Chancellor George Osborne pledged to move from ‘rescue’ to ‘rebuilding’ as he presented his combined Autumn Statement and Spending Review to the House of Commons on Wednesday 25 November. His plans were boosted by The Office for Budget Responsibility (OBR) forecasting a £27bn improvement in the public finances for the next five years compared to its July predictions, together with economic growth of 2.4% for the current financial year.
The biggest surprise of the speech was a reversal of the controversial plans to cut £4.4bn in tax credits. While many experts were predicting some transitional measures to soften the impact of the cuts, Mr Osborne announced a complete U-turn on the plans and revealed that taper and threshold rates for working tax credits and child tax credits would remain the same, until tax credits are phased out with the introduction of Universal Credit.
The statement included a number of headline measures for business, including an extension of the doubling of the Small Business Rate Relief for a further year. Meanwhile, the new business apprenticeship levy will be set at a rate of 0.5% of an employer’s wage bill. Personal tax measures included confirmation that the new single tier State Pension will be set at £155.65 a week from next April. In addition, the Chancellor announced that local councils would be able to increase council tax by up to 2% in order to fund social care. For buy-to-let owners, though, the news was not so good, with the announcement of a new 3% stamp duty surcharge from April 2016 for both buy-to-let properties and second homes.
The doubling of Small Business Rate Relief has been extended to April 2017, which will give confidence to early stage and start-up businesses. Around 405,000 of the smallest businesses will continue to receive 100% relief from business rates, with a further 200,000 or so benefiting from tapering relief.
As previously announced, the Government will introduce an apprenticeship levy in April 2017. It will be set at a rate of 0.5% of an employer’s wage bill and paid through PAYE. Each employer will receive an allowance of £15,000 to offset against their levy payment, which means that the levy will only be paid on any wage bill in excess of £3m. This could mean a big hit for many bigger businesses but SMEs employing apprentices should be covered by the £15k allowance
The Government will delay the next two scheduled increases in automatic enrolment minimum contribution rates by six months each, to align these changes with the start of the tax year.
Under previous plans minimum contributions would have risen from 2 per cent of qualifying earnings, to 5 per cent from October 2017 and to 8 per cent from October 2018. Now the rises will take place in the following Aprils instead. IE: the 5 per cent increase will take effect from April 2018, and the 8 per cent increase from April 2019.
Whilst this may come as a relief to many businesses and individuals, the delayed rise will have an adverse affect on individuals’ pension pots.
The three percentage point differential between diesel cars and petrol cars was set to be removed in April 2016. However it will now be retained until April 2021, when EU-wide testing procedures will ensure new diesel cars meet air quality standards even under strict real world driving conditions…
Following consultation, the averaging period for self-employed farmers will be extended from two years to five years as of April 2016, with farmers having the option of either averaging period. This extension of relief will allow greater flexibility for farmers over periods of fluctuating profits and is likely to be welcomed.
There’s no change here, with the band of savings income subject to the 0% starting rate being kept at its current level of £5,000 for 2016/17. The current annual subscription limits for ISAs, Junior ISAs and Child Trust Funds will be kept at their current level for 2016/17.
State pension: the starting rate for a full new State Pension will be set at £155.65 per week from April 2016. The basic State Pension will be increased by the ‘triple lock’ for 2016/17, meaning a full basic State Pension will rise to £119.30 a week, an increase of £3.35.
Pension credit: the single rate of the Standard Minimum Guarantee will increase in line with earnings by £4.40 to £155.60 per week, and the couples rate will rise by £6.70 to £237.55 per week. The Savings Credit threshold will rise to £133.82 for a single pensioner and to £212.97 for a couple, which will reduce the single rate of the Savings Credit maximum by £1.75 to £13.07 and the couples rate by £2.68 to £14.75.
Inheritance tax: legislation will be introduced in Finance Bill 2016 to ensure inheritance tax liability will not arise when a pension scheme member has designated funds for drawdown but dies before having drawn down all of the funds. This will be backdated to apply to deaths on or after 6 April 2011.
The upper income limit per parent will be lowered from £150,000 to £100,000 whilst the minimum income level per parent will be increased from the equivalent of eight hours to 16 hours at the National Living Wage.
The 30 hours free childcare offer for working parents of three and four year olds has been extended to help families maintain childcare arrangements and support the transition back to work at the end of parental leave or period of ill health. Eligibility has been extended to cases where a parent or their partner is in work and the other parent is disabled or a carer; or where a parent or their partner is taking time away from work on paid sickness or parental leave.
From 1 April 2016, higher rates of Stamp duty land tax (SDLT) will be charged on purchases of additional residential properties (above £40,000), such as buy-to-let properties and second homes. The higher rates will be three percentage points above the current SDLT rates and will give a maximum SDLT rate of 15% for properties costing more than £1,500,000.
The aim of the change is to make a more level playing field for first time buyers and buy to let investors but it represents a hammer blow for private landlords, who were also hit by the impending removal of mortgage tax relief, announced in the Summer Budget.
The increased SDLT rate will also apply to second homes; there is no indication as yet how this will be policed but the Government will consult on the policy detail.
These higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making ‘significant investments in residential property’. We understand ‘corporates’ to mean owners of 15 or more properties, meaning that the change is going to hit private buy-to-let landlords the hardest.
From April 2019, a payment on account of any Capital Gains Tax (CGT) due on the sale of residential property must be made within 30 days of the sale completing. This will not affect gains on properties that are eligible for Private Residence Relief. Draft legislation will be published for consultation in 2016. Whilst this measure merely brings forward tax receipts, it’s calculated to be worth nearly £1bn in 2019/20.
The Government plans to invest £1.3bn to transform HMRC into ‘one of the most digitally advanced tax administrations in the world’. By the end of the decade, every individual and business will have their own digital tax account and will be required to update HMRC at least quarterly. Exempt from the system will be individuals in employment and pensioners, unless they have secondary incomes of more than £10,000 per year.
Small businesses will receive their ‘digital identities’ by 2017 and will be required to report quarterly from 2020. This will mean that businesses need to consider the tax treatment of their income and expenses on a more regular basis. In other words – no last minute, end of year tax planning from 2020!
Draft legislation is to be published in Finance Bill 2016 that will enable a new, simpler process for paying tax. This will be used for self-assessment taxpayers who have simple tax affairs where HMRC already holds all the data it needs to calculate the tax liability, and where existing payment processes are not available. Taxpayers will be sent a calculation that will be a legally enforceable demand for payment, and taxpayers will be able to challenge and appeal these calculations. This process will come into effect in the 2016/17 tax year.
The Government will expand the Enterprise Zone programme in England with the announcement of 18 new sites across the country and the extension of eight sites on the current programme. These include 15 Zones in smaller towns and rural areas, spreading Enterprise Zone benefits to 108 sites across the country. On an East Midlands level, this include an extension to the Infinity Park Derby Enterprise Zone.