As most of us know, many changes are happening in the UK at the moment and more are coming, not least to the economy.
In this article, I shed light on ten changes, which will impact on businesses and their employees over the next few years. Some of these changes are already here, while some are on their way.
From April 2017, the government broadly continued the increase in taxable benefit arising on cars provided to employees by their employer. The charge is currently based upon a percentage of the car’s list price calculated by reference to its CO2 emissions (maximum 37%).
Looking to the future, cars with the lowest emissions are set to be hit hardest, suffering the largest increases in the relevant percentage of list price for the 2018/19 and 2019/20 tax years. However, from April 2020 a new range of low-emission percentages will apply, where cars with CO2 emissions of up to 69 gm/km will see a reduction in the relevant percentage. From April 2020, the appropriate percentage for cars with CO2 emissions of 1-50 gm/km will be based upon the maximum distance for which the car can be driven in electric mode without recharging the battery.
So, it is important that employers and employees stay aware of these changes and consider the potential tax and national insurance costs when deciding whether to provide a company vehicle as well as the corresponding specifications of the car.
Salary Sacrifice Arrangements
New rules have been introduced from April 2017 to limit the income tax and employer national insurance advantages where certain benefits in kind are provided through salary sacrifice arrangements. The new rules impose a notional cost on taxable benefits based on the value of the amount of salary given up if this is greater than the charge otherwise due. This may see certain benefits which would otherwise qualify for a tax exemption (e.g. mobile phones/parking spaces) attracting a charge where they are provided in conjunction with a salary sacrifice arrangement.
The new rules apply to company cars with emissions in excess of 75gm/km. In relation to pre-6 April 2017 arrangements for cars, the changes apply to 2021/22 and subsequent tax years. Any car arrangements made after 5 April 2017 will be subject to the new rules from the start.
Careful consideration should be given to any salary sacrifice arrangements to ensure that the tax and national insurance liabilities have been quantified and are being correctly reported to HM Revenue & Customs.
Inheritance Tax Residence Nil Rate Band (RNRB)
The RNRB is an additional allowance for inheritance tax purposes which came into force on 6 April 2017. The RNRB is in addition to the current Nil Rate Band of £325,000. The RNRB starts at £100,000 for 2017/18, rising to £125,000 for 2018/19, £150,000 for 2019/20 and £175,000 for 2020/21.
In order to qualify, an individual must own a property or a share in a property which they have lived in at some stage and which is left to their direct descendants (including children, grandchildren and step-children). The RNRB is restricted for estates over £2 million. The RNRB is limited to the lower of the value of the property or the total RNRB available. Like the nil rate band, the RNRB can be transferred between spouses if it is not used in whole or part when the first spouse dies. In the right circumstances, the combination of the Nil Rate Band and RNRB can see a married couples combined estates being worth up to £1 million without being exposed to inheritance tax.
Individuals should review their wills/arrangements to ensure that availability of the RNRB has been considered and, where appropriate, make amendments to maximise the exemption available.
The Lifetime ISA
From April 2017, those under the age of 40 can open a lifetime ISA and contribute up to £4,000 each tax year. Following the tax year, the government will provide a bonus of 25% of the contribution made. Lifetime ISA contributions can be made from the age of 18 up to the age of 50.
Savers could therefore contribute up to £128,000 during their lifetime and qualify for a Government bonus of up to £32,000.
The tax free funds, including the bonus, can be used to buy a first home (worth up to £450,000) or withdrawn from the Lifetime ISA from age 60 for any other purpose.
Savers can make withdrawals at any time for other purposes but will have to return the bonus (including any interest or growth on the bonus) and will be subject to charges.
VAT & BREXIT
UK VAT is based on EEC law and we are set to come out of the EU by 2019. So businesses will need to get to grips with what the changes are likely to be in relation to VAT.
Clearly, if the UK leaves the single market and then imports and exports from and to the EU, it will be dealt with on the same basis as the rest of the world. It is unlikely that UK businesses will be able to take advantage of some of the simplifications in relation to triangulation, call off stock and supply and install contracts. There are also likely to be cash flow implications for importing goods from the EU, with the likely imposition of import duty, increased administration and possible entry procedure delays.
It is certain that VAT is here to stay as a UK domestic tax. The current rules are likely to be enshrined in UK VAT law. European Court of Justice decisions post-Brexit will no longer set precedent for UK VAT, which will allow the UK to start to shape its own VAT rules within OECD guidelines. The current ongoing consultation to examine whether the UK VAT system is fit for purpose gives businesses the opportunity to shape the future of VAT.
MTD for VAT is scheduled for introduction in 2019. Whilst VAT registered businesses currently file VAT returns online, only 12% of them file digitally i.e. directly from their software package. The current proposal is that the 9 box return will not alter significantly, but there are likely to be additional disclosure requirements.
VAT is a transactional tax and it will be important that transactions are coded accurately at point of entry onto the accounting system. Businesses that have more than one accounting system to deal with VAT will need to consider how they are going to produce the output that digital filing will require. It is not apparent how the self-assessment and VAT systems will align under quarterly reporting, however it is clear that businesses will need to review their systems and implement any changes required to deal with this integration. For some businesses this may be a relatively insignificant exercise. But businesses with more complex VAT affairs will need to start reviewing their systems now. MTD is geared up to report quarterly, so businesses that currently recover VAT on a monthly basis will need to take a keen interest in developments to ensure they can manage cash flow, should the monthly filing option disappear.
The government introduced a dividend tax in April 2016. The main target for this change in legislation was the small to medium-sized corporate business who were able to take advantage of extracting remuneration from the business at a much lower rate of tax than an unincorporated business. Many see this tax as equivalent to the imposition of National Insurance on dividends. However, there is still a tax free amount of dividend that can be extracted in the amount of £5,000. This works favourably for the highest rate taxpayers who previously paid higher and additional rate tax on all dividends. In this year’s budget the government sought to reduce this tax free amount to £2,000 from April 2018. Whilst this did not make the finance bill passed in April, it is likely to be resurrected in the second finance bill to be considered before the summer recess begins this year. The government are keen to introduce a fairer tax system that levels the playing field between incorporated and unincorporated businesses, therefore, it is important that businesses review their business structure on a regular basis, to ensure they are operating in the most tax efficient manner.
National Living Wage (NLW)
Over the last couple of years we have seen the effective hourly minimum wage payable to the majority of staff rise from £6.70 to £7.50 with the direction of travel heading towards £10 (stated aim of £9 by 2020). Any attempts to increase the earnings of the lowest paid are to be welcomed. However, it is crucial to understand the difficulty such increases place on businesses in certain sectors or geographic regions. Moreover, assistance from Central Government to ensure that good intentions do not lead to job losses, is critical.
Business Rates Revaluation
The impact of the recent valuations are not to be underestimated. Some businesses may find themselves better off but it would seem that there are a greater number for whom the revaluation has given rise to huge additional liabilities. For small businesses already feeling the impact of auto-enrolment and the increasing NLW, this additional burden may prove the straw that breaks the camel’s back.
For many businesses this is the change that may have the biggest impact. Those businesses for whom accounts and record keeping are an afterthought, or something that someone else looks after, there will be a need to plan for MTD. Based on what we have been told so far, by 2020 the vast majority of businesses will need to be able to supply HM Revenue & Customs with financial information in a digital format.
This is likely to involve investment in time and effort into planning for what MTD will look like for the business and ultimately sourcing and paying for the resources to make it happen.
That being said though, there is some disagreement as to the likely cost of MTD. According to Andrew Tyrie MP, Chairman of the Select Committee: “If the FSB are right, the effects of Making Tax Digital would be crippling for many small businesses. If the government are right, businesses have something to gain in the longer term and one would expect them to be queuing up to join the pilot.”
In conclusion, there is always uncertainty in business and in predicting what government policy may be in the future. Therefore it is imperative that we seek appropriate advice and act on what we know, to make sure our businesses and therefore the economy is best placed to navigate whatever choppy waters are in store.