Phillip Hammond’s first mini-budget explained
The dust has settled and the details of Philip Hammond’s first mini-budget are now much clearer – but unfortunately that does not make life any simpler for you.
Despite promises to close down loopholes, make our financial system fairer and easier to understand, the Government have actually made it even more complex following the autumn statement. Here we help our customers understand some of the changes that will be introduced in April 2017 but remember your chartered tax adviser here at Jacobs Allen is always happy to offer more indepth, personal advice to ensure you fully understand your tax code and are taking advantage of all of the benefits available.
Keith Senior, a director here at Jacobs Allen Chartered Accountants and Chartered Tax Advisers, explained that those working as VAT-registered sole traders, changes to the flat rate tax scheme could make it less appealing. The flat rate scheme is usually adopted by those who have few outgoings related to their business and charge predominantly for their services.
If you are VAT registered you can charge customers your standard charges plus 20pc. You can then opt to pay the HMRC a flat rate which at a default rate is 12pc but varies according to the sector in which you work. Under this system you cannot reclaim the VAT paid on services and goods you have purchased for the business but the benefits of lower tax on income far outweighs the losses.
Under the new system, anyone who doesn’t buy goods valued at 2pc of their total gross income will see their flat rate VAT increase from 12pc to 16.5pc. For employees there will be changes to the salary sacrifice scheme, and this will also have an impact on businesses who participate in this practice and employers will need to be smarter in how they offer these benefits in kind.
Pensions, childcare, bikes and ultra low emission vehicles will remain exempt but the chancellor has effectively got rid of all of the other benefits that you could enjoy tax-free or at lower tax. While workers can still enjoy some additional benefits as part of a comprehensive salary package – including normal cars, smart phones and, for some, private education for their off spring – they will now be liable for tax on those extras.
You can understand the reasons for doing that but there could be some discrimination issues for instance with telephones. If you are given a mobile phone and that is the only phone you have access to for work purposes then you will be fine but if you choose a new phone contract as part of a salary sacrifice package then you will be liable for the tax.
It was not all bad news for tax payers though. We had anticipated the chancellor would try and move away from having two fiscal events in the year and reverse the situation we have got into of having the main spring budget and the mini budget in the autumn.
He has, in fact, gone one stage further and we may now have just one budget in the autumn.
This would mean legislation could be published and go through the three-month Government approval process before being officially adopted at the start of the next financial year.
This will help people make decisions about long-term financial matters such as saving for retirement and that is to be welcomed.