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Autumn Statement 2016

The Chancellor presented his first, and last, Autumn Statement against a background of reduced growth forecasts and the urgent need to MACO businesstackle the long-term weaknesses of the UK economy. His declared ambition is to make UK ‘match-fit’ for Brexit.

The most significant announcement which probably tells you quite a lot about the rest of the Statement was left until the end. The Chancellor announced that this will be the last Autumn Statement and from 2018 we will have Spring Statements and Autumn Budgets. The change is designed to give sufficient time for proposed tax changes to be scrutinised before they come in.

All eyes will now turn to the Scottish Budget on 15 December where we expect announcements from the Scottish Government on a range of tax issues, including: rates & bands of income tax on non-savings and non-dividend income, air passenger duty, aggregates levy and how the Government intends to use the half share of VAT receipts it will receive from April 2017 when the receipts will be assigned to the Scottish Government's budget. We'll publish an update on these pages shortly after Derek MacKay, Cabinet Secretary for Finance and the Constitution presents his first Scottish Budget.

Click on the links below for the key summaries

We're on hand to help if you would like to discuss any of the issues raised in the Statement. Give your usual contact at MACO or MAFS a call or click on the link: contact us.

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Key Highlights

MACO business

Personal Tax

MACO performance

Business Taxes

MACO saving

Pensions & Savings

MACO invest

Anti-avoidance

MACO buying selling

Property Taxes

MACO project

UK Tax Rates

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Economic overview

Economic overview

Five months to the day from the Brexit referendum, the economic numbers look significantly different from the government’s projections in the March 2016 Budget.

In what proved to be his Budget finale, George Osborne had made great efforts to hang on to his one surviving fiscal target – ending the budget deficit in 2019/20. He then abandoned his 2020 target shortly after the Brexit vote and shortly before Theresa May abandoned him.
It did not take long for the new Chancellor, Philip Hammond, to start talking about a ‘fiscal reset’, which he would reveal in the Autumn Statement. The latest data on government borrowing show why: just seven months into the financial year the deficit is already £48.6bn – only a little less than the Office for Budgetary Responsibility (OBR) Spring Budget projection for the whole of the 2016/17 deficit of £55.5bn.

Mr Hammond’s reset is arguably no more than a recognition of current reality. The OBR now forecasts the 2016/17 deficit will be £68.2bn, with 2019/20 producing a deficit of £21.9bn. In the space of less than a year, £122bn has been added to total government debt figures by the end of 2020/21. The first surplus has disappeared from view. Mr Hammond’s new fiscal targets carefully leave “significant flexibility to respond to any headwinds the economy may encounter”.

The heightened level of borrowing was an inevitable constraint on the Chancellor’s action. Nevertheless, this Autumn Statement – the last of its type – contained a range of important measures.

Some of the key tax points of the Autumn Statement 2016Idea

  • Salary sacrifice schemes The tax and NIC advantages of most salary sacrifice schemes will be removed from April 2017 as previously proposed, but there will be some transitional protections. Arrangements relating to childcare vouchers, pensions and cycle to work schemes will not be affected. A new exemption has been added for low-emission cars.
  • The pensions money purchase annual allowance (MPAA) will be reduced from £10,000 to £4,000 from April 2017. This limit applies to people who have accessed their pensions flexibly and under the current rules may be obtaining tax relief on up to £10,000 of recycled pensions income.
  • Foreign pensions and lump sums of UK residents will be fully taxed to the same extent as their domestic equivalents. Specialist pension schemes (s.615 schemes) for people employed abroad will be closed to new saving. There will also be other significant changes to the tax rules for pensions of people who move overseas.
  • The tax changes for non-domiciled individuals will proceed as planned from April 2017.
  • Corporation tax The government renewed its commitment to reduce the rate of corporation tax to 17% by 2020. It will also limit the tax deductions that large groups can claim for UK interest expenses from April 2017.
  • Employee shareholder status The tax advantages linked to shares awarded under employee shareholder status will be abolished for arrangements entered into on or after 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity.
  • Insurance premium tax will be increased from 10% to 12% from 1 June 2017.
  • Anti-avoidance and evasion provisions were plentiful as usual, including a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time. There will also be consultation on a new requirement for intermediaries who arrange complex structures for clients holding money offshore to notify HM Revenue & Customs (HMRC) of those structures and to provide lists of clients.
  • Making Tax Digital The Chancellor confirmed the intention to implement Making Tax Digital (MTD) from Aprtil 2018, with consultation responses being published in January 2017. Find out more about how HMRC's MTD proposals may impact you in Financial & Tax Acuity Winter 2016-17 >more

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Personal TaxMACO business

Personal allowance for higher rate threshold

The personal allowance will rise to £11,500 and the higher rate threshold to £45,000 for 2017/18. The higher rate threshold is likely to be lower for Scottish taxpayers because the Scottish government has said that it intends to increase it by no more than the rate of inflation. 

The Chancellor re-confirmed the goal of a £12,500 personal allowance and £50,000 higher rate tax threshold by 2020. After that date the personal allowance will rise in line with the CPI rather than the national minimum wage, as previously proposed.

New tax allowances for property and trading income

From April 2017 two new income tax allowances of £1,000 each will cover trading income and property income, as announced in Budget 2016. Individuals with trading or property income below the allowance will not need to declare or pay tax on that income. The trading income allowance will now be extended to apply to certain miscellaneous income from providing assets or services.

National Insurance contributions (NICs)

The primary and secondary NIC thresholds for employees and employers will be aligned at £157 a week in 2017/18.

Class 2 NICs will be abolished from April 2018. For 2018/19 onwards, benefit entitlement for the self-employed will be based on their Class 3 and Class 4 NIC records.

Taxation of remuneration

Three measures have been announced on the treatment of remuneration other than in the form of a cash salary:

  • Salary sacrifice The tax and NIC advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, cycle to work schemes and ultra-low emission cars. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
  • Valuation of benefits in kind The government will publish a consultation on employer-provided living accommodation and will also ask for evidence on the valuation of all other benefits in kind in the 2017 Budget.
  • Employee business expenses There will also be a call for evidence on tax relief for employees’ business expenses, including those that employers do not reimburse.

Company car tax

For 2020/21, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting over 90g CO2/km will rise by 1%.

Termination payments

From April 2018 termination payments to employees of over £30,000 (that are subject to income tax) will also be subject to employer NICs. This has been previously announced. Tax will only be applied to the equivalent of an employee’s basic pay if they have not worked their notice. The first £30,000 of a termination payment will normally remain exempt from income tax and NICs.
Off-payroll working rules

The ‘off-payroll working’ rules will change in the public sector from April 2017, with the responsibility for operating them and paying the correct tax moving to the body paying the worker’s company. As a consequence, the 5% tax-free allowance will be removed for those working in the public sector who are paid through companies.

Legal support

From April 2017, employees called to give evidence in court will no longer need to pay tax on the legal support from their employer.arrow people

Non-domiciled individuals

From April 2017, non-domiciled individuals will be deemed to be UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin. Non-domiciled individuals who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust.

Also from April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust. The new rules were announced previously.

Inheritance tax reliefs

Inheritance tax relief for donations to political parties will be extended to parties with representatives in the devolved legislatures. This change will take effect from Royal Assent of the Finance Bill 2017/18.

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Savings & Pensions

Key highlights:

  • Proposed reduction of MPAA from £10,000 to £4,000 from April 2017. If you are considering flexi assess drawdown in the future this may affect you.
  • Pensions are excluded from changes to Salary Sacrifice.
  • Consultation on the ban on pension cold calling. This is another reminder that individuals must obtain indpendent advice from an appropriately qualified FCA authorised IFA.
  • Foreign pensions to be more closely aligned to the UK tax regime.

Starting rate for savings

The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017/18.

Money purchase annual allowanceMACO saving

The money purchase annual allowance (MPAA) applies to individuals who have drawn any income benefits under the current pension flexibility rules. It was designed to limit pension income being recycled as fresh, tax-relieved pension contributions.

The MPAA was initially set at £10,000 and will be reduced to £4,000 from April 2017, but there may be some exemptions following consultation.

Foreign pensions

The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by:

  • Bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.
  • Closing specialist pension schemes to new saving for those employed abroad (s.615 schemes).
  • Extending from five to ten years the period for UK taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief.
  • Aligning the tax treatment of funds transferred between registered pension schemes.
  • Updating the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.

Social investment tax relief (SITR)

From 6 April 2017, the amount of investment that social enterprises can raise through SITR will increase to £1.5m if they are no more than seven years old. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially, but the government intends to introduce an accreditation system to allow these investments to qualify in the future. The limit on the number of employees will be reduced to 250 full-time equivalent.

Offshore funds

Performance fees incurred by offshore funds will not be deductible against reportable income from April 2017 and instead they will reduce any tax payable on disposal gains.

National Savings and Investments (NS&I) bondTPL 2016 17main

For one year from April 2017, NS&I will offer a new ‘market leading’ three-year savings bond. The indicative rate is 2.2% but this may be adjusted to reflect market conditions at launch. The bond will be open to people aged 16 and over, subject to a minimum investment of £100 and a maximum of £3,000.

Life insurance policies

Legislation will be introduced in the Finance Bill 2017 and will be effective from 2017/18, to counter the disproportionate tax charges that can currently arise in certain circumstances from life insurance policy part surrenders and partial assignments. This has been previously announced.

Personal portfolio bonds

The government will create the power to amend by regulations the list of assets in which life insurance policyholders can invest without triggering tax anti-avoidance rules. The changes will be in the 2017 Finance Bill and will take effect from Royal Assent.

ISA, Junior ISA and Child Trust Funds

The annual subscription limit for Junior ISAs and Child Trust Funds will increase to £4,128. The main ISA subscription limit will increase to £20,000, as previously announced.

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Business TaxesMACO performance

Corporation tax rates

The Chancellor reconfirmed the planned reductions in the rate of corporation tax to 17% in 2020. The rate of corporation tax from 1 April 2017 will be 19%.

Tax deductibility of corporate interest

From April 2017, there will be limits on the tax deductions that large groups can claim for their UK interest expenses. These rules will apply where a group has net interest expenses of more than £2m, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group. The provisions originally proposed will be amended to protect investment in public benefit infrastructure.

Reform of loss relief

The profit that businesses can offset against carried-forward losses will be restricted to 50% from April 2017, while greater flexibility will be allowed on the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5m allowance for each standalone company or group.

Non-resident companies

The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. A consultation will be launched in Budget 2017.

Substantial shareholding exemption (SSE)

The rules for the SSE will be changed from April 2017. The SSE provisions allow a gain on a disposal of shares by a company to be exempt from corporation tax. The investing requirement will be removed and there will be a wider exemption for companies owned by qualifying institutional investors.

Authorised investment funds

The rules on the taxation of dividend distributions to corporate investors will be amended to allow exempt investors, such as pension funds, to obtain credit for tax paid by authorised investment funds. Draft legislation will be issued in early 2017.

Museums and galleries tax relief

The scope of the museums and galleries tax relief announced in the 2016 Budget will be extended to include permanent exhibitions. The rates of relief will be set at 25% for touring exhibitions and 20% for non-touring exhibitions, and the relief will be capped at £500,000 of qualifying expenditure per exhibition.

The relief will take effect from 1 April 2017, and there will be a sunset clause under which the relief will expire in April 2022 if it is not renewed after a review scheduled for 2020.

Employee shareholder status

The tax advantages linked to shares awarded under employee shareholder status will be abolished for arrangements entered into on or after 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity.

Business rates

The rural rate relief will be doubled to 100% from 1 April 2017 in order to remove the inconsistency between rural rate relief and small business rate relief.

Insurance premium tax (IPT)

The standard rate of insurance premium tax will rise from 10% to 12% from 1 June 2017.

Value added tax

The government will consult on VAT grouping and provide funding with a view to digitising fully the Retail Export Scheme to reduce the administrative burden to travellers.

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Property TaxesTax Property Nov 2016

The taxation of investment property has been sharply in focus of the Government in recent years and whilst there were no further changes announced yesterday, there are number of changes already here and more on the way soon.

We are often asked the question, should I hold residential investment property personally, or in a company? There is no simple answer to the question as there is certainly no one solution that fits all. 

There are however a range of strategies and options for your to consider which we have summarised in a short guide.

The tax and financial issues that should be considered following the introduction of the the restriction of higher rate relief on finance costs >more

Tax avoidance, evasion and compliance

Tax avoidance, evasion and compliance

The government claims that since 2010, it has secured around £130bn in additional tax revenue as a result of tackling avoidance, evasion and non-compliance.

Disguised remuneration

Budget 2016 announced changes to tackle the use of disguised remuneration schemes by employers and employees. The scope of these changes will be extended to tackle the use of such schemes by the self-employed to avoid income tax and NICs. Employers who use disguised remuneration avoidance schemes will be denied tax relief for their contributions to such schemes unless tax and NICs are paid within a specified period. 
Strengthening tax avoidance sanctions and deterrents

There will be a new penalty for anyone who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. This new regime was announced in the Spring Budget 2016 and draft legislation will be published shortly. Any person or business that uses tax avoidance arrangements will no longer be able to use the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties.

VAT relief on adapted cars for wheelchair users


The application of the VAT zero-rating for adapted motor vehicles will be clarified to stop the abuse of this legislation, while continuing to provide help for disabled wheelchair users.

VAT flat rate scheme

A new 16.5% rate will available from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. Guidance with the force of law was published on 23 November.

Requirement to correct MACO invest

There will be a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time and new sanctions will apply to those who fail to do so.

Requirement to register offshore structures 

The government will consult on a new legal requirement for intermediaries who arrange complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.

Tackling the hidden economy

HMRC’s data-gathering powers will be extended to money service businesses in order to identify those operating in the hidden economy.

The government will consult on the case for making access to licences or services for businesses conditional on registration for tax. The sanctions for those who repeatedly and deliberately participate in the hidden economy will also be strengthened. The Spring Budget 2017 will set out further details.

We will keep you posted on the likely impacts on you and your business via our electronic tax updates and our Tax & Financial Acuity briefings. Tax & Financial Acuity Winter 2016 >more

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UK Business & Personal Tax Rates 2016-17

Download the guide >more

 

We are on hand to help you if you would like to discuss any of the issues raised in the Autumn Statement 2016.

Give you usual contact at Martin Aitken & Co or Martin Aitken Financial Services Ltd a call or get in touch with us by clicking on the contact us button. We will be pleased to hear from you.

This summary has been prepared very rapidly and is for general information only. All statements within this document are based on our understanding of the changes within the 2016 Autumn Statement. You are recommended to seek professional advice before taking any action on the basis of the contents of this summary. Publication date: 24th November 2016.

Budget highlights
The launch of a new Lifetime ISA from April 2017 for adults under the age of 40, with a maximum contribution of £4,000 a year and a 25% bonus. The standard ISA investment limit will rise to £20,000 at the same time.
A cut in the main rates of capital gains tax from 2016/17 to 20% for higher and additional rate taxpayers and 10% for other taxpayers. However, the existing rates will continue for gains on residential property and carried interests.
An increase in the personal allowance for 2017/18 to £11,500 and the higher rate threshold to £45,000.
An extension of entrepreneurs’ relief to cover long term external investors in unlisted companies.
Two new £1,000 tax allowances for property income and trading income, starting in April 2017.
A cut in the corporation tax rate to 17% in 2020 and greater flexibility in the use of tax losses by smaller companies.
A restructuring of stamp duty land tax on commercial properties.
A major revamp of business rates in England, permanently doubling the small business rate relief.
The abolition of Class 2 National Insurance contributions for the self-employed from 6 April 2018.
Scottish Budget December 2016
FGDP (UK) Scotland Glasgow Study Day 2016

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