Given the furore that erupted, if there is one thing that Philip Hammond’s first Budget will be remembered for it will be his failed move to narrow the gap between the amount of National Insurance contributions (NICs) employees and the self-employed pay. Had it gone ahead, class 4 NICs would have risen from 9% to 11% over two years. Class 2 self-employed NICs will be abolished according to plan from April 2018.
The new dividend allowance, which only came into effect in April 2016, will be reduced from £5,000 to £2,000 from April 2018. This change will reduce further the benefits available from tax-motivated incorporation.
The chancellor proposed three measures to ease the transition for those who face higher rate bills this month. These include: businesses that no longer qualify for small business rate relief will see a cap imposed on the amount by which their rates bill increases (the higher of £600 or the real terms transitional relief cap for small businesses); discretionary relief for individual cases from a £300m local authority funding pot; and a one-year £1,000 discount for pubs with a rateable value of up to £100,000.
R&D tax relief
Following a review of the tax environment for R&D, the government is to make changes to maintain the R&D regime’s competitiveness. For large businesses there will be a focus on how the rules of R&D tax relief apply to claims and for SMEs there will be better promotion of tax credits to encourage them to take up their allowance.
Cash basis of accounting for trading income
From 6 April 2017, the entry threshold for the cash basis will increase from £83,000 (the current VAT threshold) to £150,000, and the exit threshold will rise to £300,000. The increase was announced on 31 January 2017 as part of HMRC’s response to the Making Tax Digital (MTD) consultations and should be of help to unincorporated businesses with relatively straightforward affairs.
Cash basis for unincorporated landlords
The cash basis will be the default method for calculating rental profits and losses for unincorporated landlords from 6 April 2017, unless the landlord opts out or the gross annual rents exceed £150,000, in which case the accruals basis must be used.
Corporate interest restrictions
Changes to draft legislation implementing an OECD Base Erosion and Profit Shifting (BEPS) minimum standard from 1 April 2017 will: amend the worldwide debt cap to prevent an unintended restriction in the carry forward provisions for UK groups; ensure the rules treating interest on debt guaranteed by related parties as related party interest and which can be subject to restriction will not apply to certain performance guarantees and all guarantees granted before 31 March 2017, nor will it apply to intragroup guarantees in the context of the group ratio rule; and relax requirements for comparable non-qualifying companies to have similar levels of financing as those covered by the exemption. They will also define interest to include income and expenses from dealing in financial instruments as part of a banking trade; and introduce rules for insurers regarding the calculation of interest on an amortised cost basis to provide a practical alternative to fair value accounting.
Loss relief reform
There is to be more flexibility in the use of losses carried forward which arise on or after 1 April 2017: these losses can be set against profits from different types of income and profits of other group companies.
The use of losses in existence at April 2017 will not be able to reduce profits arising on or after 1 April 2017 by more than 50% of the profit. This restriction will apply to a company or group’s profit above £5m.
Making tax digital
The introduction of MTD for businesses that have a turnover below the VAT threshold (£85,000 from this month) will be deferred by a year, from 6 April 2018 to 6 April 2019.
VAT turnover thresholds With effect from 1 April, the annual taxable turnover threshold for VAT registration rises from £83,000 to £85,000 and for deregistration from £81,000 to £83,000.
B2C mobile phone services
The VAT use and enjoyment provision for mobile phone services provided by businesses to consumers (B2C) is to be withdrawn. This will bring those services used outside the EU within the scope of UK VAT.
Deadlines for making good non-payrolled benefits-in-kind (BiK) The deadlines for making good BiK not accounted for in real time through PAYE will be aligned at 6 July following the end of the tax year. The taxable value of BiK will be reduced or removed if making good takes place by that date. The change will affect making good on a tax liability arising in the tax year 2017/18 and onwards.
The income tax and employer NIC treatment of BiK provided through salary sacrifice or other optional remuneration arrangements will change on 6 April 2017. Tax and employer NIC will be charged on the higher of the value of the BiK and the cash foregone rather than on the value of the BiK. This will apply even where the BiK is currently exempt from tax and NIC. A transitional rule will protect employees who are in contractual arrangements before 6 April 2017 until the earlier of a variation or renewal of the contract or 6 April 2018, except for cars with emissions above 75g CO2/km, accommodation and school fees for which the final date is 6 April 2021. Employer-provided pensions and pension advice, childcare vouchers, employer-provided childcare and workplace nurseries, cycle to work schemes and ultra-low emissions cars, with emissions not exceeding 75g CO2/km will be excluded.
As well as the full Budget summary (which can be accessed at icaew.com/budget), the Tax Faculty is working on a summary of the 2017 Finance Bill which was published on 20 March, along with 13 related consultations.