Autumn Budget Statement Highlights

2 December, 2016

Individuals and Income tax

Increases in personal allowance and higher rate threshold

From 6^th April 2017 the personal allowance will increase to £11,500. The level at which income will be taxed at 40% will rise to £45,000 and above. It is the government’s aim to increase the personal allowance to £12,500 and the higher rate tax threshold to £50,000 before the next general election, scheduled for May 2020. Thereafter the personal allowance will rise in line with the Consumer Price Index.

Class 1 National Insurance primary (employee) and secondary (employer) thresholds will be aligned from April 2017 so that both employees and employers will start paying National Insurance on weekly earnings above £157.

Salary sacrifices

Salary sacrifice allows employees to waive part of their salary in
exchange for a benefit, which itself may be exempt from tax and NIC.

The chancellor announced that the tax and National Insurance advantages of salary sacrifice schemes will be removed from April 2017.

Schemes involving pensions, child care and “Cycle to Work” will not be removed. Arrangements in place before April 2017 will still be available until April 2018. There will be a further three year delay until April 2021 where schemes involve cars, living accommodation and school fees.

New childcare scheme announced

Tax Free Childcare will be introduced from early 2017 as a replacement for the existing Childcare Voucher Scheme, but not for those earning over £100,000 annually.

Tax Free Childcare will cover 20% of the childcare costs up to £2,000 per year per child. The new scheme will be available to working parents, working single parents and self-employed parents but will not be available where one parent is not working or for parents who claim for children older than 12.

Your savings

A new government savings bond will launched through National Savings & Investments, allowing savers aged 16 or over to receive higher rates of interest (expected to be around 2.2%) for a three year period on a maximum contribution of £3,000. At the moment the highest paying three year bond, from Tesco Bank, offers 1.62%.

From 6 April 2017 the ISA allowance will rise to £20,000 which will include any amounts paid into the new “Lifetime ISA” which is being introduced from April 2017.

Bad news for pensions?

Individuals can contribute a maximum of £40,000 per annum to a pension. People who have already taken income from their pension under the new drawdown rules can only contribute a maximum of £10,000 per annum into their pension.
However, they can still extract £10,000 and then reinvest it for further tax relief of up to £1,125.

The Chancellor aims to limit this recycling of funds by restricting the annual amount that can be contributed to a pension to £4,000 where drawdown has taken place and has announced a consultation to limit the amount that individuals, who are already taking pension benefits, can put back into a pension scheme and obtain tax relief.

Business and tax

Corporation Tax

The rate will fall, as planned, to 19% from 1 April 2017 and 17% from 1 April 2020.

Corporate loss relief will be amended from next April as was announced in the March Budget, making it easier for most companies to obtain relief for their historic losses.

Employee Shareholder Status

The Employee Shareholder Status (‘ESS’) was intended to encourage employees to become stakeholders. The Chancellor announced plans to scrap it.

Further attacks on limited companies

In the last budget the tax benefit of shareholder/directors taking dividends rather than salary was reduced by the introduction of a 7.5% tax on dividend income in excess of £5,000 per annum.

Suddenly the government seems to have woken up to the fact that the “tax take” has fallen as a result of it allowing individuals to incorporate as limited companies and pay dividends which are taxed at a lower rate and do not attract National Insurance Contributions. This has led to some people being able to opt for a lower tax rate than the vast majority of employed individuals.

There will be a consultation on this subject, leading possibly / probably to a change in tax rules.

Many landlords have been incorporating so as to escape the punitive regime that will deny them full tax relief on finance costs by 2020/2021.

Entrepreneurs in limited companies look likely to be hit with further restrictions on how, and how much, they can extract from the company when they retire. It used to be the case that their limited company could declare a final distribution of all its distributable profits upon liquidation, which would attract Capital Gains Tax at only 10%, subject to certain conditions.

Those conditions have been tightened by the prohibition of being involved in a similar business in the two years following liquidation.

Now there appear to be plans to re-invoke the old “Close Company” tax on some, or even all, of a company’s undistributed profits.

Further government backing for R&D

The Chancellor hinted that he will review the tax environment for companies who undertake Research & Development activities with a view to making the UK an even more competitive place to do business.

Tax avoidance schemes take another hit

Disguised remuneration schemes are tax avoidance schemes, often involving an employer paying into an Employee Benefit Trust or Employer-Financed Retirement Benefit Scheme, which in turn provided benefits such as loans to employees, were significantly changed by George Osborne. This has now been extended to include the self-employed.

This 2016 Autumn Statement suggests that deductions from profits for tax calculation purposes may no longer be allowed for an employer’s contributions to disguised remuneration schemes, unless tax and National Insurance are paid within a specified period.

Advisory business mileage fuel rates

And finally, here are the changes to advisory fuel rates which take effect from 1^st December 2016. These are the rates at which an employer can reimburse an employee for business mileage:

Engine size	Petrol	Diesel	LPG
1400cc or less	11p (11p)		7p (7p)
1401cc - 2000cc	14p (13p)		9p (9p)
Over 2000cc	21p (20p)		13p (13p)
1600cc or less		9p (9p)
1601cc - 2000cc		11p (11p)
Over 2000cc		13p (13p)