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Tax measures contained in 2016 Autumn Statement

This was the first and last Autumn Statement to be delivered by the new Chancellor, as he announced major changes to the timetable under which the annual Budget cycle will operate in future, the main thrust of which is that after  the Spring budget in March 2017 we will be moving to Autumn Budgets and Spring Statements!  In a change of policy from recent years, there were not as many new tax announcements in the speech or the supporting documents as has been the case in recent years, but the tax changes that were announced included the following:
  • The personal allowance is set to rise to £11,500 and the higher rate threshold to £45,000 in April 2017 and the government reaffirmed its commitment to increasing these amounts to £12,500 and £50,000 respectively by the end of this Parliament.
  • The government perceives that the VAT flat rate scheme provides an opportunity for small businesses to significantly reduce their VAT liabilities in a way that was not intended when the scheme was first introduced.  As a result a new flat rate of 16.5% will be applied for all businesses using the scheme who incur little or no input tax.
  • The threshold at which employers and employees NI becomes payable will be aligned with effect from 6 April 2017 at a weekly amount of £157.
  • The rate of insurance premium tax is to be increased from 10% to 12% with effect from 1 June 2017.
  • The government has announced an intention to consult on moving all non-resident companies into the corporation tax regime and further information will  be announced in the March budget.
  • There will be 100% capital allowances available for the provision of electric car charging points on expenditure incurred between 23 November 2016 and 31 March 2019.
  • The rules for Employee Share Status will be amended with effect for shares awarded on or after 1 December 2016 to remove the tax benefits they currently provide, and the scheme itself will be closed once legislation can be passed, as it is perceived as being increasingly used primarily for tax avoidance purposes.
There will be a reduction in the amount that can be paid into a pension fund by those who have existing pensions in drawdown from £10,000 per annum to £4,000 per annum.

The Chancellor also confirmed a number of tax changes that are going to come into effect but had already been announced.  These include:

Class 2 NIC for the self-employed will be abolished with effect from 6 April 2018

The rules around the taxation of termination payments are being changed with effect from 6 April 2018 and the conditions for making tax-free payments of up to £30,000 are being tightened

Salary sacrifice schemes are changing in April 2017 which will result in increased tax and NI bills for many users

A tax-free allowance of £1,000 per annum for small businesses and those who let out their properties will be introduced in April 2017

Changes to the taxation of non-domiciled individuals are being introduced in April 2017

Corporation tax rates will decrease from 20% to 17% over the lifetime of this Parliament

Restrictions are being brought in on the deduction of interest payments and the use of losses brought forward for corporation tax purposes, with these changes largely being aimed only at very large companies

Public sector bodies who engage individuals as contractors rather than as employees will have to consider whether in fact the individuals are acting as employees in which case PAYE and NI will have to be deducted from any payments made

The Chancellor also referred to a finding by the Office for Budget Responsibility that business incorporations, particularly for one-person companies, are having an increasing negative effect on tax receipts.  He said that this is an area that is being looked at with more details to follow on what changes might be made to counter this at a later date.

There will undoubtedly be a lot more to digest and comment on in the coming days and weeks, particularly following the publication of the draft budget clauses which will happen on 5 December.  At the same time, we are also expecting to see the government’s responses to the large number of consultations published over the summer, although not those for Making Tax Digital.

Making Tax Digital is probably the most important change to the tax system announced in recent years and is planned to take effect from April 2018.  However the Chancellor said nothing at all about this, and there is merely a statement in the supporting documents that the government’s response to the six consultations issued in the summer will not be published until January 2017.  The delay is probably because there is insufficient time between now and early December for all the comments received to be properly considered and may perhaps also be a sign that the introduction of the new system will be delayed by at least a year as the vast majority of responses to the consultations probably advised.