Archive for March, 2017

Self-employed NIC increase

Tuesday, March 14th, 2017

Although there was little of substance to Philip Hammond’s budget last week, one particular issue caused some political controversy. It was the proposal to increase the National Insurance contributions for the self-employed from 9% to 11% over a two-year period starting April 2018.

 

From this date, April 2018, the weekly Class 2 contributions will be scrapped and the scope of Class 4 contributions will be increased such that the entitlement to selected benefits is maintained.

 

The Chancellor’s justification for the increase was to reduce the gap between NI contributions made by employed persons and the self-employed. Typically, employed persons and their employers make more significant contributions than self-employed individuals earning the same level of income.

 

At present, the self-employed pay Class 4 NIC at the rate of 9% of profits between £8,060 and £43,000, for 2016-17, compared to 12% for an employee on earnings between the same thresholds. When employer’s NIC contributions of 13.8% are taken into account the imbalance in contributions are even more marked.

 

Historically, the benefits that an out of work, or retired self-employed person could claim were lower than an employed person, but with the advent of the new State Pension for persons who reach retirement age after 6 April 2016, many of these imbalances have been reduced.

 

The Treasury estimates that after the 2% increase has been factored in, only persons with self-employed earnings in excess of £16,250 will be paying more in NIC for 2019-20 as a direct result of the change.

 

Of course, the Class 4 NIC increase may not actually happen. This is a proposal published in a Finance Bill, and until parliament vote the change into law, the measure is ineffective. The Prime Minister has indicated that a final decision will be deferred to the Autumn Budget later this year.

Employment boost for older workers

Friday, March 10th, 2017

A new strategy is calling on employers to boost the number of older workers and ensure they are not writing people off once they reach a certain age, helping to build a country that works for everyone.

It’s estimated that by mid-2030s people aged 50 and over will comprise more than half of the UK adult population.

The government is encouraging people to take full advantage of the opportunities that work can bring, including seeking out a new career if they are feeling unfulfilled at work. A group of over 40 employers have spearheaded the new business approach to older workers.

As part of the new Fuller Working Lives strategy, ministers and business leaders have set out the social and health benefits of working longer. Highlighting the need for businesses to ‘retain, retrain and recruit’ older workers, the strategy outlines how a coalition of jobcentres and businesses can combine to support older workers to continue in their careers or take a new direction.

Secretary of State for Work and Pensions Damian Green said:

Most people are healthier for longer and so are able to extend their careers and take up new opportunities.

Staying in work for a few more years can make a significant difference not only to someone’s income but also their physical and mental health.

I urge all businesses to reassess the value of older workers. Nobody should write off hiring someone due to their age and it’s unacceptable that some older people are overlooked for roles they would suit completely.

The strategy also highlights that:

  • the average age of leaving the labour market has increased over the past 2 decades, but it is still lower than it was in 1950 and is not keeping pace with increases in life expectancy
  • 1 in 4 men and 1 in 3 women reaching state pension age have not worked for 5 years or more
  • by delaying retirement until 65 instead of 55 someone with average earnings could have £280,000 extra income and might increase their pension pot by 55%

 

To further support the employment of older workers, government is taking 4 main actions:

 

  • publishing a wide range of evidence to outline the benefits of working longer and harnessing the power of a truly multigenerational workforce
  • providing additional help for groups who may need more support getting into and staying in work, including people with long-term health conditions and disabilities
  • putting control of adult skills budgets in the hands of learners and employers, and achieving 3 million apprenticeship starts in England by 2020 – a commitment that apprenticeships are as accessible as possible to people of all ages and backgrounds
  • continuing to develop the support available through jobcentres for older workers, demonstrated by Older Claimant Champions being introduced in all Jobcentre Plus districts

Spring Budget & Donald’s Blog

Thursday, March 9th, 2017

Our Spring Budget and tax rates booklet can be found here –

Tax Rates & Spring Budget Booklet 17

Please click here to view Donald’s light hearted blog on the Budget.

Budget Statement 8 March 2017

Thursday, March 9th, 2017

Personal Tax and miscellaneous matters

Personal Tax allowance

The personal allowances for 2017-18 is £11,500 (2016-17: £11,000).

Transferrable allowances

The maximum amount of free personal allowance that can be transferred between spouses is increased to £1,150 in 2017-18. Couples can only make a claim if one partner has spare personal tax allowance and the other is a basic rate tax payer.

Income Tax rate bands

The levels for 2017-18 are:

  • For 2017-18 – £45,000 (the UK apart from Scotland)
  • For 2017-18 – £43,000 (Scotland)

If your income before allowances exceeds these amounts you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).

The threshold at which the 45% rate starts is unchanged at £150,000.

For yet another year there were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

Dividend allowance to be reduced

From 6 April 2018, the tax-free dividend allowance of £5,000 is to be reduced to £2,000. Director shareholders of small companies that have adopted the strategy of minimising salary and maximising dividends will likely pay more Income Tax on their dividend income because of this change.

Capital Gains Tax (CGT)

There are no changes to the basic CGT rates for 2017-18. The CGT on the disposal of chargeable assets, apart from residential property, remains at:

  • 10% on disposals that form part of the basic rate band.
  • 20% on disposals that form part of the higher rate band.

The higher rates (18% and 28%) will continue to apply to disposals of residential property subject to this tax and carried interest. Gains on a disposal of your home will continue to be exempt. The annual exempt amount for 2017-18 is £11,300 (2016-17: £11,100).

Money Purchase Allowance reduced to £4,000 from £10,000

This will restrict the amount of tax relieved contributions that can be made by an individual, into a money purchase arrangement, who has accessed their pension savings from April 2017.

Reminder for non-doms to be bought into the IHT net

A reminder, that from April 2017, Inheritance Tax will be charged on all UK residential property even when indirectly held by a non-domiciled person through an off-shore structure.

Excise duties

Duty on wine, beer, spirits and alcohol will increase in line with the Retail Prices Index from 13 March 2017. These measures will typically add 2p to the price of a pint of beer, 1p to the price of a pint of cider, 36p to a bottle of whisky and 10p to a bottle of wine.

Tobacco duty rates

Changes to excise duties mean that a pack of twenty cigarettes will increase by an average of 35p, an additional 17p per 10 grams of cigars, and a 35-gram pouch of tobacco by 42p.

Fuel duty

There will be no increase in fuel duties. At the end of 2017-18 this will be the 7th year fuel duty has been frozen.

New National Savings investment clarified

From April 2017, individuals aged 16 years or older will be able to invest in the new NS & I Investment Bond. It will be available for one year from April 2017. Minimum deposit is £100, maximum deposit allowed £3,000. The rate of interest applied is 2.2%.

Lifetime ISA previously announced

From April 2017, any person aged from 18 to 40 will be able to save into a new Lifetime ISA until the age of 50.

Up to £4,000 can be saved each year and savers will receive a government bonus of 25% – that is a bonus of up to £1,000 a year.

Some or all of the money can be used to buy a first home, or it can be kept until age 60.

Accounts will be limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together. If a saver has a Help to Buy ISA it can be transferred into the Lifetime ISA in 2017, or savers can continue saving into both, but it will only be possible to use the bonus from one to buy a house.

After your 60th birthday you can take out all the savings tax-free. You can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 25% charge.

ISA limit from April 2017

The ISA savings limit for 2017-18 is confirmed as £20,000.

Business tax changes

Corporation Tax rate

The main rate of Corporation Tax from 1 April 2017 will be reduced to 19%. A further reduction has been announced to 17% from 1 April 2020.

NIC increases for the self-employed

To narrow the perceived imbalance in NIC charges for the employed and self-employed, Philip Hammond announced increases in the self-employed Class 4 NIC contributions.

The increases are:

  • From April 2018, an increase from 9% to 10%, and
  • From April 2019, a further increase from 10% to 11%.

The earlier increase is timed to coincide with the cessation of Class 2 contributions.

Business rates increases

In response to the negative publicity regarding increases in business rates in England, particularly for retailers, the Chancellor has stepped in with help for smaller businesses.

There are three areas of relief announced:

  1. Small businesses that find they are losing Small Business Rates Relief from April 2017, will have any annual rates increase capped at the higher of £600 or the transitional relief cap.
  2. Local authorities will be funded to provide an element of discretionary relief, and
  3. Public houses with a rateable value of up to £100,000 will benefit from a fixed £1,000 business rate discount – subject to State Aid limits if multiple properties are owned. This discount is available for one year from April 2017.

Local authorities will be fully compensated for any loss of income because of these measures.

Making Tax Digital

The Chancellor announced a one year deferral from Making Tax Digital for Business for unincorporated businesses and landlords with turnovers below the VAT threshold. This means that businesses, self-employed people and landlords with income of less than the VAT threshold will not have to start quarterly reporting until 2019.

Changes to trading and property income allowances

The two previously announced £1,000 tax-free allowances for small scale trading or letting will still be introduced from April 2017, but will now include restrictions if the income or rents are generated by dealings with companies or partnerships of which the recipient is a participator or partner.

Loss relief reform

Legislation is to be introduced to reform the rules governing corporate losses carried forwards from earlier periods. The changes will:

  • Allow more flexibility by relaxing the way companies can use carried forward losses from 1 April 2017.
  • Restrict the set-off of losses such that profits cannot be reduced by more than 50%. This restriction will apply to companies or groups with profits of more than £5m.

Corporation Tax relief for museums and galleries

Rates for 2017-18, already announced, are 25% for touring exhibitions and 20% for non-touring exhibitions. Following consultation, the draft legislation is to be amended to allow for exhibitions that have a performance element, but where the live performance is not the main focus of the exhibition.

VAT registration and deregistration limits

From 1 April 2017:

  • Registration threshold increased to £85,000
  • Deregistration threshold increased to £83,000

Avoidance and evasion

The government will continue to challenge and seek to overturn artificial arrangements whose sole purpose seems to be a reduction of tax.

The budget crystal ball

Wednesday, March 8th, 2017

Today Philip Hammond will present his first budget to parliament; forecasting any changes he may be considering to the UK tax system is perhaps unwise.

If he remains committed to austerity, anticipating any potential fall-out from the Brexit process and maintaining (or more likely slowing down) the repayment of national debt, it is difficult to see where savings can come from to fund tax give-aways.

Most of the annual tax allowances for 2017-18 have already been published so what we may see are commitments to ease taxation in future years. There have been rumours that the UK may be promoted as a low-tax area to draw non-EU business to the UK after Brexit. Perhaps we will see a promise to reduce corporation tax below 17%, the rate it is predicted to be from April 2020, or bring forward the reduction to 17%.

Other predictions include:

  • Increasing stamp duty thresholds for first-time buyers.
  • Setting a fixed rate for pensions tax relief – 33 per cent has been mooted.
  • Taking the sting out of the recently announced business rate increases.
  • Efforts to simplify tax compliance for businesses.

Additionally, we may see a start towards the alignment of rules for NIC and income tax, removing or closing the disparity between the overall tax and NIC payable by the self-employed and employed persons.

In some respects, tax payers, their advisors and HMRC have their hands full implementing tax changes already announced. Most impactful is Making Tax Digital and the necessity for the self-employed to make quarterly data uploads from April 2018.

Many of us are hoping that Mr Hammond will opt for a gently-gently approach. By this time next week, we will know if he agrees.

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