How to box clever
The Chancellor's famous red box Contained a few surprises in March
In his Budget statement in March, Chancellor Philip Hammond announced a number of measures that could affect Members. In this issue we run our eye over the main points – and how they could impact you and your business.
Among the many announcements from his famous red Budget box, Mr Hammond unveiled a new HMRC digital record keeping system and a timetable for implementing it, which some businesses expressed concerns about.
In response, HMRC has announced that the mandatory start date for unincorporated businesses and landlords with turnover below the VAT threshold (£85,000 from 1 April 2017) will be deferred from April 2018 to April 2019.
Businesses, self-employed people and landlords will now be required to start using the new digital service from:
April 2018 if they have profits chargeable to income tax, pay Class 4 national insurance contributions (NIC) and turnover is in excess of the VAT threshold
April 2019 if they have profits chargeable to income tax, pay Class 4 NIC and turnover is below the VAT threshold
April 2019 if they are registered for and pay VAT
April 2020 if they pay corporation tax or are a partnership with a turnover in excess of £10m.
Businesses, self-employed people and landlords with turnover under £10,000 are exempt from these requirements.
HMRC has confirmed that taxpayers will have at least 12 months to become familiar with the changes before any late submission penalties will be applied. HMRC will also consult again on a new penalty model.
Simplified cash basis of accounting for small businesses
The entry threshold for the simplified cash basis of accounting for unincorporated businesses will be increased from £83,000 to £150,000 with effect from 6 April 2017.
The exit threshold will continue to be set at double the entry threshold and will therefore be increased to £300,000.
The entry and exit threshold for self-employed Universal Credit claimants will continue to equal the exit threshold of non-Universal Credit claimants and will rise to £300,000.
The Finance Bill 2017 will include a simple list of disallowed expenditure to simplify the rules for allowable deductions within the cash basis. This change will have effect from 6 April 2017, although for 2017/18 trading profits can be calculated using either the new rules or the existing rules.
The dividend allowance was introduced by Finance Act 2016 as part of the reforms to the taxation of dividends from 6 April 2016. The allowance was intended to compensate for the removal of the dividend tax credit and to take a number of individuals with modest dividend income out of the self-assessment regime.
The allowance, which gives a 0 per cent rate of tax on dividend income, will fall from £5,000 to £2,000 from 6 April 2018. The rationale for this reduction is to close the gap between individuals who are employed or self-employed and those who are operating their business through a company and can therefore take dividends instead of a salary.
The Government expects that 80 per cent of ‘general investors’ will continue to pay no dividend tax despite the change.
Income tax rates and allowances
From 6 April 2017, the personal allowance will increase from £11,000 to £11,500. Scottish income tax payers will be able to earn £43,000 before reaching the threshold for paying 40 per cent tax.
Updated VAT registration and deregistration thresholds
From 1 April 2017, the VAT registration threshold will be increased from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000.
VAT: Construction industry – reverse charge
The Government will shortly consult on new anti-fraud measures related to the supply of construction industry labour. This will include a proposal to introduce a domestic VAT reverse charge on the supply of labour, which would mean that the recipient rather than the supplier would account for the VAT due.
Such an approach already exists for the domestic supply of mobile phones and computer chips. The consultation on this proposal will be published on 20 March 2017.
VAT: Use of mobile phones
It was announced that secondary legislation will be introduced later in the year to apply VAT to all use of mobile phones by consumers, wherever the phone is used.
This will be achieved by removing the ‘use and enjoyment’ provision that currently means that UK mobile phone users are not charged VAT when using their mobile outside the EU.
This new measure will result in an increased cost for consumers, but it is still in line with the agreed international approach.
We would urge all Members as a matter of urgency to contact their accountants to discuss the possible implications of any or all of the measures outlined in this article.
This article was written by John McGhee, Association Secretary & Head of Resources