The UK Budget, released on March 9, 2017, featured tax measures to, among other things, hike taxes on self-employed workers, further close avenues for legal avoidance, and defer mandatory digital tax reporting until April 2019.
A key announcement in the Budget was that the tax-free allowance for dividend income will be cut from GBP5,000 (USD6,080) to GBP2,000, in a bid to reduce opportunities for legal individual income tax avoidance through the use of companies. This will reduce the tax differential between the employed and self-employed on one the hand and those working through a company on the other.
The Government has already announced that it will abolish Class 2 NICs from April 2018. On its own this would increase the differential between the rates of National Insurance paid by employees and those paid by the self-employed. It has now announced that the Government will legislate to increase the main rate of Class 4 national insurance contributions (NICs) from 9 percent to 10 percent with effect from April 6, 2018, and from 10 percent to 11 percent with effect from April 6, 2019.
For pensions for all taxpayers, a 25 percent tax charge will apply to pension transfers made to a Qualifying Recognised Overseas Pension Scheme (QROPS). In addition, UK tax rules will apply to any payments made in the first five full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period. Exceptions will be made to the charge, allowing transfers to be made tax free where people have a genuine need to transfer their pension. The changes will take effect for transfers requested on or after March 9, 2017.
The Government has also announced a review of rules for the taxation of image rights.
Measures covering real property include that the Government will remove loopholes to the measure included in the 2016 Finance Bill aimed at offshore property developers. The Government will legislate in Finance Bill 2017 to amend the legislation on profits from trading in and developing land in the UK at sections 76 - 80 of the Finance Act 2016 to tax all profits arising on or after March 8, 2017.
There will be broad changes to the Social Investment Tax Relief, which is intended to encourage individuals to support social enterprises and helps them access new sources of finance. The Government will also make administrative changes to research and development (R&D) tax credits, following a review of the tax environment for R&D. This is intended to increase the certainty and simplicity around claims, and the Government will take action to improve awareness of R&D tax credits among SMEs.
The Government will introduce an exemption from withholding tax for interest on debt traded on a multilateral trading facility, removing a barrier to the development of UK debt markets, and will consult from spring 2017 on implementation. It will also seek to extend Enterprise Management Incentives and high-end TV, animation, and video games tax reliefs beyond 2018, subject to state aid approval.
As previously announced, the Government will legislate in Finance Bill 2017 for the Soft Drinks Industry Levy. The two thresholds, at five grams and eight grams of sugar per 100ml, have been designed so that, by taking reasonable steps to reduce sugar content, UK producers and importers of soft drinks can pay less or escape the charge altogether. The rates were announced at Spring Budget 2017 and will be 18 pence per litre (ppl) for the main rate and 24 ppl for the higher rate. The levy will take effect from April 2018.
The Budget also confirmed measures announced previously, including in budgets in 2016. Under these changes, the UK will:
- Amend the definition of gaming payments and prizes, and change the tax treatment of freeplays, for Remote Gaming Duty purposes;
- Require disclosure of indirect tax avoidance schemes;
- Create two new income tax allowances of GBP1,000 each, for trading and property income, to support taxpayers who generate small amounts of income from the sharing economy. The allowances can be deducted from income instead of actual expenses;
- Bring about changes announced at Budget 2016 to tax-advantaged venture capital schemes;
- Increase the standard rate of Insurance Premium Tax (IPT) by two percent from June 2017;
- Bring about a number of changes to the taxation of benefits of kind, as well as reform of tax arrangements for termination payments. Under such, the first GBP30,000 of a termination payment will remain exempt from income tax and NICs;
- Tackle disguised remuneration avoidance schemes, targeting the self-employed in particular, with effect from April; and
- Close loopholes in the Promoters of Tax Avoidance Schemes (POTAS) regime. In addition, as announced at Autumn Statement 2016, the Government will introduce a new penalty on those individuals or entities who enable the use of tax avoidance arrangements that HM Revenue and Customs later defeats.
Administrative changes include that, from the 2017 to 2018 tax year, the general entry threshold for the trading cash basis will be increased to GBP150,000. (For Universal Credit claimants, the entry threshold will be increased to GBP300,000.) The exit threshold will be increased to GBP300,000 for all users of the trading cash basis.
As announced in August 2016 and confirmed at Spring Budget 2017, the Government will legislate in Finance Bill 2017 to allow most unincorporated property businesses (other than limited liability partnerships, trusts, partnerships with corporate partners, or those with receipts of more than GBP150,000) to calculate their taxable profits using a cash basis of accounting from April 6, 2017.
In addition, with effect from April 2017, the Government will provide, for unincorporated businesses, a simple list of disallowed expenditure in order to simplify the rules for allowable deductions within the cash basis.
The Budget also included a number of value-added tax (VAT) changes. These include confirmation that the Government will legislate for the Fulfilment House Due Diligence Scheme (FHDDS) in Finance Bill 2017. The draft legislation was published for consultation on December 5, 2016. The scheme will require all UK fulfillment houses to register with HMRC from April 1, 2018, and comply with record-keeping and due diligence standards. Following the consultation, the draft legislation has been revised to provide for a disclosure gateway that will permit HMRC to disclose taxpayers' information to fulfillment houses for the purpose of meeting their obligations under the scheme.
As announced at Autumn Statement 2016, the Government will legislate in Finance Bill 2017 to introduce a penalty for participating in VAT fraud. Following consultation on the draft legislation some minor changes have been made to improve the clarity of the measure and also to limit the naming of a company officer to instances where the amount of tax due exceeds GBP25,000, the Government said. The new penalty will take effect once the Finance Bill receives Royal Assent.
The Government is to investigate a split-payment model for online sales and new measures to counter value-added tax non-compliance in the construction sector. It will also review registration and deregistration thresholds and remove the VAT use and enjoyment provision for mobile phone services provided to consumers.