The government recommitted to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament.
From April 2017 the personal allowance will rise to £11,500 (£11,000) and the higher rate threshold to £45,000 (£43,000).
Nigel Morris, Employment Tax Director, said “This is some good news for employees and will help many households manage the impact of inflation and price rises on the high street.”
National Living Wage
The National Living Wage is set to rise from £7.20 to £7.50 in April, for those aged 25 and over.
It was announced in the Autumn Statement in November last year and will boost the pay packets of low income workers.
Nigel Morris also said “Whilst this is good news for the low paid it does represent a 4.2% pay rise and means a £500 a year pay increase for full-time workers who do a 38 hour week. However, this burden across the whole wage bill would be hard for many employers to sustain”.
Class 4 NIC
The main rate of Class 4 National Insurance contributions will increase from 9% to 10% in April 2018 and to 11% in April 2019 to reduce the gap in rates paid by the self-employed and employees. This will impact self-employed individuals and those self-employed via Limited Liability Partnership arrangements.
Nigel Morris expressed concern that these measures whilst a step by the Chancellor to address the £5bn a year difference in NIC between the employed and self-employed, may impact the genuinely self-employed who do not benefit from increased pensions and benefits.
The dividend allowance will be reduced from £5,000 to £2,000 from April 2018, to reduce the tax differential between the self-employed and employed, and those working through a company.
Nathan Sutcliffe, Tax Manager, was disappointed with this move and commented “This will particularly impact small businesses, family owned enterprises and entrepreneurs.”
Private fuel BIK
Nigel Morris confirmed that the previously announced increase in the scale charge to £22,600 (£22,200), being a 1.8% increase. However a car with a CO2 increase of 2% to 25% of List Price will receive an increase of £544 (10.7%) and be taxed on £5,650.
Morris said “This benefit has been eroded year on year and in many cases employees pay more in tax than the actual cost of private fuel. Business should look urgently at reviewing their fuel policy to ensure there isn’t significant cost leakage in this area”.
Pre-announced reduction to 19% (lowest in G20) in April 2017 and further reductions to 17% by 2020.
Nathan Sutcliffe went on to say “This is good news for business and will help reduce the impact of other measures i.e. business rates as well as reinforcing that the UK is a good place for Corporates to do business”
Glyn Edwards, VAT Director, expressed disappointment that the Chancellor is pressing ahead with restrictions to the zero-rated relief on cars sold to disabled customers. Glyn commented:
“The relief is already unfairly limited to disabled persons who ‘ordinarily use a wheelchair’, ignoring the mobility difficulties associated with a much wider range of disabilities. Rather than seek to address this unfairness, the Chancellor has reaffirmed a commitment to limit wheelchair users to buying just one VAT-free car every three years except in exceptional circumstances of theft, write-off or satisfying HMRC that a disability has worsened to the extent of requiring a change in vehicle.
Whilst there was a need to tackle abuse of the relief by unscrupulous multiple buyers who were able to resell cars at a profit, this could have been a much more targeted approach, rather than a carte-blanche attack on disabled car drivers.”
Full details about how the restriction will be monitored and the role of dealers in providing information to HMRC are still to be announced.
Wholesale changes to VED/road fund licence for new cars comes in from April 2017, with all vehicles will paying a standard rate of £140 a year from Year 2 onwards, but with a new graduated rate in Year 1 based on CO2 levels. However, an additional rate will be added to the vehicle tax for all new vehicles with a list price of over £40,000. This additional rate of £310 will be payable each year for 5 years from the end of the first vehicle licence.
Zero emission vehicles will have a standard rate of £0 but if the list price is over £40,000 they will pay the additional rate of £310 a year for 5 years.
The government will continue to explore the appropriate tax treatment for diesel vehicles and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017.
The Budget takes the next steps in delivering the government’s Industrial Strategy by putting the UK at the forefront of global technological progress including through developing artificial intelligence and robotics, and batteries for the next generation of electric vehicles.
Insurance Premium Tax (IPT)
The government will legislate to introduce anti-forestalling provisions and increase the standard rate of IPT to 12% from 1 June 2017, as announced at Autumn Statement 2016.
As also announced in the Autumn Statement 2016, from April 2017, most salary sacrifice schemes will be subject to the same tax as cash income. Pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars will be exempt.
The government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.
Richard Proctor, Partner, said: “For the Motor Retail sector, the Chancellor has chosen a policy of minimal intervention this time. Further changes can be expected, for example with diesel vehicles and benefits in kind, once further research and consultation has taken place.”
Steve Freeman, Head of the MHA Motor Sector, commented on the overall announcements: “The Chancellor, in what was his last Spring Budget, delivered a mixed bag of measures that whilst it will benefit large parts of the economy, particularly in the area of skills and competitiveness, does not ease much of the burden for the Motor Sector. Overall it was a quiet Budget. Increases to business rates are still planned with few reliefs that the Sector are likely to be able to benefit from and with many Dealers being owned by family concerns or entrepreneurs the cut in the dividend allowance will be unwelcome news.”
Steve went on to say: “It is encouraging to see the commitment to skills and training, which is much needed in the Sector and the new T-levels will be welcome if one of the proposed 15 career routes is Motor Sector focused and can be easily linked with approved training and the Apprenticeship Levy accounts. However, speculation around fuel levy, diesel scrappage and increased tax rates or reduced pension reliefs not being borne out will be welcome news, although Consultations to review the treatment of Diesels and exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind may lead to more significant changes in the new Autumn Budget”.
For a full round up of the Spring Budget, read our Budget Summary Report.