Reaction to the Chancellor Philip Hammond’s 2017 Spring Budget seems mixed.
Businesses, and small businesses in particular, have not welcomed the changes to National Insurance Contributions (NICs) for middle earners and dividends tax.
That and confirmation of further announcements to follow on North Sea oil taxation aside, it may seem not a lot in this Budget to write about.
If, however you take it together with measures announced in previous Budgets and Autumn Statements, there are a lot of changes due to kick in at the start of the new tax year in April.
New anti-avoidance measures are expected to net £145million this year – £10million of which will come from additional fines on professional introducers of failed schemes. Good.
The fuel duty freeze announced in Autumn Statement 2016 will cost the government £990 million in 2017/18. Among the measures to pay for this are the 2% increase in insurance premium tax (+£520million), changes to NIC thresholds (+£180million), curbing salary sacrifice schemes (+£85million) and changes to the flat rate VAT scheme for those ‘self-employed’ contractors (+£165million).
The Budget before that promised restriction to the corporation tax deductions for interest and finance payments (+£1,105million) to prevent UK companies being saddled with more than their fair share of debt and restriction to loss relief for large companies (+£495 million). And, preventing the government’s own departments from using those ‘off payroll’ self-employed contractors to avoid NIC (+£185 million).
The Autumn Statement in 2015 introduced the real monster in the room. The Apprenticeship Levy paid by large employers (such as oil & gas operators) is expected to raise £2,650million in 2017/18. Talk of the payments made by the oil industry being recycled into north-east businesses seems to have faded into the background. This more than pays for the reduction in the headline rate of corporation tax to 19% in the current tax year (-£2,280 million).
Changes made in 2014 and 2015 to Vehicle Excise Duty and company car tax are expected to raise an extra £175 million and £200 million respectively in the coming year.
Taken together with business rate increases and it seems clear that business will be paying more tax in future.
The Chancellor’s claim to be the champion of small business also rather ignores the restrictions on the personal allowance and relief for pension contributions that have taken place since 2010 through 2016. If you lose your entitlement to both reliefs at once, then the marginal rate of income tax on the next £1 you earn could reach 90% (92% if you include Class 4 National Insurance Contributions). The ‘noises off’ suggest that he has some ground to make up with the sector.
The Chancellor’s main aim seems to have been to keep some money back for a rainy day – Brexit being the principal storm cloud on his horizon. When the Bank of England casts its mind forward to the difference between a good and bad outcome over the next couple of decades the main conclusion is that the economy will continue to grow in all circumstances. However, it seems to reckon that there is about 8% of GDP to play for (£220 Billion in today’s money) depending on the outcome of the negotiations. So it’s easy to understand why he might keep something back to pep things up a bit if it doesn’t go well.
At Autumn Statement 2016, the government established a £23billion programme of high-value investment between 2017-18 and 2021-22, with a focus on priority areas that are critical for improving productivity: economic infrastructure, housing and R&D.
From a tax perspective: “The review of the R&D tax regime has found that the UK’s R&D tax credits regime is an effective and internationally competitive element of the government’s support for innovation. To further support investment, the government will make administrative changes to the Research and Development Expenditure Credit to increase the certainty and simplicity around claims and will take action to improve awareness of R&D tax credits among SMEs.”
That, at least, is good news.
