Introduction

Spring is in the air. But was there a spring in Chancellor Hammond’s step when he delivered his first (and last!) Spring Budget on 8 March? With the triggering of Article 50 then imminent, many expected further measures showcasing that Britain is “open for business”. These, and the word Brexit, were absent from his speech on Budget Day.

The Chancellor’s approach seemed to be “steady as she goes”. Though there were perhaps three tax headline items – increased national insurance (“NIC”) for the self-employed, a concession on the Making Tax Digital (“MTD”) timetable and a reduction in the dividend allowance.

But just a week letter, the Chancellor did a U-turn on his Class 4 NIC proposal, confirming the proposed increases will not go ahead. The increase in Class 4 NIC alone was expected to raise over £2 billion in tax revenue by 2022. How will the Chancellor now fill this gap?

MTD is to be delayed one year (until April 2019), but only for businesses with turnover below the VAT registration threshold – not entirely surprising.

The Chancellor also sought to close the national insurance gap between employees and the self-employed with two planned increases in self-employed class 4 NIC which commence in April 2018.

And the final of the three big ticket items on the day was the announcement that the £5,000 dividend allowance introduced just last April is to be reduced to £2,000 from next April.

The Budget documents published last month include details of changes previously announced; this analysis focuses mainly on new announcements. And whilst the Budget documents were much shorter than usual, tax anoraks like us in the Institute’s tax department still found plenty of items worthy of note.

Making Tax Digital paused for smaller business

The Making Tax Digital consultation outcomes were published on 31 January and covered in depth in recent editions of Chartered Accountants Tax News. Many were hoping that the Chancellor would announce a delay in the implementation of MTD which is due to commence in April 2018 for the self-employed and landlords.

A concession was made on Budget Day. MTD will commence, as planned, next April. However businesses with turnover below the VAT registration threshold will be able to pause their MTD responsibilities until April 2019. Disappointingly, there was no further announcement on the turnover threshold below which businesses and landlords will not be required to comply with MTD. This is currently set at £10,000.

The deferral for a year for some smaller businesses is welcomed as this will allow more time for the software to be tested and to allow businesses to prepare for this change. But does this concession go far enough? In these uncertain times, businesses need certainty. A final announcement on the complete exemption threshold is needed soonest – this is currently set at £10,000.

The Institute is currently considering its strategy on MTD and how we can assist members in preparing for this change. We’d like to hear your views on MTD (contact leontia.doran@charteredaccountants.ie) and how it will affect your daily work.

Is Northern Ireland corporation tax on track?

With less than a year to the proposed commencement of the NI corporation tax regime on 1 April 2018, the reforms necessary to put the Executive’s finances on the sustainable footing required to complete corporation tax devolution should not be forgotten. The impetus is squarely with NI’s politicians.

Finance Bill 2017 confirms the announcement a few months ago that the Corporation Tax (Northern Ireland) Act 2015 is to be amended so that SMEs who do not meet the SME test in the legislation will be able to avail of the regime for large companies if they have a Northern Ireland regional establishment.

Download Chartered Accountants Ireland’s briefing note on the legislation now. Note that this briefing note will be amended in due course once the detail of the proposed changes for SMEs has been enacted.

In the meantime, the Coleraine Enterprise Zone forges ahead. The pilot scheme for the new Coleraine enterprise zone was formally designated by HM Treasury in August 2016. The zone will offer 100% enhanced capital allowances for qualifying expenditure in the first year.

Personal tax changes focus on bridging the self-employed tax gap

There were no further announcements towards achieving the government’s election manifesto promise of increasing the higher rate tax threshold to £50,000 by the end of the current parliament. The government also proposes to increase the personal allowance to £12,500 in that timescale. Perhaps the Chancellor plans to pull this out of his hat later this year in his first Autumn Budget.

The planned increased in the personal allowance for 2017/18 to £11,500 and the corresponding rise in the higher rate threshold to £45,000 will both proceed as previously announced. However, Scottish taxpayers will find themselves paying the higher rate at £43,000 which was confirmed in a recent vote in the Scottish parliament.

Dividend allowance

The £5,000 dividend allowance introduced just last April will fall to £2,000 from April 2018. This measure was badged as another way of reducing the tax differential between the employed and self-employed and those working through a company.

National insurance

The government had already announced that it will abolish Class 2 NICs from April 2018 and this planned change will proceed.

Alongside an ongoing review into employment practices, the government is to consider whether there is a case for greater parity in parental benefits between the employed and self-employed.

Different forms of remuneration

Employers can choose to remunerate their employees in a range of different ways, but the tax system some treats these different forms of remuneration inconsistently. The government is considering how the tax system treats benefits in kind and employee expenses. Consultation is to be launched on the following aspects:

• Taxation of benefits in kind – the government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind.
• Accommodation benefits – a consultation containing proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date is to be launched. This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition.
• Employee expenses – a call for evidence has been launched aimed at better understanding the use of the income tax relief for employees’ expenses, including those that are not reimbursed by an employer.

Property and trading income allowances

From April 2017, the new £1,000 allowances for property income and trading income will be introduced. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. Finance Bill 2017 contains the relevant legislation.

Business taxes remain stable

No significant new changes were announced affecting the UK corporation tax regime. The rate changes enacted previously are to be maintained; the main rate falls to 19% for three consecutive financial years from 1 April 2017. From 1 April 2020, the rate falls a further two percentage points to 17%. Changes to the rules for corporation tax losses and restrictions on the deduction of corporate interest took effect, as planned, from 1 April 2017.

R&D

Despite the expectation that the UK’s R&D tax relief legislation might be improved, the sole announcement in this area is that administrative changes will be made to the R&D expenditure credit available under the large company regime “to increase the certainty and simplicity around claims”.

We understand from HMRC that it plans to speak to businesses and agents over the summer to develop a number of possible options before making a decision on which ones to take forward. Options being considered include improved guidance, allowing independent certification of R&D projects and establishing a panel of experts to consider difficult cases.

Action will also be taken to improve awareness of R&D tax credits among SMEs. However, the government did commit to keeping the competitiveness of the UK environment for R&D under review to ensure that the UK is profoundly pro-innovation.

Withholding tax on interest

The administrative simplifications of the Double Taxation Treaty Passport scheme are to be renewed and extended to assist foreign lenders and UK borrowers. This scheme simplifies access to reduced withholding tax rates on interest that are available within the UK’s tax treaties with other countries.

An exemption from withholding tax for interest on debt traded on a Multilateral Trading Facility is to be introduced, following consultation in spring 2017.

Capital gains tax stands still

Capital gains tax remained completely untouched in the Budget with the rate changes announced in Budget 2016 staying in situ. Though that’s not to say that change isn’t coming this April.

From 6 April 2017, capital gains tax, income tax and inheritance tax will all contain a new concept of deemed UK domicile, if an individual has been UK resident 15 out of the previous 20 years. These means that the remittance basis for capital gains tax will not be available to anyone with a deemed UK domicile under this concept. The draft legislation in this area is complex and contains several transitional measures for those becoming deemed UK domicile from 6 April 2017.

Property taxes

The reform of stamp duty land tax which commenced in December 2014 has been completed. The few measures announced in this area on Budget day were largely positive but should be viewed in the round with previously announced changes targeting landlords in prior years.

The removal of the wear and tear allowance from 6 April 2016, the additional 3% stamp duty land tax charge which arises when additional residential properties are acquired and the restriction of tax relief on interest costs for residential properties to basic rate only from 6 April 2017 (on a phased basis) have all impacted this sector.

Stamp duty land tax

As a result of consultation, the government will delay the reduction in the filing and payment window until 2018/19.

Rent-a-room relief –

The government will consult on proposals to redesign rent-a-room relief aimed at supporting longer-term lettings.

Offshore property developers

The legislation which taxes profits realised by offshore property developers developing land in the UK will be amended to ensure that all profits realised, including those on pre-existing contracts, are subject to tax, with effect from 8 March 2017.

This legislation was included in the Finance Act 2016 and applies from 5 July 2016. HMRC published detailed guidance on this area in December 2016. Later this year, tax.point will feature an article outlining how this legislation works.

Old habits die hard

The usual suspects were hit with duty increases on Budget day.

Alcohol duty rates and bands

From 13 March 2017, the duty rates on beer, cider, wine and spirits increased by RPI inflation, in line with previous forecasts. The government is also consulting on:

• introducing a new duty band for still cider just below 7.5% abv to target white ciders
• the impacts of introducing a new duty band for still wine and made-wine between 5.5% and 8.5% abv

Tobacco duty rates

As announced at Budget 2014, duty rates on all tobacco products increased by 2% above RPI inflation. This change came into effect from 6pm on 8 March 2017.

Soft drinks industry levy

The levy rate for added sugar drinks with a total sugar content of 5 grams or more per 100 millilitres is set at 18p per litre, and those with 8 grams or more per 100 millilitres is set at 24p per litre.

Minimum Excise Tax

A minimum excise tax is to be introduced for cigarettes. The rate is set at £268.63 per 1,000 cigarettes and will take effect from 20 May 2017.

Miscellanea and tidbits

We finish off our coverage of Spring Budget 2017 with a round-up of various other measures announced.

VAT

From 1 April 2017 the VAT registration threshold increases from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000.

VAT: use and enjoyment provisions for business to consumer mobile phone services

The government will remove the VAT use and enjoyment provisions for business to consumer mobile phone services to individuals. This will resolve the inconsistency where UK VAT is applied to mobile phone use by UK residents when in the EU, but not when outside the EU. This measure is being lauded as a 20% charge being imposed on mobile roaming costs “used and enjoyed” outside the EU. How will this work when Britain itself is no longer part of the EU?

VAT: fraud in the provision of labour in the construction sector

A consultation has been launched looking at options to combat missing trader VAT fraud in the provision of labour in the construction sector. One option being considered is whether or not to apply the reverse charge mechanism so that the recipient accounts for VAT.

VAT ‘Split Payment’ model

Building on the measures introduced in Budget 2016, the government has published a call for evidence on the case for a new VAT collection mechanism for online sales. This is aimed at harnessing technology to allow VAT to be extracted directly by the Exchequer from online transactions at the point of purchase which is often referred to as a ‘Split Payment’ model.

Insurance Premium Tax (IPT)

The government will legislate to introduce anti-forestalling provisions and increase the standard rate of IPT to 12% from 1 June 2017, as announced at Autumn Statement 2016.

Tax simplification

The cash basis entry threshold is to increase to £150,000, and the exit threshold to £300,000 from 6 April 2017. The cash basis will also be extended to unincorporated landlords. The rules on capital and revenue expenditure within the cash basis will be reviewed with the aim of making it easier for businesses to work out whether their expenditure is deductible for tax.

HMRC large business risk review

HMRC will consult over the summer on its process for risk profiling large businesses and the promotion of stronger compliance.

Promoters of Tax Avoidance Schemes (POTAS)

New legislation will ensure that promoters of tax avoidance schemes cannot circumvent the POTAS regime by re-organising their business by either sharing control of a promoting business, or putting a person or persons between themselves and the promoting business.

Strengthening tax avoidance sanctions and deterrents

As announced at Autumn Statement 2016, the government will introduce a new penalty for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.

The defence of having relied on non-independent advice as taking ‘reasonable care’ will be removed when considering penalties for a person or business that uses such arrangements.

Tax treatment of appropriations to trading stock

The government will remove the ability for businesses to convert capital losses into trading losses from 8 March 2017.

Qualifying recognised overseas pension schemes (QROPS): introduction of transfer charge

A 25% charge on transfers to QROPS is to be introduced. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction. Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area.

Image rights

HMRC are to publish guidelines for employers who make payments of image rights to their employees under separate contractual arrangements to employment income.

Employment allowance

HMRC is actively monitoring compliance with the National Insurance Employment Allowance following reports of some businesses using avoidance schemes. Further action will be considered if this continues.

Budget publications

The Spring Budget 2017 announcements and publications can be found on GOV.UK on the main Spring Budget 2017 webpage. One page also links to all the HMRC Spring Budget 2017 tax-related documents and announcements.

As usual, the main Budget documents are the Red Book, and the Overview of Tax Legislation and Rates (OOTLAR). OOTLAR contains detailed tax information including Tax Information and Impact Notes on all the Budget and Finance Bill measures, and has informed much of our coverage of this year’s Spring Budget statement.

Readers are reminded that many new measures announced during previous Autumn Statements and Budgets will also be effective from 6 April 2017. The above OOTLAR is a useful summary of all measures effective 6 April 2017 (et seq.) whether as a result of this or previous Budget/Autumn statement announcements.

As always, the devil is often in the detail – the Finance Bill 2017 was published on 20 March. The aforementioned should therefore be read in that context.

Leontia Doran is the Institute’s UK taxation specialist

Email: leontia.doran@charteredaccountants.ie