Personal Taxation
The Personal Allowance will increase to £11,500 in April 2017, and is set to increase to £12,500 by 2020. The higher rate tax threshold will increase to £33,500 from April 2017, an increase of £1,500.
The government believes that a Money Purchase Annual Allowance of £4,000 would be fair and reasonable and should allow individuals who need to access their pension savings to rebuild them if they subsequently have opportunity to do so. The reduction in the allowance from £10,000 to £4,000 will limit the extent to which pension savings can be recycled to take advantage of tax relief.
As announced at Summer Budget 2015, from April 2017, non-UK domiciled individuals will be deemed domiciled in the UK for tax purposes where they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK with a UK domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax purposes while they are UK resident. Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust.
Business Taxation
Cash basis accounting (‘the cash basis’) is an optional and simplified method for calculating taxable profits for trading businesses with straightforward tax affairs. The entry threshold for the cash basis will increase from £83,000 (cash basis threshold for 2015 to 2016) to £150,000.
As announced at Budget 2016 and confirmed at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to reform the off-payroll rules and improve compliance in the public sector. Responsibility for operating the off-payroll working rules, and deducting any tax and NICs due, will move to the public sector body, agency or other third party paying an individual’s personal service company. The change will come into effect from 6 April 2017 and apply across the UK.
The government will legislate in the Finance Bill 2017 to reduce the tax-free allowance for dividend income from £5,000 to £2,000. This will reduce the tax differential between the employed and self-employed on one hand and those working through a company on the other, and raise revenue to invest in public services. The change will take place from April 2018.
As announced at Budget 2016, and confirmed at Autumn Statement 2016, the government will legislate in Finance Bill 2017 to create two new Income Tax allowances of £1,000 each, for trading and property income. The allowances can be deducted from income instead of actual expenses. As announced at Autumn Statement 2016, the trading allowance will also apply to certain miscellaneous income from providing assets or services.
The government has already announced that it will abolish Class 2 NICs from April 2018. On its own this would increase the differential between the rates of National Insurance paid by employees and those paid by the self-employed. As announced at Spring Budget 2017 the government will legislate to increase the main rate of Class 4 NICs from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019. Since April 2016, the self-employed also have access to the same State Pension as employees, worth £1,800 a year more to a self-employed individual than under the previous system.
The taxable turnover threshold which determines whether a person must be registered for VAT, will be increased from £83,000 to £85,000.the taxable turnover threshold which determines whether a person may apply for deregistration will be increased from £81,000 to £83,000. These changes will be effective from 1 April 2017.
As announced at Autumn Statement 2016, legislation will be introduced in Finance Bill 2017 to remove Income Tax and employer National Insurance contributions (NICs) advantages where BIKs are provided through salary sacrifice or other optional remuneration arrangements. Changes will take effect from 6 April 2017.