There had been much anticipation to the Chancellor’s 2016 Autumn Statement. Post Brexit, post a new Cabinet, post economic turbulence and post Trump, many wanted to see what the priorities of our new Chancellor would be. Given the uncertainty that’s settled on the UK economy since June, many hoped for some clarity and insight on what lies ahead.
As always the full implications of the Chancellor’s Speech are not clear until The Treasury release the detail behind all the statements and promises. Here’s our take on the key headlines for BTCSoftware customers and their clients.
Investment priorities
To demonstrate a commitment to stabilising the economy a range of investment priorities were promised. These included additional investment in housing and local transport networks. The Government clearly wants to invest in innovation too (and avoid a mass exodus of scientific and Research & Development talent post Brexit). This was evident in the promise of additional investment in R&D, rising to an extra £2 billion per year by 2020-21. It was suggested that there will be a review of the tax environment for R&D to look at ways to build on the introduction of the ‘above the line’ R&D tax credit. We’ll have to wait and see how that translates in reality.
Personal and business tax implications
Key personal and business tax changes which BTCSoftware customers should be aware of are:
- The income tax threshold will be raised to £11,500 in April, from its current threshold of £11,000
- The higher rate income tax threshold is to rise to £50,000 by the end of the Parliament
- The tax savings on salary sacrifice and benefits in kind are to be stopped, with exceptions for ultra-low emission cars, pensions, childcare and cycle to work schemes. Arrangements in place before April 2017 will, however, be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021. This is likely to affect schemes for gym memberships, dental plans and mobile phone deals etc.
- Employee and employer National Insurance thresholds are to be equalised at £157 per week from April 2017
- Corporation tax will remain ‘on track’ to reduce to 17% by 2020
Other implications for small businesses
- Insurance premium tax is to rise from 10% to 12% next June, which will no doubt push up the price of premiums to the end-user
- Rural rate relief – To remove the current inconsistencies between rural rate relief and small business rate relief, the Chancellor announced increasing the Rural Rate Relief to 100%, to give small businesses in rural areas a tax break worth up to £2,900 per year.
- VAT Flat Rate Scheme – New measures will be introduced to the VAT Flat Rate Scheme (FRS) from 1 April 2017. This will see the introduction of a new 16.5% rate from that date for businesses with limited costs. These are currently (but vaguely) defined as labour-only businesses. The plan is to ‘level the playing field, while maintaining the accounting simplification for the small businesses that use the scheme as intended’. FRS businesses will need to determine whether they meet the definition of a ‘limited cost trader’ and we await the criteria!
- The National Living Wage – is to rise from £7.20 an hour to £7.50 from April next year
- Employee Shareholder Status (ESS) – The tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on, or after, 1 December 2016. It will then be closed to new arrangements.
Making Tax Digital
Whilst many involved in accounting and tax (including software developers for the profession!) were hoping for some clarity on the Making Tax Digital timeframe, it looks as if we’ll all have to wait a bit longer. The Government won’t announce its response to the consultations till January 2017. This gives very little time to prepare for whatever shape and launch schedule MTD takes and will only fuel further speculation and concerns.
Autumn’s the new Spring!
Not only was it Mr Hammond’s first Autumn Statement, apparently it was his last. He revealed it would be replaced in future years by the Autumn Budget as there is no need for major tax changes to be made twice a year. The Chancellor will, however, be delivering a “Spring Statement” in 2017 to respond to OBR forecasts.
Rest assured
BTCSoftware customers can rest assured that we will be following the developments from the Chancellor’s Autumn Statement as they emerge and our software will adapt to reflect new tax rates and changes. We will also continue to closely monitor and work with HMRC on its MTD roll-out so the accountants and tax advisers we support have all the tools they need when MTD inevitably launches.
