The main measures from the final Spring Budget.
For an in-depth look at the Spring Budget, see our overviews below:
The Budget of 8 March 2017 was announced as the last Spring Budget, with the future spring announcement focusing on the Office of Budget Responsibility forecasts and the launching pad for tax consultations. This Budget was the first step to this new approach, with few tax announcements, but with the promise of consultations to come. This approach is in line with some of the recommendations of the Institute of Government’s report Better Budgets: making tax policy better.
The approach of keeping the UK open for international business with a competitive corporation tax rate of 19% from April 2017 was confirmed.
Businesses, both large and small, will be relieved that there were few significant changes announced, particularly since there are significant measures already in the Finance Bill 2017 relating to restrictions on interest deductions and changes in the rules relating to losses. Business have enough on their plate already, what with Brexit and the potential changes in the US business landscape, so they will be pleased with the steady as it goes approach of the Chancellor.
There are some helpful changes to the draft proposals on the corporate interest deductions, but as with most of the fine details, these will be released on 20 March 2017 when further draft clauses of Finance Bill 2017 are due to be published.
For smaller business, one of the key announcements was the pre-briefed transitional reliefs on the business rates revaluations from 2017. This will help pubs and businesses moving out of the small business rate relief. In addition there will be a £300 million discretionary fund to be administered by local government. There was a mention in the speech that digital businesses pay less business rates, but no new details have been provided other than a promise to review the business rate system before the next revaluation in five years’ time.
The main finance raising measures are an initial down-payment on likely future changes on the taxation of work, the self-employed and small one person incorporated businesses. The Chancellor spent a long time during his speech highlighting the differences in tax liabilities between these structures, focusing on the lack of fairness - this is a key phrase indicating tax rises to come. As such, the increase in the main rate of NIC for the self-employed by 1% to 10% from April 2018 and again up to 11% from April 2019 only raises £325 million per percentage point rise – this is only approximately 10% of the existing tax differential between the self-employed and the employed.
Consequently, we should expect more tax changes in this area when the report by Matthew Taylor on the gig economy and the future of work is published in summer 2017. This will be a chance for the Chancellor to set out a clear roadmap for the changes to come.
The other main finance raising measure is a reduction of the £5,000 dividend exemption to £2,000 from April 2018. This will mainly impact smaller owner managed companies and those individuals with large share portfolios. As this dividend exemption was only introduced with effect from April 2016, this suggests that the Government had a rethink about the potential impact of the exemption.
For individuals, the main news is no news – i.e. that the changes to the taxation of non UK domiciled individuals will still be introduced with effect from April 2017. Some commentators have suggested a delay of a year in order to ensure the rules are workable in practice but the Government have decided to press ahead regardless. This now leaves very little time for taxpayers to review their affairs before the new rules are introduced next month.
We await the consultation on the future funding of social care for the elderly with interest; all options remain open except for the last Labour Government‘s proposal for a ‘Death Tax’.
The biggest change in the UK tax world over the next few years is still proceeding. Legislation will be introduced in Finance Bill 2017 for the proposed Making Tax Digital (MTD) changes. This will require quarterly reporting by businesses, including landlords, of their income and expenses to HMRC digitally. For unincorporated businesses and landlords with turnover below the VAT registration threshold, the introduction of this new regime has been delayed until April 2019. However, other qualifying business will still have to apply the new rules from April 2018. Even if the introduction of this complex digital project, involving commercial supplies of accounting software, completes smoothly, this is likely to be a significant administrative hassle, particularly for those business which do not currently use accounting software.
Overall, this is a Budget with an improved economic position compared with the Autumn Statement. However, the Chancellor has decided to play safe with only a few changes announced. Future flexibility has been retained to support the economy over the uncertainties of the next few years.
From 1 August VAT will be due on mobile phone services used by UK consumers outside EU.
HMRC are to launch a consultation on their process for risk profiling large businesses.
Changes will be made to the draft legislation on deductibility of corporate interest.
Leased plant – changes will involve adapting the current system but not replacing it.