The first Spring Statement – a round up and recap

Monday, March 19, 2018

This year the traditional Spring Budget made way for the smaller, fewer bells and whistles, Spring Statement. It is now the Autumn main Budget that will take centre stage for the Chancellor to announce major new measures, tax and spending changes. Consequently, Philip Hammond delivered his statement earlier this month without much in the way of business or tax changes, but a few interesting announcements nonetheless.

First out of the blocks were the usual updates on employment levels, GDP, inflation and borrowing. The picture is reasonably positive, with employment and GDP up, borrowing and personal tax liability down. There are now three million more people in work since 2010, and 31 million working people are paying less tax thanks to increases in personal allowance.

The Spring Statement was also an opportunity to announce topics that the Government is seeking views on in the coming months. The Chancellor announced several tax consultations and calls for evidence, which hints at what is likely to inform future policy, and liable to make an appearance in the Autumn Budget. 

There have been rumours circulating about reducing the VAT threshold from the UK’s £85,000 registration limit, but instead the Chancellor opted to freeze it for the next two years. The Government issued a call for evidence on restructuring the VAT registration threshold to offer more incentives for small businesses to grow, with mounting evidence that businesses deliberately limit growth to avoid crossing the existing threshold. Mr Hammond has said that he will consult on the ‘design’ of this threshold. He will also get proposals for a new VAT collection mechanism for online sales, including VAT and income tax leakage through internet trading platforms.

One notable announcement concerned the possible extension, to the private sector, of the stricter IR35 rules that apply in the public sector for personal service companies. This could have important implications for contractors across all sectors. The light at the end of the tunnel may be the timing; HMRC had looking at an extension of the public-sector reforms arriving as soon as April 2019, but time is running out for the legislation to be fully developed, so 2020 looks more feasible.

Other consultation papers will be produced on tax evasion and avoidance – especially regarding offshore issues. One strong possibility is that HMRC will be able to assess at least 12 years of back taxes without having to establish deliberate non-compliance. Another proposed innovation is a points-based penalty system for late or missing tax returns.

Other notable business and tax announcements included:

  • 2018 will see a major consultation on the taxation of trusts. The aim will be to make the tax regime ‘simpler, fairer and more transparent’
  • Investigation into encouraging cashless and digital payments, while ensuring cash remains available for those who need it
  • A proposal for extending entrepreneurs’ relief to some shareholders whose holdings drop below the qualifying 5% level
  • There will be a review into the taxation of large digital businesses
  • Reducing single-use plastic waste through the tax system
  • Environmentally-focused consultations on non-agricultural red diesel tax relief and vehicle excise duty rates
  • The next revaluation of business property in England will be brought forward one year to 2021, with three-yearly revaluations thereafter
  • A consultation paper was published examining how to extend the existing tax relief framework to self-funded work-related training by employees and the self-employed.

Many of these documents will eventually result in legislation and it will be interesting to see how it progresses and what the consultation processes involve. Where relevant and appropriate for the CPAA to be involved, we will notify members. It is likely that the Autumn Budget will have much more to offer in terms of measures for businesses and changes to tax – we will keep you posted with predictions and round-ups as the season rolls round.

In the meantime, there is plenty to be getting on with, embracing the key changes for the forthcoming 2018/19 tax year that have already been announced and passed into law. April will see the usual changes to the income tax rates and allowances as well as national insurance contributions.

This tax year will also include a cut in the dividend allowance and some special new tax rates for Scottish taxpayers. The tax increases on company cars may look modest, but their collective impact could be significant for some. Many employees will see any extra net income from tax changes eaten up by their higher minimum auto-enrolment pension contributions. The lifetime allowance for pensions has been raised. Less welcome for some will be the changes to employee termination payments and the new rules for enterprise investment schemes.

Spring Statement Recap:

-              3 million more people in work since 2010

-              GDP growth forecast increased to 1.5% from 1.4% in 2018

-              Employment growth predicted to be 32.7 million by 2022, up by 500,000 from this year

-              Inflation expected to return to 2% over the next 12 months

-              Borrowing is forecast to be £45.2 billion this year, which is £4.7 billion lower than forecast

-              31 million working people are paying less tax by the raises in the personal allowance

-              Fuel duty has been frozen for the 8th year in a row

-              The National living wage will rise to £7.83 from 1st April 2018

-              £80 million of funding support will be available for SMEs seeking to recruit an apprentice

-              A business rates revaluation has been brought forward by a year to 2021

-              £95 million has been allocated towards full-fibre broadband for 13 areas across the UK

-              Housing supply to raise to 300,000 per year by the mid-2020s.