Budget 2017 with Burton Beavan
It’s been a week since Budget 2017 was delivered to the House of Commons by the Chancellor of the Exchequer, Philip Hammond.
Quite often, the real surprises in the Budget are not contained in the actual speech but in the supporting notes released by the Treasury.
We’ve had a proper chance to look through everything that’s been published and put together an article containing the things that we think you’ll be the most interested in and affected by.
Burton Beavan – business rates and Budget 2017
We all remember the justified and understandable cries of pain that were heard from tens of thousands of businesses earlier this year about non-domestic (business) rates.
As you know, business rates are calculated using two variables – what the Valuations Office decides is the commercial rentable value of the space your business occupies and a multiplier applied to that valuation.
Earlier this year, every commercial premises in England and Wales was revalued and, as a result of that and an increase in the multiplier uses, some companies saw a doubling or a trebling of the rates that they were due to pay. Other companies suffered from a quirk in the law, nicknamed the “staircase tax” by the press, which charged them for communal areas linking offices under certain circumstances.
There were two announcements on business rates in the Budget. First, increases in business rate valuations would now be governed by the consumer price index and not the retail price index meaning that annual rises in rates would be less than anticipated. Second, that pubs, who currently benefit from a £1,000 discount in their rates, would see this benefit extended to April 2019.
Missing from the speech was the 3% hike in the multipliers used from 2018-2019, as detailed in the Budget notes:
|Financial year 2017 to 2018
||Financial year 2018 to 2019
|England standard multiplier||47.9p||49.3p|
|England small business multiplier
Burton Beavan – the VAT threshold and Budget 2017
The UK VAT threshold is £85,000. Any company turning over this amount or more must register for VAT and then charge VAT on the goods and services it supplies to customers.
At £85,000, it’s one of the highest thresholds in the world. At the start of November, the Office for Tax Simplification (OTS) published proposals, one of which was to reduce the £85,000 threshold to a level closer to the national average wage of £26,000.
According to OTS, this would have the following effects:
• businesses would not go to extraordinary lengths to keep their turnover below the threshold
• an extra £2bn in taxation would be raised
• it would provide a fairer playing field, particularly for B2C companies above the threshold.
The Federation of Small Businesses reacted immediately and strongly against the proposal. In their eyes, this would disincentivise people from setting up their own businesses and that, because VAT is so complicated, it would take up too much time for really small micro-businesses to comply.
For the time being, the argument against the drop in threshold has won. The Chancellor held the threshold limit at £85,000 for the following two financial years but dropped no hints about what might follow thereafter.
Burton Beavan – business taxation and Budget 2017
Corporation tax remains at 19%. The Government have their own target to reduce the rate to 17% by tax year 2020/2021 and we’re slightly concerned that they’re running out of time to achieve that goal.
The Annual Investment Allowance has been held at £200,000 as has the 230% tax credit for companies investing in research and development.
The recently introduced first year allowance scheme, which gives companies 100% relief on the purchase of certain specified green products, continues at £100,000 a year.
Disincorporation relief will disappear from the statute books.
Burton Beavan – personal taxation and Budget 2017
Dividends were great up until 2015/2016. After that, they were not so great. They’re set to get worse as the tax-free dividend allowance drops 60% from £5,000 to £2,000.
On the other hand, the personal tax-free allowance will increase from £11,500 to £11,850. The rate at which taxpayers start paying the higher rate of 40% will also shift from £45,000 to £46,350.
Scotland runs a different regime with regards to the higher rate of tax and there’ll be an announcement on the subject in the middle of December by Holyrood.
The main other rates at which we’re taxed are unchanged, including:
• income tax
• dividend tax rates
• tax default rates
• savings rates
Company car users will, on average, pay tax on 3% more of the value of their cars than in 2017/2018. For diesel car drivers, as well as the 3% uplift, there’ll be an additional 4% payable of the value of the car payable.
Pensions tax relief remains unchanged.
Capital gains tax is the same too except that the annual exempt allowance increases from £11,300 to £11,700 (trustees see an increase in their allowance from £5,650 to £5,850).
There have been some changes to National Insurance. The Class 2 small profits threshold has gone up from £6,025 to £6,205. The lower profits threshold on Class 4 contributions will be higher at £8,424. And the weekly voluntary contributions made under Class 3 will now cost £14.65.
Burton Beavan – business incentives and Budget 2017
Not a huge amount to report on Budget business incentives this time around.
There is the creation of another class of EIS companies – “knowledge intensive companies”. Investors can now put in £2m into these companies instead of the standard £1m. There is no clear definition on what the Treasury means by “knowledge intensive”.
A big £500m roll-out of investment cash has been promised for “major technological projects” but there is no clarity as year on who this investment will go to or how it will be awarded. Industries mentioned in the speech include full fibre broadband, artificial intelligence, and 5G mobile.
Burton Beavan – economic forecasts and Budget 2017
The OBR, mentioned earlier in this piece, is an arms-length department within the Treasury established after the financial crisis of late last decade. Its role was to depoliticise economic forecasting so that Chancellors and the government could work from accurate, impartial growth prospects.
Despite the good intentions, their track record has not been stellar. In fact, they have revised their 2017/2018 growth forecast down from 2% to 1.5% and issues similar warnings on subsequent years.
Burton Beavan – first-time buyers, stamp duty land tax, and Budget 2017
Residential property has been a hot potato politically for many years now. After two decades and more of encouraging buy-to-let investments through generous tax incentives and interest-only mortgages largely unavailable to owner-occupiers, the worm turned in the middle part of the decade.
This change in approach was brought about by a 300% increase in property prices during a period where wage increases were barely able to keep pace. With those price rises, stamp duty land tax, once really only paid by the very wealthy, became a tax paid by over half of all housebuyers.
In reaction, the government has abolished stamp duty charges for first-time buyers whose property purchase costs £300,000 or less. From £300,001 up to £500,000, the tax is now subsidised.
The change in the law has, in essence, created three types of buyers for property costing £500,000 or less:
• standard buyers (who live in the property they’re buying)
• first time buyers
• additional property buyers (people buying property they won’t live in, for buyers of buy-to-let and holiday homes).
This is how stamp duty land tax looks now for properties costing half a million or less:
|Band||Normal Rate||First time buyer rate||Additional Property|
For properties costing £500,001 or more, there are only two types of buyers as no first-time relief is available in this price band…
|Band||Normal Rate||Additional Property|
|£1,500,000 and above||12%||15%|
The move has been welcomed by many in the property sector however the OBR issued a warning stating that “the main gainers from the policy are people who already own property, not first-time-buyers themselves”.
Burton Beavan – buy-to-let tax and Budget 2017
Although not featured in this year’s Budget, major changes to the way buy-to-let companies are taxed came into force in April this year.
Instead of being able to deduct all mortgage interest payments before profit, you can now only do so after profit and you’ll get a small relief on those payments. From this year up until full implementation in 2020/2021, here is an example of a let generating £10,000 worth of income with £3,750 paid in mortgage interest and £2,000 paid in deductible expenses.
|40% tax payer||Old System||New System||BTL Tax Bill||Net Profit|
As you can see, landlords holding a property with this income and these costs will see themselves paying more in tax than they make in profit.
Burton Beavan – talk to us about the Budget 2017
To speak with us, call Burton Beavan on 01606 333 900 or email us at email@example.com.