Chancellor Philip Hammond has delivered his Spring Statement 2018, and on his promise to move away from two major fiscal announcements every year. There was no red briefcase, no red book, and no tax changes as the chancellor announced updated economic forecasts in a speech lasting less than half the length of any of his previous statements.
A statement of few announcements
Not that it comes as a surprise seeing that Hammond moved this to a Tuesday, rather than keeping it in its usual slot straight after prime minister’s questions on a Wednesday.
Far from being a second financial statement of the tax year, the chancellor unveiled the latest economic forecasts alongside a raft of consultations.
The Office for Budget Responsibility (OBR) revised its forecast for growth up to 1.5% – a rise of 0.1% on the previous forecast announced in Autumn Budget 2017.
However, GDP is expected to fall back to 1.3% in 2019 and 2020 as the OBR left its November 2017 forecast unchanged.
Borrowing fell to £45.2 billion in 2017/18 – £4.7 billion lower than the OBR’s forecast in November 2017, while Hammond confirmed any further borrowing is expected to fund capital investment only.
Debt is also expected to start falling as a share of GDP in 2018/19, according to the OBR.
Aside from updated economic forecasts, the rest of the chancellor’s attention focused on policy consultations – some new, others previously announced.
These consultations may feed into Autumn Budget 2018.
For a full summary of the announcements, download our guide.
Here’s our quick guide on the Upcoming Changes:
Dividends
The tax-free dividend allowance will reduce from £5,000 to £2,000 from 6 April 2018.
Income tax rates
The bands and rates at which people in Scotland pay income tax have been significantly changed for 2018/19, but it will be Business as usual for taxpayers in the rest of the UK. Please download our full guide to see the income tax bands and thresholds that will be in place from 6 April 2018.
Auto-enrolment
Businesses need to be aware that from 6 April 2018, the minimum employer contribution towards an employee’s workplace pension will increase from 1% to 2%.
These contributions are mandatory for workers aged between 22 and state pension age, earning more than £10,000 a year.
National living wage and national minimum wage
National minimum wage rates for all ages and apprentices are increasing from 1 April 2018. For 18 to 20-year-olds and 21 to 24-year-olds, it will be the largest increase in a decade.
Pensions
Pensions escaped an overhaul in Autumn Budget 2017 as the chancellor opted to leave the current system unchanged, apart from an increase to the lifetime allowance.
The lifetime allowance, which is the maximum amount an individual can draw from pensions without incurring extra tax charges, rises to £1.03 million from 6 April 2018.
ISAs
The overall annual ISA subscription limit remains at £20,000, although the Junior ISA allowance increases to £4,260 from 6 April 2018. The £20,000 limit may also be used to invest in a Lifetime ISA, which has a maximum allowance in 2018/19 of £4,000.
Taxation of self-funded work-related training
One focus of the government is to create a more skilled workforce, which has led to a consultation on the extension of tax relief for self-funded training by employees and the self-employed to support improving their skills and retraining.
At present, tax relief for employees or the self-employed who pay for their training can be highly restricted.
For example, a self-employed individual can normally deduct the costs of training incurred wholly and exclusively for their business where it maintains or updates existing skills, but not generally when it creates new skills.
This consultation is at an early stage and does not specify how to extend the existing scope of tax relief for self-funded work-related training.
Cash and digital training
The review aims to find out more about removing barriers to digital payments, to better understand more about the costs and disincentives in making digital payments and what role the government can play in addressing these issues.
The government is using the consultation to determine how it can ensure cash remains accessible, especially for those groups who use cash for legitimate purposes.
Of course, the government is also seeking to determine what more can be done to clamp down on the minority who use cash to evade tax or launder money.
As part of this process, the government wishes to review large cash transactions and determine why these are used, plus assess the impact on businesses of adopting the approach taken by other countries to limit these transactions. Such impacts include the consequences for tax compliance.
Online platforms
Online platforms and marketplaces have created avenues for individuals to earn money, but they may never have earned money without an employer to act as an intermediary between them and HMRC before.
The consequences of this are that some individuals may find it difficult to understand and meet their tax obligations.
The term online platform can be quite broad but in essence will cover platforms that:
- facilitate the sharing economy, for example, by allowing people to earn money from resources they are not constantly using, such as cars or parking spaces
- assist the gig economy, for example, by allowing people to use their time and resources to generate income; or more simply
- connect buyers with individuals or businesses offering services or goods for sale.
The consultation aims to develop a better system to help these individuals comply with their tax obligations and limit opportunities for the minority who seek to avoid paying tax.
Business rates
The government announced plans at Autumn Budget 2017 to reform the business rates revaluation cycle by increasing the frequency of valuations to every three years following the next revaluation.
The chancellor announced at Spring Statement 2018 that the next revaluation of business rates would be brought forward by one year to 2021, four years after the last revaluation. The aim is that ratepayers can supposedly benefit from three-year revaluations at the earliest point. It will be based on market rental values on 1 April 2019.
VAT threshold
The government is concerned that the current design of the VAT registration threshold may be dis-incentivising small businesses from growing their business and improving their productivity.
The chancellor has previously reported that the UK had the highest threshold in the OECD and the government had concerns about the cliff-edge nature of the threshold.
In general terms, if the taxable turnover of a business in a 12-month period exceeds the threshold (currently £85,000 until March 2020) the business must register and account for VAT.
There is growing evidence that the cliff-edge nature of the VAT threshold acts as a disincentive for small business owners who want to expand. This call for evidence and review is split into three parts:
- how the threshold might currently affect business growth
- the burdens created by the VAT regime at the point of registration, and why businesses might manage their turnover to avoid registering
- the possible policy solutions, based on international and domestic examples.
Important information
The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. The information here is based upon our understanding of the chancellor’s Spring Statement 2018, in respect of which specific implementation details may change when the final legislation and supporting documentation are published. Whilst considerable care has been taken to ensure that the information contained within this guide is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.
If you would like to know how any of this will affect you, please contact our friendly team on 01793 741 600 or email [email protected] – we’d be happy to help.
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