Budget 2017

The press was saying that coming into this budget the Chancellor had to pull a rabbit out of his hat to save his job. Well he cracked a few jokes including a cough sweet one at the expense of the Prime Minister to try and show he was not totally boring, he announced a whole series of consultations which may or may not come to anything but at the end of the day there is little difference in the tax system from this year to next year. Total tax receipts are forecast to rise from £692.8bn this year to £718.6bn next, which is just under the forecast increase in GDP. He talked about producing a tax system for the modern age but changed nothing in terms of the overall structure of the tax system and tinkered around with a few things.

So what highlights are there?

Well the biggest tax giveaway in the budget is not increasing fuel and alcohol duty by inflation, at a cost of £1.055bn and not increasing duties on alcohol by inflation at £225M

For first time buyers SDLT has been abolished on the first £300,000 of their new home, provided that they pay less than £500,000 for it. This is a saving of up to £5,000. Other initiatives to boost housing are largely extensions of existing schemes or consultations on possible new proposals. This is the second most expensive tax item and has a forecast cost of £560M

Personal allowances have been increased by £350, but this is just about covers inflation, so doesn’t really cost the government anything and it is the first time in a number of years that it has not gone up by more than inflation. At this rate the pledge to raise personal allowances to £12,500 looks like it is going to be meaningless as it will be achieved by normal inflation rises rather than a positive attempt to reduce the tax burden on the lower paid. The higher rate threshold has increased by £1,000, again just index linked. For those people taking most of their earnings as dividends from their companies , taking into account the reduction in the tax free dividend allowance from £5,000 to £2,000, they will be the grand total of £112.50 a year better of.

The turnover limit above which businesses have to register for VAT has been frozen at £85,000 for the next two years. Normally this is increased by inflation ach year so more small businesses will be dragged into the VAT net. In the longer term there are discussions about bringing the threshold down drastically so that virtually all business are registered and perhaps providing some sort of VAT relief to small business. The reasoning behind this is that the registration threshold acts as a hindrance on small business growth. Currently many business will not expand above the registration threshold if they are selling to the general public as they can’t just increase their prices by the 20% VAT they would have to charge if they have to register and so would lose 20% of their income. A business with a turnover of £84,000 charges no VAT. A business with £86,000 of turnover would have to charge £17,200 of VAT or reduce its pre VAT prices and therefore profits by £14,000 to keep prices including VAT the same, this business would be better cutting prices by £2,000 and staying below the limit.

For companies the indexation relief for capital gains tax is frozen from the end of this year which brings it into line with personal capital gains tax going forward. This relief exempts the inflation element of any profits on the disposal of fixed assets or investments from tax, so inflation gains from January will now be taxed. In all likelihood in a couple of years the historic relief that is now frozen will be abolished as a simplification measure, which is how it was eliminated for individuals.

Company car owners driving a diesel car will be charged an extra 1% on their benefit in kind. These charges are already scheduled to rise substantially anyway so we are gradually seeing the death of the company car as a perk. All diesel car owners will see increases in car tax and new diesel registration tax will increase substantially for all but the very latest generation diesel technology cars.

Business rate payers will see their annual increases reduced as the inflation measure is moving from RPI to CPI a year earlier than originally promises and apparently as a measure to help businesses the five yearly valuation reviews will now be three yearly. Whilst this latter measure will smooth out the large increases a bit more, it also brings them forward.

The National living wage is increasing in April to £7.83 an hour an increase of 4.4% and all of which will attract the additional 12.8% employers NIC. This will have a knock on effect on all business’s wage structures and therefore increase costs.

For residential landlords, councils are going to be allowed to charge up to an extra 100% council tax on empty homes, up from 50%.

I was in London yesterday with views of the Shard and Gherkin rather than at my desk with views of the car park as I followed the budget. The sharp contrast in view, for me, illustrated the contrast in applicability of the budget for the respective economies of London and Shropshire... it may work for London, but for Shropshire businesses, I am not overly impressed.