs £6,000. The taxpayer pays £8,000 into their pension and the government tops this up by £2,000 with a further £2,000 deducted from the individual’s income tax liability, reducing the net cost to £6,000. For additional rate taxpayers the net cost would be just £5,500.
Remember that there is currently an annual pension input limit of £40,000 which caps the combined contributions by an individual and his or her employer. For those with high income this is tapered and can be as low as £10,000.
One new pension restriction that was announced was a measure to limit pension “recycling”. Those individuals who have started drawing down their personal pension will in future only be able to reinvest up to £4,000 in their pension.Please contact us if you want to discuss pension planning further.
SALARY SACRIFICE RULES TO BE TIGHTENED UP
Many employers now provide flexible remuneration packages that allow employees to give up some of their contractual salary in exchange for benefits in kind. This can have the effect of saving tax and national Insurance contributions for both the employee and employer, particularly where the benefit provided is exempt from tax.
These tax and NIC advantages are to be withdrawn from 6 April 2017. Arrangements involving pensions, childcare, Cycle to Work and ultra-low emission cars will be excluded; existing arrangements will be protected for a transitional period until April 2018, and existing arrangements for cars, accommodation and school fees will be protected until April 2021.
The Chancellor has announced a wider review of the taxation of benefits, with the intention of making this area ‘fairer and more coherent’. This appears likely to have a significant effect on any employee who is in receipt of benefits from their employer.
IMPORTANT CHANGES TO THE FLAT RATE SCHEME FOR VAT
The VAT flat rate scheme is a simple scheme that enables small businesses to calculate and pay their VAT based on a flat rate percentage of total takings rather than deducting input tax on purchases and expenses and deducting that from total output tax on sales in the period. HMRC believe that the scheme is being abused by certain traders who have minimal costs who charge 20% VAT to their customers and then pay a lower percentage over to HMRC.
The flat rate percentage varies depending on the nature of the trade, ranging from 4% for food retailers up to 14.5% for IT consultants and labour only construction workers. A new 16.5% rate will apply from 1 April 2017 for businesses spending less than 2% of their turnover or less than £1,000 per year on goods, excluding capital goods, food, vehicles and fuel. Any business affected will almost certainly be better off returning to the normal VAT system with effect from that date. We will advise all of our clients using the flat rate scheme accordingly.