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Kirk Rice Blog

Autumn Statement 2016 – What You Need To KnowWritten on December 1, 2016 by Kirk Rice LLP

Autumn Statement 2016 – What You Need To Know

Kirk Rice, Senior Partner at Kirk Rice Accountants, gives a summary of Philip Hammond’s Autumn Statement and the key implications for companies and individuals.

What Key Areas Did Phillip Hammond Address In The Autumn Statement?

Phillip Hammond was basically looking at four areas in his Autumn Statement.  Let’s take a look at each in turn.

  • The Numbers

These days, the figures are given to the Chancellor by The Office For Budget Responsibility which contains estimates and forecasts.  I recently attended a Bank of England briefing and the message was clear in that, the expected economic outcomes from Brexit didn’t arise and that in future there are 2 certainties, the first certainty is that  inflation will rise, the second certainty is that they are  uncertain as to how much. This gives an indication of how fluid numbers can be at the moment, and this has obvious implications on numbers and budgets.

  • Budget Judgement

This aspect looks at how much borrowing is sensible for the economy over the next five years. Clearly, Phillip Hammond has stated that the 2020 target of a balanced budget is no longer achievable. This was largely expected.

  • What He Wants To Do

The Chancellor was clear that he wanted to focus on spending, largely on infrastructure.  The objective here is probably to give the country a ‘feel-good’ factor to counteract what is actually happening.  The spending announcements are spread over a number of years, but nonetheless, they are very welcome as a confidence boost to the economy. For further detail on the infrastructure spending take a look at The Telegraph summary.

  • The Money

In this area, the Chancellor had to look at where the money for all this investment actually comes from and how he balances the books.

Was It A Mini Budget?

Yes, it is, but in reality, Phillip Hammond has simply reconfirmed most of the tax rates and allowances that have previously been announced. One such example is Corporation Tax, which drops to 19% in 2017 and eventually down to 17% by 2020.  Another example is the increase in personal allowance. It is currently £11,000 this year and will rise to £11,500 in 2017-18. The higher rate of income tax will rise from £43,000 this year, to £45,000 in 2017-18. (See HMRC website for details).

Overall, the Chancellor has not given any bold statements in terms of tax rises, or tax cuts. He has simply tried to give something to everyone.

The Kirk Rice website has a wealth of information on Corporation Tax and Personal Allowances. Please see our Resource Centre for in-depth fact sheets and guides.

 

What Specific Measures Require Further Consideration?

Employers

Many employers operate Salary Sacrifice schemes. This is where an individual’s salary is sacrificed to pay for expenses such as health care and pensions. Whilst pensions remain unaffected, salary sacrifice for health care will now become subject to Tax and National Insurance, thus removing all the previous advantages of this scheme.  If you have a concern regarding this change, please ask your questions using our Quick Contact form (at the top of this page) and one of our advisers will get in touch.

Loss-Making Companies

For companies who have made a loss, the Chancellor has reformed loss relief situations whereby the loss be carried forward into future years more flexibly against profits. In company group situations, there is however a restriction if the group earns more than £5m/year. This amount may sound large, however, if the £5m is divided equally amongst the companies within that group it actually equates to fairly small numbers. This change will affect a significant number of companies.  The devil is in the detail however and we await further information before making our final judgement.

Smaller Companies

For small companies and in particular, personal service companies, and we have many of these and companies who employ these  in our client base, we have recently seen a tax increase on dividends. However, as Corporation Tax reduces, the advantages of using dividends over salaries will return.

Currently, legislation exists called IR35, or as we call it IR35. This legislation essentially tries to tax people who would be employees, if it wasn’t for the personal service company as if they were employees. Now, already for next year, the government has announced that for personal service companies operating in the public sector, the obligation of making the decision to operating IR35 now moves to the body paying the worker’s company. This is a significant change because it re-establishes responsibility with the paying company to get the tax right. Many of these will err on the side of caution.

The Government has also stated that during the next tax year 2017-18, they will look at equalising the situation across the board. We can, therefore, expect to see a lot more legislation in this area.

A new VAT 16.5% flat rate has also been introduced for smaller companies. This measure will result in many small personal companies, or small turnover companies, losing any advantage whatsoever of using the Flat Rate scheme. It may also increase compliance costs for these companies. For more information on VAT rates, please read see our Corporate and Business Tax Factsheets.

Anti-Avoidance Measures

As usual, a raft of anti-avoidance measures, including a number of sanctions and deterrents were announced.  One area concerning advisers is that if any tax avoidance scheme is defeated by the Government, then the adviser will be penalised. This is a very new feature.  Looking forward, we will need to become very clear as to what is acceptable and unacceptable tax avoidance. If you take the question of whether to take a dividend or salary, today this is tax avoidance which is perfectly acceptable.  In the future, however, potentially this may be classed as tax avoidance.

 

Was this Phillip Hammond’s First and Last Autumn Statement?

Actually, this is true.  In 2017 we will have a Spring Budget as normal, however, the Autumn Statement will become the Autumn Budget. In 2018, The Office For Budget Responsibility will produce a Spring Report, which the Chancellor will only comment on. Bear in mind, that he did say he retains the right to make changes to policies in the Spring Statement if economic circumstances require it. Given the issues that may arise from Brexit, there is little doubt that the Chancellor will make changes in the Spring Report.

For more information on the Autumn Statement, please visit our website where we summarise the key changes.  You can also listen to Kirk’s podcast and download a PDF version of the summary.

Kirk Rice is a Senior Partner at Kirk Rice Accountants.  If you have a question on this topic, please feel free to contact Kirk or one of our advisers at info@kirkrice.co.uk or call our Ascot office on 01344 875000 or our Putney office on 020 8789 8588.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future.

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