2016 Autumn Statement Summary

The 2016 Autumn Statement delivered few surprises but there wasn’t much in it to help owner managed businesses who continue to struggle with the vast array of costs and red tape imposed upon them by central government.

Here are the main points:-

Income tax

As previously announced, the Personal allowance will rise again from £11,000 to £11,500 from April 2017 and the basic rate band will also increase from £32,000 to £33,500. The combination of these changes means that the higher rate of tax will not apply until total income reaches £45,000 (up from £43,000). This will result in a maximum reduction in income tax of £500.

The plan is still in place to increase the personal allowance to £12,500 and the higher rate tax of 40% to apply on income when it exceeds £50,000 by the end of the current parliament.

National Insurance

The starting point for paying contributions will be aligned from April 2017 at £157 per week (£8,164) for both employee and employer contributions.

The Upper Earnings level/Profit limits is aligned to the higher rate threshold for income tax. This increases the employee charged at 12% by nearly £188 for an employee earning above £45,000.

As previously announced, Class 2 contributions will be abolished from April 2018. Future self-employed contributory benefit entitlement will be accessed through Class 4 NICs. All self-employed women will continue to be able to access the standard rate of Maternity Allowance. Self-employed people with profits below the Small Profits Limit will be able to access Contributory Employment and Support Allowance through voluntary Class 3 contributions. These are currently £14.10 per week compared to £2.80 per week for Class 2. There will be provision to support self-employed individuals with low profits during the transition.

Corporation tax

As already announced, from April 2017 the rate of corporation tax will fall to 19%. Despite lots of speculation of further cuts, it has today been confirmed that the proposed cut to 17% from 2020 will proceed as planned.

Letting agent fees to tenants

The government intends to ban letting agents from charging fees to tenants, to give renters greater clarity and control over what they will pay. There will be a consultation before any legislation is introduced. Although this measure does not directly affect landlords, it is feared that letting agents may increase landlords’ fees to compensate.

Increase to the National Living Wage

The National Living Wage will increase from £7.20 to £7.50 per hour from April 2017. For each member of staff working full time, this increase could cost an employer an average of over £500 per year. Workers aged 25 or over and not in the first year of an apprenticeship, are legally entitled to the National Living Wage.

National Minimum Wage rates

The National Minimum Wage rates (which were last increased in October 2016) will increase again from April 2017:

• Aged 21 to 24 – an increase from £6.95 to £7.05 per hour
• Aged 18 to 20 – an increase from £5.55 to £5.60 per hour
• Aged 16 to 17 – an increase from £4.00 to £4.05 per hour
• Apprentices – an increase from £3.40 to £3.50 per hour

Fuel duty

The fuel duty rate will remain frozen for the seventh successive year. This is great news for mobile traders that rely on their cars and vans to run their businesses.

Salary Sacrifice

The tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work Schemes and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their net wages. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

Pension Contributions

The Money Purchase annual allowance will be reduced from £10,000 pa to £4,000 pa from 6^th April 2017. This is the limit for taxpayers over 55 who have already started drawing on their pension funds. This is to restrict individuals from recycling their pension funds and benefiting from the 25% tax free lump sum whilst gaining full tax relief when making the contribution. The normal annual pension contributions allowance remains at £40,000 pa.

Capital allowances: first-year allowance for electric charge-points

A 100% first-year allowance will be available for expenditure incurred on electric charge-point equipment. The allowance will come to an end on 31^st March 2019 for Corporation Tax purposes and 5^th April 2019 for Income Tax purposes.

Insurance Premium Tax (IPT)

The standard rate of IPT will rise to 12% from 1^st June 2017. This will make insurance more expensive for individuals and businesses.

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.

Universal Credit taper rate

Tax credit claimants are gradually moving from the existing tax credit regime to Universal Credit. By 2022, the government hopes Universal Credit will be fully rolled out. For those that are already in receipt of Universal Credit, the taper rate that applies will be reduced from 65% to 63% from April 2017. This will let individuals keep more of what they earn and strengthen the incentive to work.

VAT Flat Rate Scheme

The Flat Rate Scheme for small businesses was introduced to reduce the administrative burden of operating VAT. Under the scheme a set percentage is applied to the total turnover of the business as a one-off calculation instead of having to identify and record the VAT on each individual sale and purchase.

To prevent businesses using the Flat Rate Scheme to benefit from applying VAT on their services and paying a lower figure, the government will introduce a new 16.5% rate from 1^st April 2017 for businesses with limited costs, such as many labour-only businesses. The previous highest rate for any business was 14.5%.

The limited cost trader is defined as a trader who spends less than 2% of their turnover on goods, providing it exceeds £1,000. This excludes capital expenditure, food and drink and vehicle costs unless they carry out transport services such as a taxi business.

This must be considered by April 2017 as it will apply from that date if the business fits the criteria. Otherwise they stay with the percentage applicable to their trade sector.