The Macro-Economic Picture
Not surprisingly, given the economic uncertainty that the Brexit vote has caused, the Office for Budget Responsibility’s growth forecasts for the UK economy are down a little on previous estimates.
Growth for 2016 is now expected to be 2.1%, which I think is quite good based on the past few years, but is forecast to fall to 1.4% in 2017 and 1.7% in 2018. The fall in the value of Sterling and a subsequent reduction in consumer demand is a major factor in this revised projection.
Post-Brexit vote, the target of achieving a budget surplus by 2020 has been thrown out, with this target now put back to sometime in the next Parliament.
Annual borrowing requirements are now forecast to be:
2017-18 £59 bn
Debt as a % GDP will peak next year at 90.2%
Key Measures for Business
Along with the usual promises for major investment in infrastructure schemes and the regions, there were some other announcements affecting businesses both large and small
Corporation Tax Rates—confirmed previous announcements that this will reduce to 19% from April 2017 and 17% by 2020.
NIC Thresholds—a small measure aligning employers and employees thresholds to £157/week from April 2017
Restrictions on Salary Sacrifice Schemes— From April 2017 the tax advantages of sacrificing salary and receiving alternative benefits will be removed. This will affect employees receiving things such as gym memberships or computers by way of salary sacrifice. The tax savings on some of the more common benefits though will remain, namely on pensions, childcare, the cycle-to-work scheme and ultra-low emission cars
National Living Wage—effectively the national minimum wage for over 25s. This is to rise from £7.20 to £7.50 per hour from April 2017
Amendments to the VAT flat-rate scheme
An unwelcome change which will affect a few of our clients from April 2017 onwards.
A new flat rate VAT % of 16.5% is to be introduced for “limited cost businesses” (the previous highest VAT % was 14.5%).
A limited cost business is defined as one whose VAT-inclusive expenditure on goods is either:
- Less than 2% of their VAT-inclusive turnover
- Or greater than 2% of their VAT-inclusive turnover but less than £1k annually
- Capital expenditure
- Food or drink for consumption by employees
- Vehicles, vehicle parts and fuel
Importantly services such as rent, subcontractors, software subscriptions are NOT goods. So it looks like an increase in VAT payable by some businesses with potentially a withdrawal from the FRS the likely consequence.
Transition either to this new rate mid-VAT quarter, or off the scheme entirely will be tricky for both spreadsheet clients and software users.
Personal Taxation Measures
Personal Allowance confirmed as rising to £11,500 from April 2017. By 2020 it is aimed to increase this to £12,500 and increase the higher rate threshold to £50,000.
Tax-free childcare—long-delayed, it looks as though the new “tax-free childcare” scheme is finally going to be launched in early 2017. This means that the government will fund up to £2k childcare fees per child per annum, where costs are up to £10k i.e. funding 20% of the cost. Unlike the current childcare voucher scheme, the new scheme will also be available to the self-employed
Fuel Duty—this has been frozen for the seventh year running