The UK budget proposals announced on 8 March 2017 contained a number of tax changes including the following:
Making tax digital
The introduction of the new system of mandatory online tax returns for unincorporated businesses and landlords with turnover less than the VAT threshold has been delayed for a further year until April 2019. The new system would involve reporting income and expenses on a quarterly basis and the affected businesses had been requesting more time to prepare. There will also be a consultation on some aspects of the design of the new system including penalties and interest.
Patent box regime – rules relating to cost sharing arrangements
Action 5 (harmful tax practices) of the OECD’s report on base erosion and profit shifting (BEPS) recommended the implementation of a nexus approach to patent box regimes and some changes were made last year to conform to those new requirements. Draft provisions are now to be included in the Finance Bill 2017 to cover the application of the changes to cost sharing arrangements. The new rules will ensure that companies within a cost sharing arrangement (CSA) do not receive any tax advantage or disadvantage as compared to companies not operating within a CSA.
High end television, animation and video games relief
The UK government is to apply for EU State Aid approval to continue the tax relief for high end television, animation and video games relief beyond the current expiry date of 31 March 2018.
Local Business Rates
The government is to give more support to businesses whose local rate bills have increased following the revaluations affecting English business rates from April 2017. The support includes a limit on the amount of the annual rate increase for businesses losing the Small Business Rate Relief amounting to the greater of GBP 600 or the real terms transitional relief cap. A hardship fund will also be created to allow local authorities to give discretionary relief to individual cases; and pubs with a rateable value up to GBP 100,000 will receive a one year discount of GBP 1,000 from their business rates.
Consultation on missing trader VAT fraud in construction industry
There is to be a consultation on ways to combat missing trader VAT fraud in the construction industry. This occurs where a subcontractor charges VAT on the labour supplied but then disappears without declaring that VAT or paying it over to the government. Possible ways to combat the fraud could include a reverse charge mechanism so the person receiving the labour accounts for the VAT.
Dividend allowance to be reduced
The dividend allowance, deductible from dividend income, is to be reduced from GBP 5,000 to GBP 2,000.
National insurance contributions
The rate of Class 4 national insurance contributions (NICs) for the self employed is to rise from 9% to 10% of profits from 6 April 2018 and then to 11% of profits from 6 April 2018. As previously announced Class 2 NICs are to be abolished from April 2018.
Other tax measures include the following:
- The income tax annual personal allowance is to increase to GBP 11,500 for 2017/18 and the upper threshold for the basic rate tax band will be GBP 33,500;
- The capital gains tax annual exemption is to increase to GBP 11,300 for 2017/18;
- The VAT registration threshold will increase to GBP 85,000 and the deregistration threshold to GBP 83,000;
- The maximum turnover threshold for businesses to elect to operate a cash accounting basis (rather than accruals accounting) is to increase to GBP 150,000; and
- There is to be a consultation on the “rent a room” relief for letting furnished accommodation in a person’s main residence. The aim is to align the relief more closely with its aim of increasing the supply of affordable long-term accommodation.