Personal and Employment Taxes – How Today’s Budget Affects Them
In normal times, the first budget after a general election is a predictable affair. The chancellor takes the opportunity to get the bad news out of the way so that he can afford a few years later to announce the usual pre-election giveaways before voters go back to the polls again. But these are not normal times, and Philip Hammond could not risk any such changes, because the next general election may come much sooner than May 2022.
Many had predicted this would be one of the dullest Budgets in recent memory. We certainly didn’t see any major tax changes, and the Budget predictably played in parts to the younger voters that had abandoned the Conservatives at the recent general election. Having picked through both the Budget speech, and the subsequent press releases, we have highlighted below the following notable announcements on personal and employment taxes matters:
Personal Allowance (PA) and Higher Rate Threshold (HRT)
The government reaffirmed its commitment to raising the PA to £12,500 and the HRT to £50,000 by 2020 – which will mean an increase to the PA of over 90% in the space of a decade.
The Budget announced that the PA will increase from £11,500 currently to £11,850 from April 2018, and the HRT will increase from £45,000 to £46,350. The government claims this means in 2018/19 a typical taxpayer will pay at least £1,075 less tax than they did in 2010/11.
National Living Wage
Back in his 2015 Budget, the then-chancellor George Osborne introduced the National Living Wage (NLW), promising a minimum wage of £9 per hour by 2020. Mr Hammond confirmed the current £7.50 NLW will increase by 4.4% to £7.83 from April 2018, which equates to a £600 pay rise.
Capital Gains Tax
The Capital Gains Tax (CGT) annual exemption will increase from £11,300 to £11,700 from 2018/19, in line with inflation.
The government had also previously announced in 2015 the introduction of an accelerated 30-day payment window between a capital gain arising on a residential property and payment of any tax to HMRC (as opposed to the current payment date of 31st January after the end of the tax year of sale). The Budget announced that the planned implementation date of April 2019 has now been deferred to April 2020.
As anticipated, the government had no good news for property landlords, following a series of recent tax changes that have adversely affected them. Mr Hammond dealt another blow in his speech, giving local authorities the power to charge a 100% premium on council tax on empty properties, to dissuade property investors from allowing homes to sit empty while many struggle to find somewhere to live.
Stamp Duty Land Tax
It was anticipated that this Budget would be aimed at winning back the younger votes lost at the recent election, and those predictions were not wrong. The Chancellor announced the abolition of Stamp Duty for first-time buyers on purchases up to £300,000, and on and the first £300,000 on purchases up to £500,000.
Whilst this may well grab the positive headlines Mr Hammond had been hoping, some initial reactions were already suggesting this may not be such a wise move. The Office of Budget Responsibility suggested it will push prices up by 0.3% in 2018, and with others suggesting this is likely to help those in the south-east the most, and may just stimulate the slowing market again.
The Budget press releases also confirmed that HMRC will amend the rules on the 3% SDLT surcharge (which applies to purchases of second properties), to remove unintended unfairness that can occur in certain cases – including divorce cases and where parents purchase properties on behalf of their children.
Self Assessment – faster recovery of debt
HMRC also announced that it will use new technology to recover additional Self Assessment debts in closer to real-time by adjusting PAYE tax codes for individuals – this will come into effect from April 2019.
Off-payroll working in the private sector
In line with our Budget predictions, the government has recognised that its April 2017 reforms of off-payroll working rules (known as IR35) for engagements in the public sector have produced the desired effect and improved compliance.
The government confirms it intends to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.
However, rather than rush into the this, the government will consult beforehand with businesses and individuals, and draw on experience from the recent public sector changes. So the feared quick-fire April 2018 extension to the private sector is now off the cards, and we expect this to be deferred until April 2019 at the earliest.
Company cars and vans
Car and van fuel scale charges both increase in line with RPI from April 2018 – with the car fuel benefit multiplier increasing from £22,600 to 23,400. The van benefit charge will increase from £3,230 to £3,350 and the van fuel benefit charge from £610 to £633.
Continuing the governments’ attack on diesel cars, Mr Hammond announced that diesel cars that do not meet the latest standards will see their company car diesel supplement increase from 3% to 4% from April 2018.
HMRC had already announced major changes to the taxation of Ultra Low Emission Vehicles (ULEVs) from April 2020 – see link to my recent article and today Mr Hammond also confirmed the tax rules will be tweaked to allow employers to charge employees’ electric vehicles without triggering a benefits charge.
Employer compliance – some welcome relaxations
The Budget press releases confirmed that, following a series of recent consultations, the government will make several changes to the taxation of employee expenses.
Included in these are what appears to be yet another change of stance on the requirement for employers to check their employees receipts when reimbursing them using HMRC Benchmark Scale Rates. From April 2019, employers will no longer be required to check receipts when making payments to employees for subsistence using the HMRC Benchmark Scale Rates.
This administrative easement applies to standard meal allowances paid in respect of qualifying travel and the newly legislated overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel.
Whilst this is very welcome news, it is disappointing that it doesn’t come into effect until April 2019, as it leaves many businesses still having to jump through the current hoops to remain compliant during the intervening period. It also doesn’t apply to amounts agreed under bespoke scale rates or industry wide rates. We have a number of haulage clients who have seen a lot of confusion and uncertainty, as HMRC and the Road Haulage Association locked horns over the past year on this issue, and they will be very disappointed these changes don’t apply to cab rate payments.