Tuesday 13th of March, 2018, saw Chancellor Philip Hammond present his much anticipated first Spring Statement to the public, following on from the Chancellor’s timetable change established in the 2016 Autumn Statement wherein he stated that the Autumn Statement and Spring Budget would be swapping places. So this spring, instead of having a budget we have a statement after the first Autumn Budget of November last year.
As well as his update on the economy he commented on:
● Launching consultations on different facets of the tax system.
● His views on the forecasts for the Office for Budget Responsibility.
Here’s a brief run through the major points.
Tax policy will stay the same, but the time involved for policy making and consultations have undergone an overhaul to offer more time to work on draft tax legislation before being introduced.
The changeover from the Spring Budget to the Autumn Budget will mean new measures will take place well ahead of the tax year in which they are announced. Announced in the Autumn Budget, any new measures will be studied during the winter and spring, leading to draft legislation in summer ahead of Royal Assent in the following spring.
The Personal Allowance for 2018/2019 will be £11,850.
This allows some couples, to move 10% of their unused personal allowance to their spouse, or civil partner. This will allow the spouse, or civil partner, the possibility of reducing their taxes by up to £238 for 2018/2019. This is available only to couples where both individuals pay no more than the basic rate of tax.
Tax Bands & Rates
Basic rate of tax of 20% applies to incomes of up to £34,500. Taxpayers will need to pay 45% of in tax for incomes over £150,000.
Taxes on income, aside from savings and dividend income, differs for those residing in Scotland where income tax rates and bands are also valid for the following types of income:
● Employment Income
● Self-employed trade profits
● Property income
The 2018/2019 Scottish Budget included changes to income tax bands and rates for resident Scots. These introduced five different income tax rates ranging from 19% and 46%. For now Scottish taxpayers have the same personal allowance as elsewhere in the UK. However, April 2019 will see the Welsh National Assembly assume control of Welsh rates of income tax.
Tax On Dividends
2017/2018 Dividend Allowance - First £5,000 of dividends are to be taxed at 0%
2018/2019 Dividend Allowance - Reduced to first £2,000 taxed at 0%
Dividends above £2,000 will be taxed as follows:
● 7.5% for basic rate taxpayers
● 32.5% for higher rate taxpayers
● 38.1% for additional rate taxpayers.
Additionally, dividends within the allowance count towards basic, or higher rate band and may affect the rate of tax due.
Taxes on Income from Savings
The allowance available as part of the Savings Allowance will depend upon an individual’s rate of income tax. So, individuals taxed at the basic rate have an allowance of £1,000 while those taxed at the higher rate have an allowance of £500. Additional rate taxpayers do not benefit from any allowance.
Investment in Knowledge
In an effort to stimulate investment in knowledge, the government is:
● Doubling the yearly limit an individual can invest under the Enterprise Investment Scheme (EIS) in a knowledge-intensive company, lifting it from £1m to £2m.
● Raising the annual investment limit from £5m to £10m, with the lifetime limit to remain at £20m, for knowledge-intensive companies gaining investment through the EIS and Venture Capital Trusts (VCT).
● Allowing knowledge-intensive companies to establish the date of their initial investing period as the date when turnover first goes over £200,000.
The EIS could have a new approved fund structure introduced by the government. A consultation is in progress to investigate the adding of further incentives to bring investment.
Making Tax Digital
HMRC’s Making Tax Digital (MTD) programme has been designed to move taxpayers to a fully digital service. The regulations are now in place outlining the requirements for VAT in relation to MTD. MTD is being piloted during 2018 ahead of its rollout in April, 2019. Under the new rules:
● Businesses with a turnover surpassing the VAT limit (£85,000) must keep digital records.
● They must also make VAT return info available to HMRC using software compatible with MTD.
1st April, 2019, will be the date the new rules come into effect for taxpayers who have a “prescribed accounting period” beginning on 1st April. For all others the new rules will come into effect on the first day of the next prescribed accounting period after 1st April.
Digital records and quarter updates will not be a requirement for any other taxes, other than VAT, before April 2020. Businesses that do not yet reach the VAT threshold can chose to join MTD.
Already established for periods up to March 2021, the rates are:
● 19% up to 1st April 2019
● 17% up to 1st April 2020
National Insurance Contributions: Class 2 and 4
● From April 2019, Class 2 National Insurance Contributions will be abolished.
● There will be no increases expected for Class 4 National Insurance Contributions.
Intangible Fixed Assets Regime
Brought in from 2002, the Intangible Fixed Assets regime transformed the UK corporation tax system. The government wants to study how the regime can be simplified and be made to support growth.
Corporate Tax and Digital Economy
The digital economy is placing pressure upon the corporate tax system and creating imbalances between businesses with and without physical attributes. The government believes the best solution is to tax revenues of businesses generating income by supplying digital services, and is considering options.
The government is to consult on the different methods of payment in use, since cash has fallen to funding only 40% of all payments in 2016.
Online Payment Platforms
The government wants to investigate ways to make it easy for those using online payment platforms, to generate extra income, to pay appropriate taxes.
VAT - Split Payments
To combat online VAT fraud the government intends to use new technology to collect VAT on online sales and direct the money straight to HMRC.
Cars Provided by Employers
Charges applicable in taxable benefit, for employees with use of their employer’s car, will be announced well ahead of time. Such charges are to do with the different bands that vehicles fall into with respect to their CO2 emissions. For example, at the moment there is a diesel supplement of 3%.
Closure of Childcare Schemes
After the introduction of the government’s new scheme to help working parents, Tax-Free Childcare, the Employer-Supported Childcare (ESC) was due to shut down to new applications from April of 2018. However, the scheme will not be scrapped for an extra 6 months. Employees can choose between one scheme, or another, but cannot belong to both simultaneously.
Termination Payment Changes
November 2017 saw the government decide to enforce a year-long delay to the Class 1A National Insurance Contributions measure so it will come into effect from April 2019. The changes will see employers liable for paying Class 1A contributions on termination payments exceeding £30,000.
Rates of Capital Gains Tax (CGT)
Rates of CGT are 10% for basic rate income tax with 20% due thereafter. However, 18% and 28% percent also apply to certain other gains within the basic rate income tax band.
There are two types of disposal to which a 10% rate which might be applicable. Both types hold a lifetime limit of £10m for each person.
Targeted at directors and employees who own at least 5% of ordinary shares of the companies they work for.
It’s mainly the external investors in unquoted trading companies with newly-subscribed shares who benefit here.
Entrepreneur Relief After Dilution of Holdings
The government intends to study how Entrepreneur Relief can benefit those whose holding in their company goes below the normal 5% qualifying level due to funds being raised for commercial reasons by issuing new shares.
This would allow shareholders to choose to make a gain on shares before dilution by treating the shareholding as though it is being sold and immediately re-purchased at market value.
Having been set at £325,000 since April 2009, the nil rate band for inheritance tax is due to remain at this level until April 2021.
Inheritance Tax Residence
The Residence Nil Rate Band (RNRB) was established in April 2013. The band means that family homes can be passed on to direct descendants with greater ease.
The gradual introduction of the RNRB will occur as follows:
● £100,000 for 2017/2018
● £125,000 for 2018/2019
● £150,000 for 2019/2020
● £175,000 for 2020/2021
After 2021 it will progress in line with the Consumer Price Index. To take advantage of the RNRB there are a number of criteria that needs to be met. For example, an existing will may need to be redrafted.
Office of Tax Simplification (OTS)
The OTS will review the inheritance tax regime with a view to seeing that the system is the best it can be. The review will cover admin issues, but also practical matters along the lines of estate planning.
Property Transaction Taxes
An exemption was declared by the Chancellor for Stamp Duty Land Tax (SDLT) for first-time home buyers. The exemption applying to the first £300,000 of the purchase of a home will apply from November 2017. 5% is due on properties with total prices of £300,000 and £500,000 and properties need to not have a total price of more than £500,000.
If buying a property in Wales, or Scotland, there can also be different tax matters, due to the devolved tax situation.
Offshore Time Limit Extensions
HMRC is seeking insights on writing legislation for a 12 year minimum tax assessment time limit for HMRC to make assessments or issue notices involving offshore income, chargeable transfers or gains.
Making Tax Digital
Summer 2018 will see the government consult on draft legislation on late submission penalties.
Business rates have been devolved to Scotland, Wales and Northern Ireland. It is every 5 years that the business rates are revalued in England. It has been declared that the revaluation will take place every 3 years after the next revaluation. The next revaluation is now due to take place in 2021.