Against the backdrop of a lower level of GDP baseline growth, from an average 1.7% in previous forecasts to 1.5% in latest forecasts over the next four years, the Chancellor had little room for manoeuvre in yesterday’s budget.
Low productivity still haunts the UK economy. So much so, that economists have started to use the words, “the productivity puzzle”.
Even so, Mr Hammond produced the following measures.
TAX for Companies and Corporate Bodies.
(1) From 1st April 2017 changes will come into effect limiting the tax deductions that companies can claim for the interest expenses.
(2) The rate of Corporation Tax will fall from its rate now of 20% to 19% in April 2018 and then to 17% from April 2020. Effectively, the UK becomes one of the most competitive jurisdictions for this tax in the G20. Further information on tax rankings in the G20 can be found in the Oxford University 2016 publication “G20 Corporation Tax Rating” (March 2016 – Deveux, Habu, Lepoev, Maffini).
(3) The VAT registration threshold (the amount earned before you need to register for VAT) will increase to £85,000 from its current £83,000. The deregistration threshold (below which you can remove yourself from the register) will increase to £83,000 from the current level of £81,000. All good news.
(4) Proposals will be published to “clarify” the treatment of partnerships for taxation. Increasingly, larger partnerships (some with hundreds of partners) look and feel like companies. The government’s stated intention is to tax profit shares fairly. The proposals will be published in the Finance Bill to be laid before Parliament following the budget speech.
Are you in the Financial Services Sector?
(1) the Double Tax Treaty Passport Scheme is being made simpler to assist companies outside the UK in lending to companies in the UK by making it easier to qualify under the UK tax treaties regime. Hitherto, only corporates could lend under the scheme, this restriction is to be removed from 06.04.18.
(2) Long-term finance (or “Patient Capital” to those that know and love it) is going to be reviewed, the government’s stated intention to make it easier for investors to remain invested in companies. HMG is also going to look at how existing taxes and exemptions/reliefs, can be looked at to increase incentives to entrepreneurs investing in companies.
(3) Withholding tax on interest on debt traded on a Multilateral Trading Facility is to be removed/exempted. Watch this space for a White Paper/consultation document in the spring of next year. The Treasury is aiming to publish this in March.
Employment and personal taxes
(1) In terms of personal allowances, the immediate levels will increase in April 2018 from £11,000 to £11,500 and for higher rate payers from the current £43,000 to £45,000. The long term aim here is to raise thresholds to £12,500 for lower band and to £50,000 for the upper rate by the end of the parliament.
National insurance contributions (NICs) for the self-employed
(2) NICS for the Self Employed. Those with a good memory will recall the last time Mr Hammond had a “stab” at this and the tabloid backlash that followed prompted a rapid U-turn by the Chancellor. The problem though, is this - that with the “gig” economy and increasing use (sometimes wrongly) of the “I am self-employed” label, the tax man is losing out. With that in mind, the main rate of Class 4 NICs, paid by the self-employed, will be increased from the rate of 9% for profits between £8,060 and £43,000 to 10% from 6 April 2018, and to 11% from 6 April 2019. Will the Chancellor get this measure through now, when he did not do so before….?
(3) Dividends. If you are a shareholder in your own company, you normally take your pay in dividends. Again, the tax man loses out…. The tax-free dividend allowance falls to £2,000 from £5000 from April 2018.
The taxation of different forms of remuneration
(4) Payments in Kind anyone? HMG has called for consultation on and evidence on the taxes on benefits in kind, accommodation benefits and employee expenses. The results are expected to be published in 20 March 2018.
The annual limit on investments into all ISAs increases from £15,240 to £20,000 from6 April 2017.
Are you in property? Are you offshore or using an offshore vehicle?
HMG is going to consult on bringing non-UK resident companies, who are currently liable for income tax on their UK taxable income and Capital Gains Tax, within the scope of corporation tax. HM Treasury is due to publish its findings on 20 March 2018.
Offshore property developers will now be taxed on profits (both in income tax and corporation tax) realised in developing land in the UK. This will affect existing contracts.
If you would like any further information about how the Budget may affect you, contact DMH Stallard for more information.