2016 Autumn Statement

WHAT IT MEANS FOR YOU AND YOUR BUSINESS

Wednesday’s Autumn Statement has set the press alive with talk of deeper austerity taking us into the next decade, rising national debt, the fall in the real value of wages compared with 2008 and the economic uncertainties of Brexit. These are days of tight fiscal control by government.

The Statement appeared to contain few obvious tax changes but if you scratch just beneath the surface there were a number of announcements that are new, or which change or clarify existing proposals.At the forefront of these is the government’s much trailed commitment to prioritise research and development, and to invest in infrastructure to improve long-term productivity. It was aspirational - resetting economic forecasts, rebalancing economic growth beyond the confines of the South East and investing for the future. It focused on housing, the transport network and investment in full-fibre broadband.

Below we look at the headlines and share our thoughts on the implications for both you and your business. The detail of proposed funding is sketchy at this stage and may become clearer in time, so comments are based on these initial announcements.

Infrastructure & innovation

Measures announced include a new National Productivity Investment Fund to provide £23 billion for spending in areas designed to help boost productivity and close the productivity gap between the UK and other European countries - notably Germany and France. The money will cover investment in the UK’s transport infrastructure and provide a 100% tax break for companies that install electric charge points. There will also be £2 billion more per year in research and development funding by 2020-21.

What it means:

No specific tax changes were announced for research and development costs which is clearly disappointing if you work in this sector. Instead, the additional funding for research and development focuses on specific areas such as artificial intelligence, robotics and industrial biotechnology but exact details are unclear.

Moreover, funding appears to be in the form of grant assistance rather than offering tax breaks but there was some help for the SME technology sector in that £400m is being made available to Venture Capital Funds to help unlock £1 billion of finance for start-ups as well as to protect “tech SME” companies from being swallowed up by large companies. Of course, greater investment in the transport infrastructure could benefit all our clients by tackling congestion and pinch points on our roads, while digital signalling on the railways will hopefully improve services.

Falling corporation tax

The government has confirmed that the main rate of corporation tax will fall to 17% on 1 April 2020, by far the lowest in the G20.

What it means:

George Osborne’s aspiration to reduce the main rate of corporation tax to 15% from 2020 has clearly been side-lined, at least for the time being. The confirmation of the corporation tax rate will, however, enable the companies we advise to forecast more accurately. Pressure to do more may intensify if President Elect Trump slashes corporation tax rates in the USA, although the government here is keen to avoid “a race to the bottom”. However, by deferring plans to clear the fiscal deficit and permit increased borrowing, this may create an opportunity for a further reduction ahead of the next General Election.

Minimum wage increase

From April 2017, the National Living Wage will increase from £7.20 per hour to £7.50 per hour for those over 25.

What it means:

For those on low incomes this is good news and could result in an extra £1,400 per year for a full time worker. The government is again taking steps to make employment a more attractive option than relying on the benefits system.

However, there is a risk that this increase could hurt struggling businesses that face increased staffing costs, especially if those in the hospitality or retail sectors.

National insurance aligned

Plans announced to align employers and employees National Insurance contribution rates from April 2017.

What it means:

It’s a small change and will have minimal effect on employees and employers.

Increasing personal allowances

The government has maintained its pledge to increase the personal allowance to £12,500 and the higher rate tax threshold to £50,000 by the end of the current parliament. In line with this pledge, as previously announced, the basic personal allowance for the 2017/18 tax year will increase to £11,500. The point at which you pay the higher rate of income tax will increase to £45,000 in 2017-18.

What it means:

The Government is continuing to help “middle earners” by removing more taxpayers from the higher rate tax band each year. Unfortunately there was no announcement to simplify, or extend, the transferring of unused personal allowances between spouses under the marriage allowance which has seen very poor levels of take up.

A new savings product

In order to help savers, the chancellor has announced a new three-year NS&I Bond for those over 16 years old, which will be available from spring 2017. The interest rate will be in the region of 2.2% with flexibility to deposit between £100 and £3,000.

What it means:

With Interest rates on savings are rock bottom, and mostly sub 1%, this is welcome news if you are a regular saver. That said, it is still a low rate compared with the 4% or 5% average interest rates we saw little more than five years ago. It appears, on the face of it, to be a better rate than that offered by many banks at the moment, but the maximum deposit of £3,000 will be disappointing to some.

Changing salary sacrifice arrangements

The chancellor announced that following consultation the tax and National Insurance advantages of some salary sacrifice schemes will be removed from April 2017. Schemes that will not be affected by this change include pensions, childcare, cycle to work and ultra-low emission car schemes. General Arrangements in place before April 2017 will be protected until 2018 while arrangements for company cars, accommodation and schools fees will be protected until 2021.

What it means:

After much lobbying, it’s good news that the introduction of these changes has been delayed until 2017 rather than taking immediate effect. The proposals are aimed at counteracting tax and NIC savings generated by these sorts of arrangements. However, it appears that other common arrangements made for more commercial reasons, such as sacrificing salary to receive a standard-emission company vehicle, will also be affected. This is clearly an unforeseen and unwelcome consequence of the government’s proposals.

This measure could also limit the flexibility of employees to opt in or out of available company perks such as private medical schemes. This could introduce disparity between employees with some staff who opt into schemes being taxed more heavily than those with the perks agreed as part of their initial employment package. We are awaiting further details of the government’s proposals to find out how far the measure will extend and what the affect will be on our clients who run small and medium-sized businesses.

Ban on letting agents charging tenants fees

Letting agents will no longer be able to charge tenants fees. This will stop fees that currently average £223 per tenancy being imposed directly on tenants.

What it means:

The change is welcome news for many people renting in the private sector. However, there is a risk that it will further push up rents that are already expected to increase following increased pressure caused by recent stamp duty land tax increases and changes restricting finance relief for some landlords. If you’re a landlord this is another cost to weigh up in a changing tax landscape.

To find out more about any of the topics explored here, and how they particularly affect you or your business, please contact Jon Miles.