AS2016: Dodwell reviews key tax changes for UK businesses
Bill Dodwell, head of tax policy at Deloitte and president of the CIOT considers the key tax measures announced in the Budget and the impact on businesses from interest deductibility to lower corporation tax, a curb on salary sacrific and increased national insurance costs for employers
25 Nov 2016
Chancellor Philip Hammond’s ‘rabbit’ turned out to be a promise not to deliver any more Autumn Statements. From autumn 2017 there will be an Autumn Budget, which means that there will be two Budgets in 2017, with one in March as well, but there will be only one fiscal event in 2018.
There will be a March economic statement but the move to major tax announcements in the autumn will give more time for consideration of changes, including a longer consultation on draft legislation.
This was an Autumn Statement with few tax changes, but many spending announcements, costing some £5-8bn annually.
The Chancellor confirmed that many of the areas under consultation will go ahead. These include limitations on interest payments and the use of tax losses by large companies. Together these two measures are expected to raise £1.5-2bn annually, on top of the current corporate tax bill for large companies of about £20bn. Full details will be released on 5 December.
There will be a consultation in 2017 on improving the research and development (R&D) expenditure credit, which currently is worth up to £2bn to the business sector.
There will be a spring 2017 consultation on potentially applying corporation tax to foreign companies which receive income from UK sources, without carrying on a trading business here.
The main group affected would be non-resident corporate landlords, which currently pay income tax on rents received. A change would presumably offer a lower tax rate - potentially 17% compared to 20% basic rate income tax - but with reduced ability to deduct, for example, interest costs or brought-forward losses.
Employers face new tax and national insurance increases with confirmation that the treatment of salary sacrifice and benefits with a cash option will be changed from April 2017.
Where the new rules apply, the tax due will be based on the amount of the salary sacrificed or the cash alternative, where this is higher than the normal taxable benefit value.
The impact will be greater on benefits with low tax values, such as benefits that are exempt from tax, including workplace gyms, car parking and death in service policies.
There is one-year grandfathering for existing arrangements but accommodation, cars and school fee arrangements may be grandfathered until 2021.
Public sector contract employees
Public sector employers, including employment agencies supplying workers to them, will need to work out from April 2017 whether services provided to them are quasi-employments, in which case PAYE and NI must be deducted. This is a big systems change and cost – and could well move to private sector engagers in later years.
Insurance premium tax rise
There was a surprise increase in insurance premium tax from June 2017. This means the rate has doubled from 6% to 12% in two years and will add about £21 to the insurance costs of a family with two cars. That same family will benefit by about £40 from the freeze in fuel duty, in place of the RPI increase.
Making Tax Digital
The government announced that its response to the important Making Tax Digital consultations will be given in January 2017. It has received over 3,000 responses, which reflect concerns over the pace and other aspects of the changes. We hope to see relaxations announced.
About the author
Bill Dodwell CTA is president of the Chartered Institute of Taxation (CIOT) and head of tax policy and a senior partner at Deloitte LLP