Income tax rates and allowances
In 2015, the Government introduced a “tax lock” to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT and employer and employee NICs ensuring that they cannot rise above their 2015/16 levels. Accordingly, no changes to the income tax rates were announced so that the basic rate of income tax for 2017/2018 remains at 20%, the higher rate at 40% and the top (or additional) rate of income tax at 45%.
The Government has also committed itself to raising the income tax personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this Parliament.
The personal allowance for those aged under 65 rises to £11,500 and the higher rate threshold rises to £45,000 in 2017/2018. Once the personal allowance reaches £12,500, the Government has announced that it will then rise in line with the Consumer Price Index (CPI) as the higher rate threshold does, rather than in line with the National Minimum Wage. These changes will take effect by the end of this Parliament.
For a table of the main tax rates and allowances for 2017/2018, go to the section headed "HM Revenue and Customs tax rates and allowances for 2017/18".
National insurance contributions
No changes to national insurance contribution (NICs) rates were announced for 2017. Accordingly, the main rates of NICs from April 2017 will be 12% for Class 1 employee contributions, 13.8% for Class 1 employer contributions and 9% for Class 4 contributions. The additional rate that applies over the Upper Earnings Limit will be 2%.
As recommended by the Office of Tax Simplification (OTS), the National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157.
The NICs Upper Earnings/Profit Limits will remain aligned to the higher rate threshold and will therefore increase accordingly for 2017/2018.
Following consultation, the Government announced that it will abolish Class 2 NICs from April 2018 and reform Class 4 NICs so that self-employed individuals continue to build entitlement to the State Pension and other contributory benefits.
In connection with the forthcoming abolition of Class 2 NICs from April 2018, the Government has announced legislation to reduce the differential between the rates of National Insurance paid by employees as compared with those paid by the self-employed.
The Government will increase the main rate of Class 4 NICs (which currently applies to profits between £8,060 and £43,000) from 9% to 10% (from 06 April 2018) and from 10% to 11% (from 06 April 2019).
The apprenticeship levy will be payable by businesses who are liable for employers' NICs in any tax year. The rate of the levy for 2017/18 will be 0.5% of the “pay bill” for a tax year less an annual allowance of £15,000.
Reduction in the dividend allowance
The Government has announced that with effect from 06 April 2018 the annual tax-free dividend allowance for individuals (introduced in April 2016 as a replacement for the deemed dividend tax credit) will be reduced from £5,000 to £2,000. This is an early change to the new regime for dividend taxation, and appears to reflect a concern that the level of the current allowance helps to incentivise individuals trying to reduce their tax bill by providing services through a service company, with fees for services extracted by way of dividend replacing salary or self-employed income.
Against a backdrop of increases to both the personal allowance and the ISA allowance (increasing from £15,240 to £20,000 from 06 April 2017), the Government clearly feels that it can justify decreasing the specific dividend allowance on the grounds that taxpayers already have considerable scope to receive tax-free dividend income.
Trading and property income allowances
The Government announced in Budget 2016 that it would legislate in Finance Bill 2017 to create two new income tax allowances of £1,000 each, for trading and property income.
Following the publication of the draft legislation, the Government has now announced that revisions will be made to prevent the allowances from applying to income of a participator in a connected close company or to any income of a partner from their partnership.
Personal service companies in the public sector
The Government reconfirmed the previously announced changes to the intermediaries legislation which will affect workers and personal service companies (PSCs) working in the public sector. These changes will have effect for contracts entered into, or payments made, on or after 06 April 2017.
The legislation will move responsibility for deciding if the off-payroll rules for engagements in the public sector apply from an individual worker’s PSC to the public sector body, agency or third party paying the worker.
The public sector body, agency or third party will also be responsible for deducting and paying associated taxes and national insurance contributions, and providing information to agencies and workers about whether engagements are within the off-payroll rules. It will be optional for the public sector body, agency or third party whether to take account of the worker’s expenses when calculating the tax due, and they will not be entitled to the 5% allowance currently available to those applying the rules (which aims to reflect the cost of administering the rules).
These changes will not affect workers or PSCs providing their services to private sector organisations.
As announced at Autumn Statement 2016, the Government intend to make a number of changes to the disguised remuneration legislation. It was intended that all of these changes would be included in the Finance Bill 2017. However, the changes which relate to disguised remuneration arrangements involving close companies will now be delayed until 06 April 2018, in order to ensure that they are appropriately targeted, following concern from some practitioners that their ambit was wider than the intended policy aim.
The Government has pushed back the timetable for its reforms to the taxation of partnerships, announcing that it will now publish a response document and draft legislation to clarify and improve aspects of partnership taxation for inclusion in Finance Bill 2017/18, rather than the first Finance Bill of 2017.
Reform of domicile rules
From April 2017, non-UK domiciled individuals will be deemed domiciled in the UK for tax purposes where they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK with a UK domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax purposes while they are UK resident. Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust.
Non-doms will be able to segregate amounts of income, gains and capital within overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed. Following consultation on the draft legislation, the Government has announced that this will be extended to income, gains and capital held in mixed funds from years before 2007 to 2008, as well as those from subsequent years.
In addition, the Government has announced that those who become deemed domicile in April 2017, excepting those who were born in the UK with a UK domicile of origin, will be able to rebase all their assets, including their non-UK based assets, to their market value on 05 April 2017.
Time limits for the recovery of NICs
The Government announced changes to the NICs regime in the Autumn Statement 2016. These changes included removing NICs from the effects of the Limitation Act 1980 and aligning the time limits for the recovery of NICs debts with those for tax. The Government has now announced that it is deferring these measures in order to undertake a full consultation on the draft legislation. A future NICs bill will be introduced thereafter.
The Government has announced that it will consult on proposals to amend rent-a-room relief to ensure that it is targeted at longer-term lettings.