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The budget saw another rise in the standard rates for the National Living Wage (NLW) which has become an annual occurrence since its introduction in April 2016 when it replaced, what used to be known as, the National Minimum Wage (NMW). The rates for the current tax year, 2017/18, and the rates announced for the next tax year, 2018/19, are shown below:
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The Chancellor announced that, in line with their commitment to increase the Personal Allowance to £12,500 and the higher rate threshold to £50,000, they will raise the income tax bands to the following:
The increase in the Personal Allowance is an increase of 3%, which, while welcome, is a fairly standard increase based on CPI. This will result in an income tax reduction of up to £70 per annum for basic rate taxpayers and up to £340 per annum for higher rate taxpayers earning under £100,000 (not taking into account any other impacts).
The 0% starting rate band for savings will remain at its current value of £5,000 for 2018/19.
The National Insurance rate bands have also increased slightly – for example, the lower profits limit for Class 4 contributions for the self employed will rise from £8,164 to £8,424 from April 2018. Class 2 NICs will not be abolished until April 2019.
As expected, the Chancellor wants to promote greener alternatives for employers who provide their employees with a company vehicle. The emissions scandals, over recent years, involving the testing of diesel vehicles has inadvertently placed them as a primary target on the Chancellor’s agenda.
The standard supplement in relation to Benefit in Kind rates for diesel vehicles will increase by 1% from 3% to 4%, with effect from April 2018. The main rates, already announced, based upon CO2 emissions remain the same although, consistent with previous years, the percentages increase for lower emission cars.
From April 2018, there will be no Benefit in Kind charge on electricity provided by employers to charge employees’ electric vehicles, regardless of if they are company cars or personally owned by the employees.
The provision of company vehicles has become an increasingly expensive option in recent years and the costs will undoubtedly continue to escalate as the government moves towards a greener future for our country.
The Chancellor announced that there would be no change to the plan revealed in Budget 2016 that the Corporation Tax main rate will remain at 19% for the years beginning 1 April 2018 and 2019 having fallen from 20% at 1 April this year.
The Government had also announced in the previous budget that the Corporation Tax main rate will be further reduced to 17% from 1 April 2020.
The above changes clearly benefit corporations and family businesses of all sizes, with the cut in Corporation Tax forming part of the Government’s stated aim of making the UK an attractive place to do business.
The indexation allowance which aims to negate the effects of inflation on corporate capital gains is to be frozen from 1 January 2018. The effect of this is that no relief will be available for inflation accruing after this date for companies selling chargeable assets. Relief from the date of acquisition through to 1 January 2018 will continue to be available for disposals after this date.
The indexation allowance freeze brings the corporate gains rules in line with individuals and trusts, both of whom do not currently benefit from a relief linked to inflation.
Following on from the recent Office for Tax Simplification report into the current VAT system there has been concern that HMRC would look to reduce the VAT registration threshold.
Philip Hammond did address this report during his speech but confirmed that the VAT registration threshold, rather than seeing the usual small increase, would be frozen for the next two years.
Following this two year period, the UK will be likely to have left the EU and at this point there would be more flexibility to introduce a smoothing mechanism to limit the impact of the current cliff edge system, which may in turn then see the threshold reduced.
At least for now though, the threshold has not been reduced keeping many small businesses outside of the VAT regime.
Following on from a consultation looking at options for tackling fraud in construction labour supply chains, a domestic reverse charge will be introduced to prevent VAT losses. Such a system already exists in other sectors, such as telecommunications, and shifts the responsibility for paying the VAT along the supply chain.
This is to be introduced from 1 October 2019, giving both businesses and the Government the opportunity to prepare for the change. It will be interesting to see whether there will be any de-minimis limit introduced for this new requirement.
Under current EU rules, businesses benefit from postponed accounting for VAT when importing goods from the EU, allowing a significant cash flow advantage. It is not yet clear whether this benefit will be retained following Brexit however the government has identified this as a potential issue and will be looking at options available to mitigate any adverse cash flow impacts for businesses, post Brexit.
A Government consultation will take place on plans to legislate in the Finance Bill 2018-19 to ensure that when customers pay with vouchers, businesses account for the same amount of VAT as when other means of payment are used.
This is a new development and it will be interesting to see what proposals are introduced in relation to this.
The Chancellor announced plans to introduce legislation to extend HMRC’s powers to hold online market places jointly and severally liable for any unpaid VAT of UK traders operating through their platform. This is an extension of the existing legislation which only impacts on overseas traders and would appear to be a positive step in reducing VAT fraud.
The Chancellor announced good news for UK Combined Authorities and certain fire services in England and Wales, with them becoming eligible for VAT refunds.
Grants will also be provided to help accident rescue charities meet the cost of VAT, which would normally be irrecoverable.
Fuel duty has been frozen for the eight year in a row, with it being estimated that this will save the average driver £160 a year.
The recent release of the “Panama Papers”, leaking details of offshore arrangements undertaken by wealthy individuals and companies intended to shelter assets from the UK tax net and/or avoid tax on income, led to criticism from the opposition that the Government was soft on tax avoidance.
The Chancellor responded today, firstly by outlining in great detail the avoidance measures he and his predecessor had introduced since 2010, and secondly by announcing new anti avoidance legislation. These latter measures included, but were not limited to, the following:
With effect from April 2019 withholding taxes will apply to royalty payments made to low tax jurisdictions in relation to sales to UK customers. In the past multi national corporates such as Apple, Amazon & Google have sought to reduce their tax exposure on UK profits by making royalty payments to group companies set up in low tax regimes.
Following a consultation period in Spring 2018 the Government intends to extend the time period during which they can recover taxes arising from non deliberate offshore non compliance from four years to twelve years.
Following consultation the Government will seek to introduce a requirement for designers of offshore structures which could be used to avoid UK taxes to notify HMRC of the structures and their clients who are using them.
To combat some employers abusing the Employment Allowance, in order to avoid paying the correct amount of NICs often by using offshore arrangements, HMRC are to require upfront security from
employers with a history of avoiding paying NICs in this way.
The Government intends to tackle disguised remuneration avoidance schemes used by close companies (generally those with five or fewer shareholders) by introducing a close companies’ gateway to ensure liabilities from the new loan charge are collected from the appropriate person.
With immediate effect a restriction will be introduced to the relief for foreign tax incurred by an overseas branch of a company, to ensure the company does not get tax relief twice for the same loss.
To further bolster their attempts to target tax avoiders the Government is to invest a further £155 million in additional resources and new technology for HMRC, which they forecast will help bring in £2.3 billion of additional tax revenues. This will assist and enable HMRC to:
The chancellor wants to leave future generations an economy fit for purpose. This will be driven by technological innovation and his plans aim to see the UK becoming a world leader in new and emerging technologies. Some of the key actions to achieve this are supporting connectivity between city regions, a further £2.3 billion support in R&D and unlocking £20 billion of patient capital so innovative high-growth firms can achieve their full potential. Interestingly this is being combined with ambitions to lead the world in developing standards and ethics for data and AI whilst creating the most advanced framework for driverless cars in the world. There are also plans to ensure the work force is fit for purpose to achieve these aims so that young people and people who want to retrain can learn the skills it takes to be innovators of the future.
The government is increasing the R&D Expenditure Credit to 12% with effect on or after 1 January 2018 in line with the governments ambition to raise the level of investment in R&D to 2.4% of GDP. This will not only affect large corporates, but our smaller clients who undertake subcontracted R&D or have received state aid towards their R&D projects.
The Chancellor announced further measures to reduce the impact on businesses affected by increases in Business rates:
There were no new announcements on Making Tax Digital (MTD), but the Government confirmed:
Whilst the recent budget didn’t throw up any significant headline announcements for our Manufacturing Sector, there were various items outlined which should have a positive impact on the sector, including: Research & Development
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