We have our first set piece from our new Chancellor on Wednesday, the ‘Autumn Statement’. I’ve had a look at the detail of the tax changes that he is proposing. The overall theme seems to be that tax rates will continue to be lower than in most other countries but they are going to make sure you pay them. Here are some specific measures:
- Flat rate VAT. He is withdrawing the benefit for contractors of flat rate VAT. If you are a ‘limited cost trader’ the flat rate % increases to 16.5%. I have set out the definition of a limited cost trader further down this post.
- Corporation tax will go down to 17% as planned by 2020.
- He intends to make people earning through companies, sole traders and as employees pay similar tax. No specific proposals on this one, but we wait slightly nervously for what he actually means and will inform you when firm announcements are made.
- He is stopping the tax advantages when you get shares from your employer.
- Interestingly accountants will be fined if they advise their clients to use tax scams that fail. I’m not overly worried about this myself, but I think it will, rightly, put fear in the bellies of accountants doing exotic tax avoidance (and will be a big step towards eradication it).
- The minimum wage (renamed living wage) will go to £7.50 in April.
- If your pension is in draw down what you can put in your pension goes down from £10,000 to £4,000. I don’t think this will bother too many people.
- An interesting one, I’ll be keen to finding out more detail on, is that for small expenses you might claim from your employer (e.g. use of home as office) there is going to be a call for evidence. I will keep you informed.
- Insurance premium tax goes up from 10% to 12%.
- For employees of big companies, salary sacrifice schemes will be fully taxed. I don’t think this will effect too many of my clients.
Overall Mr Hammond is an unusual politician in that he has actually set up and run his own business. That is good in that he will have a real understanding of what we need. At the same time, he knows how we work our way around the tax system.
What is a limited cost trader?
A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
- less than 2% of their VAT inclusive turnover in a prescribed accounting period
- greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000)
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
- capital expenditure
- food or drink for consumption by the flat rate business or its employees
- vehicles, vehicle parts and fuel (except where the business is one that carries out transport services – for example a taxi business – and uses its own or a leased vehicle to carry out those services)