Newsletter December 2016

This month’s newsletter includes articles covering: changes to future Budget timetables, changes to salary sacrifice arrangements, changes to the Flat Rate Scheme, and increases in the National Living Wage and National Minimum Wage from April 2017. These are all extended updates on items included in the autumn statement last month.

Our next newsletter will be published Monday, 9 January 2017.

Autumn budgets from 2018

Mr Hammond surprised listeners to his autumn statement speech when he said:

This is my first Autumn Statement as Chancellor. After careful consideration, and detailed discussion with the Prime Minister, I have decided that it will also be my last.

And then quickly followed with:

Mr Speaker I am abolishing the Autumn Statement. No other major economy makes hundreds of tax changes twice a year, and neither should we. So the spring Budget in a few months will be the final spring Budget.

Starting in autumn 2017, Britain will have an autumn Budget, announcing tax changes well in advance of the start of the tax year.

From 2018 there will be a Spring Statement, responding to the forecast from the OBR, but no major fiscal event. If unexpected changes in the economy require it, then I will, of course, announce actions at the Spring Statement, but I won’t make significant changes twice a year just for the sake of it.

This change will also allow for greater Parliamentary scrutiny of Budget measures ahead of their implementation.

Mr Speaker, this is a long-overdue reform to our tax-policy making process and brings the UK into line with best practice recommended by the IMF, IFS, Institute for government and many others.

Accordingly, 2017 will be a busy year for legislation. In effect, there will be two budgets, one in April 2017, and one in the autumn.

This is a welcome change as it will provide Parliament and tax advisors with time to absorb changes announced each autumn, before most of the changes become law in the following April – though this won’t stop them being effective from the date of announcement as is often the case, now.

Salary sacrifice under the microscope

Salary sacrifice is a term applied to benefits taken in place of salary. In many respects these benefits provide employees with higher “take home” value than if the benefits were treated the same as cash income. Mr Hammond is mindful to curb this practice as it is intended that the change will add £1bn a year to tax revenues by 2020.

No definitive list of benefits affected has been published, but benefits that may no longer be tax effective are:

• Mobile phones and tablets
• Car parking
• Gym membership, and possibly
• Health check-ups

There are a number of benefits that will not be affected by these changes. They are:

• Pensions
• Child care
• Cycle to work schemes
• Ultra-low emission cars (CO2 emissions up to 75g/km)

Benefits in place before April 2017 will be protected from restrictions for 1 year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to 4 years.

For those who contribute towards or make-good their benefits to reduce the taxable amounts, they will have until the 6 July after the tax year to do so – starting 6 July 2017. This only applies to benefits not already taxed as income through payroll.

Readers who are concerned they will be affected by these changes should consider a review of their salary sacrifice/benefits arrangements prior to the April 2017 cut-off date.

Are you affected by changes to the VAT Flat Rate Scheme (FRS)?

HMRC is to introduce an additional test that will determine the flat rate percentage used by traders. It would seem that HMRC presently considers the benefits obtained by certain businesses to be excessive and not in accord with the intentions of Parliament.

Traders that meet the new definition of a “limited cost trader” will be required to use a fixed rate of 16.5%. This will include traders who are already using the FRS scheme, and many at rates lower than 16.5%.

From 1 April 2017, FRS traders who meet the following definitions will be considered “limited cost traders” and will be obliged to use a new 16.5% rate. A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:

• less than 2% of their VAT inclusive turnover in a prescribed accounting period
• greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1,000)

Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:

• capital expenditure
• food or drink for consumption by the flat rate business or its employees
• vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services)

Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.

VAT traders using the FRS should review their position before April 2017 to ensure that there are still advantages to using the scheme.

Changes to NLW and NMW from April 2017

From April 2017, the National Living Wage (NLW) for the over 25s is being increased to £7.50 per hour. This is an increase from the current NLW rate set in October 2016 of £7.20 an hour. For the over 25s, this will represent a wage increase of just over 4%.

The National Minimum Wage (NMW) will also increase from the same date to:

• For 21 to 24 year olds – from £6.95 to £7.05 per hour
• For 18 to 20 year olds – from £5.55 to £5.60 per hour
• For 16 to 17 year olds – from £4.00 to £4.05 per hour
• For apprentices – from £3.40 to £3.50 per hour

The government will also be spending an additional £4.3m to ensure that employers are complying with their legal obligation to pay the NMW.

Tax Diary December 2016/January 2017

1 December 2016 - Due date for Corporation Tax due for the year ended 29 February 2016.

19 December 2016 - PAYE and NIC deductions due for month ended 5 December 2016. (If you pay your tax electronically the due date is 22 December 2016.)

19 December 2016 - Filing deadline for the CIS300 monthly return for the month ended 5 December 2016.

19 December 2016 - CIS tax deducted for the month ended 5 December 2016 is payable by today.

30 December 2016 - Deadline for filing 2015-16 Self Assessment tax returns online to include a claim for under payments to be collected via tax code in 2017-18.

1 January 2017 - Due date for Corporation Tax due for the year ended 31 March 2016.

19 January 2017 - PAYE and NIC deductions due for month ended 5 January 2017. (If you pay your tax electronically the due date is 22 January 2017.)

19 January 2017 - Filing deadline for the CIS300 monthly return for the month ended 5 January 2017.

19 January 2017 - CIS tax deducted for the month ended 5 January 2017 is payable by today.

31 January 2017 – Last day to file 2015-16 Self Assessment tax returns online.

31 January 2017 – Balance of Self Assessment tax owing for 2015-16 due to be settled on or before today. Also due is any first payment on account for 2016-17.