So, the first and last Autumn Statement for Philip Hammond is delivered. Full details on how it impacts on payroll professionals are on our website.
Productivity
The Chancellor confirmed through the IMF that for 2016 the UK is the fastest growing economy in the G8 and it has remained resilient since the referendum, however there are still key issues causing caution:
The Productivity Gap The current housing challengeThe commitment from the treasury is to make the UK “Match fit” for the transition of Brexit through investment in the countries productivity.
In respect of the surplus, the Chancellor re-confirmed this was now not expected within this Parliament due to Brexit however it would occur as soon as possible in to the next with a target of 2019/20. The government were also looking at reducing borrowing to below 2% and the implementation a baseline welfare/benefits spending cap however there were no further changes expected to the benefits capping after the current announced during this parliament.
The Chancellor confirmed our current productivity gap and where we stand against the other market economy’s confirming the UK is:
30% lower than Germany and the US 20% lower the France 8% lower than ItalyOn the back of these numbers the Government have set up and announced a new Productivity Investment Fund (PIF) which would equate to £23bn in the next 5 years with an extra £2bn invested in research and development by 2021. This is UK wide and includes strategies for local growth in the Northern Powerhouse, the Midlands Engine as well as London and the south.
Housing Development
The Chancellor announced a new Housing Infrastructure Fund (Part of the PIF) worth £2.3bn to be used in the development of 100,000 homes in the UK along with a further £1.4bn towards 40,000 affordable homes. He also confirmed a relaxation on grants to develop wider housing types. In London, the Chancellor committed to a further £3.15bn to build 90,000 affordable homes in London. This was also seen as a method for accelerating construction and to assist in the long-term goal of Right to Buy schemes.
Transport
The Chancellor announced a further £1.1bn (Part of the PIF) towards English local transport networks which incorporated:
£220m towards traffic “pinch points” £450m digital railway signalling £390m to build on low/zero emission transport and the electrical charging infrastructureThere was also commitment to the Oxford to Cambridge Expressway and £110bn towards the East West Railway
The Chancellor confirmed oil prices have recently risen by 60% while sterling has reduced by 15% against the dollar. He confirmed that fuel duty will again be frozen for the 7th year in a row meaning a saving to drivers of up to £130 per year
Digital Infrastructure
The Chancellor confirmed the Government’s commitment to a full 5G system and full fibre infrastructure in the UK making us a world leader in the field.
The treasury committed to over a billion pounds to the support and infrastructure of that aim and confirmed 100% business relief on those involved.
Taxation
Corporation Tax
It was confirmed Corporation tax has already been reduced from 28 to 20% and there was further commitment to reduce this further to 17% by 2020.
Insurance Premium tax would increase from 10 to 12% in June 2017
Capital Gains Tax
Employee Shareholder Status (ESS) – The tax advantages linked to shares awarded under ESS 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.
This is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce.
Tax Allowances
The Chancellor briefly discussed the OTS and the requirements for the current tax/NI system to change to bring it into line with modern working.
Personal Tax Free Allowance:
Confirmed:
The Personal Tax Free Allowance for 2016/17 was £11,000 The Higher Rate Threshold for 2016/17 was £43,000 For 2017/18: The Personal Tax Free Allowance will increase to £11,500 The Higher Rate Threshold will increase to £45,000 By the end of this government the commitment is to: Increase the Personal Tax Allowance to £12,500 Increase the Higher Rate Threshold to £50,000 After which it will rise in line with inflationThese continuous increases since the Conservative government have meant 28 million now pay less tax and 4 million more pay no tax at all
Full details of the rates:
Salary Sacrifice
As expected, the chancellor reconfirmed the commitment to reduce and remove salary sacrifice schemes but also reconfirmed, pension, cycle to work, childcare vouchers and ultra-low emissions cars would be ring fenced. His statement was that all employees and employers should pay the same correct amount of tax.
Arrangements before 2017 will be protected until April 2018
Cars, School Fees and accommodation remain protected until April 2021
Details on low emission cars:
The Chancellor also announced further focus on current tax evasion schemes.
Childcare and Childcare Vouchers
The Chancellor confirmed the Tax Free Childcare Scheme would commence in 2017
It will be open to parents of children up to 12 years old and disabled children up to 16 and will equate to 20% tax relief on the first £10,000 of childcare costs, per child which could mean a possible saving of up to £2,000 per child.
Employees can move to new Government scheme but cannot move back and the scheme will be gradually rolled out from 2017, possibly age dependent.
With this in place the Government have also announced there will be no new entrants to CCV schemes from April 2018.
The new scheme is more flexible and allows for self-employed workers.
Social Security
There has been no confirmation of any new rates Statutory payments (SSP, SMP etc.) so we await further clarification.
The NI primary Threshold (Employee) and NI Secondary Threshold (Employer) will no longer be used and will be aligned at £157.00 (weekly earnings).
The Lower earnings limit for 2017/18 will be £113.00 (weekly earnings)
The Upper earnings limit for 2017/17 will be £866.00(weekly earnings)
Impact: Employers start paying more National Insurance than in previous years as it’s a lower threshold
National Insurance rates for (EE’s and ER’s) remain unchanged
Class 2 NIC will be abolished from April 2018 (Self Employed) and Class 3 and Class 4 will be used in its place
NIC will be removed from the Limitations Act 2008 (& NI equivalent) from April 2018. This will align time limits and the recovery process for enforcing NI debts. There is a consultation due on the details.
Full details of the rates:
Termination Payments
These were originally announced in the Budget 2016 and is designed to reduce the complexities of making complexed payments to leavers. From April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs
Tax/NI will only be applied to the equivalent of an employee’s basic pay if their notice is not worked, making it simpler to apply the new rules.
The first £30,000 of a termination payment will remain exempt from income tax and National Insurance.
The National Living Wage
The new rates for the 2017/17 tax year:
The rate for 25 year olds and older goes from £7.20 to £7.50 per hour The rate for 21 to 24 year olds goes from £6.95 to £7.05 per hour The rate for 18 to 20 year olds goes from £5.55 to £5.60 per hour The rate for 16 to 17 year olds goes from £4.00 to £4.05 per hour The rate for apprentices goes from £3.40 to £3.50 per hourSavings
As previously announced, the government will continue to support saving by increasing the ISA limit from £15,240 to £20,000 in April 2017.
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.
The Government also introduced a new Savings Bond through NSI. This will give a 2.2% gross yield for 3 years and would allow up to a deposit of £3000.00
Pensions
It was confirmed the triple lock method of increasing and calculating state pension payments would remain in place. This was put in to place by the Alliance Government and is based on Inflation, Average Earnings or £2.50 whichever the highest.
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
Pensions - Money Purchase Annual Allowance – The Allowance will be reduced to £4,000 from April 2017. The government does not consider that earners aged 55 and over should be able to enjoy double pension tax relief, such as relief on recycled pension savings, but does wish to offer scope for those who have needed to access their savings to subsequently rebuild them. The Government will consult on the detail.
Benefits in Kind and Expenses
Valuation of benefits in kind – the government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017
Employee business expenses – the government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer. We’ll wait clarification from the Government on what this means.
Non-Domiciled Individuals
The Government confirmed reforms to the taxation of non-domiciled individuals
Individuals who live in the UK and make use of public services should pay their fair share of tax. The government will end the permanency of non-domiciled tax status. From April 2017
non-domiciled individuals will be deemed 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 originInheritance 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. This closes a loophole that has been used by non-domiciled individuals to avoid paying inheritance tax on their UK residential property the government will change the rules for the Business Investment Relief (BIR) scheme
For non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses.
The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals
Future Statements and Budgets
The Chancellor confirmed this would be the last “Autumn Statement” as it is being abolished and as such March 2017 will be the final Spring Budget.
The Budget will take place in the Autumn, the first being Autumn 2017.
The Spring update will become a response to the Office of Budget Reform’s (OBR) statement and only major changes of exceptional circumstances will be announced.
