Personal Allowance – The government reaffirmed its commitment to raise the personal allowance to £12,500 which has been confirmed with the personal allowance increasing to £11,500 from April 2017. This move, as highlighted in previous Budgets, will continue the government’s commitment to increase the personal allowance by more than inflation with 2017/18 being the seventh consecutive year this has occurred.
Higher Rate Threshold – The rate at which an individual will start to pay higher rate tax will increase from £43,000 in 2016/17 to £45,000 in 2017/18. In order to remain aligned with the higher rate threshold, the Class 1 National Insurance Contributions (NICs) Upper Earnings Limit will also increase from £43,004 in 2016/17 to £45,032 in 2017/18.
National Insurance for the self-employed - It was previously announced that the Government will abolish Class 2 National Insurance Contributions from April 2018 for the self-employed.
A further measure was announced by the Government in order to reduce the differential between employed and self-employed National Insurance Contributions. The main rate of Class 4 National Insurance Contributions will increase from 9% to 10% in April 2018 and thereafter increase to 11% in April 2019. As a comparison, the current main rate for Class 1 employee National Insurance Contributions is 12%.
After taking into account the abolition of Class 2 National Insurance Contributions, the government state that this change means that only self-employed individuals with profits above £16,250 will subsequently have to pay more National Insurance Contributions.
Dividend Annual Allowance – The dividend annual allowance will be reduced from £5,000 to £2,000 from April 2018. This was a surprising move by the government which may prompt private companies to consider paying out higher levels of dividends in the current and 2017/18 tax years.
Corporate Tax – The current rate of corporation tax of 19% will be reduced to 17% in 2020. While the Budget does not make major changes to the business tax regime, the previously announced cuts to corporation tax is aimed at ensuring the UK remains internationally competitive for business.
Rent-a-Room Relief – From April 2016, the rent a room relief threshold increased from £4,250 to £7,500 per year. There will be consultation to redesign Rent-a-Room Relief with the intention that it supports longer term lettings, thereby aligning this relief more closely with its intended purpose which is to increase the supply of affordable long term lettings. This redesign may possibly exclude such activities as renting a room in your home through Airbnb.
Offshore Property Developers –Taking effect from 8 March 2017, legislation will be amended to ensure that all profits realised by Offshore Property Developers who develop land in the UK are subject to UK tax.
VAT –From 1 April 2017, the VAT registration threshold will increase from £83,000 to £85,000 with the de-registration threshold limits to increase from £81,000 to £83,000.
Pensions and Savings
National Savings – As previously announced in the 2016 Autumn Statement, the new NS&I Investment Bond is to be launched offering a confirmed interest rate of 2.2% gross over a 3 year period. The Bond is subject to a minimum investment of £100 and a maximum investment of £3,000, with this level of investment expected to cover savings for over half of UK households. The Bond will be available for 12 months from April 2017.
Lifetime ISA – The Budget confirmed the Lifetime ISA will come into effect from April 2017, allowing younger people to save up to £4,000 a year with the government providing a bonus of up to 25% on these contributions. Funds can be withdrawn tax-free in order to purchase a home or when a person turns 60.
Tax Administration, Avoidance & Evasion
Digital Administration – An extra year (April 2019) has been provided for to allow unincorporated businesses and landlords with a turnover below the VAT threshold to prepare for digital record keeping and quarterly updates.
Tax Simplification – There will be an increase in the cash basis entry threshold to £150,000 an exit threshold to £300,000. The rules on capital and revenue expenditure within the cash basis will be simplified to make it easier for businesses to identify expenditure deductible for tax purposes
Tax Avoidance – Promoters of Tax Avoidance Scheme (POTAS) – new legislation will ensure that Promoters of Tax Avoidance Schemes cannot circumvent the POTAS regime by re-organising their business structures.
Tax Avoidance Sanctions & Deterrents – A new penalty will be introduced for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.
Avoidance – Foreign Pensions, the government have announced their intention to introduce a 25% charge on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS). This is to target those attempting to avoid tax in the UK by moving their pension income to another jurisdiction. Exceptions may apply where individuals have a genuine need to transfer their pension.