New tax rules from April 2017

Date

Apr 07, 2017

Categories

Key Dates Tax

6 April 2017 marks the start of the new 2017/18 tax year, and with it come changes to a number of existing tax rules, while various other new tax initiatives come into effect. Here is a reminder of the changes which have taken place and how they may affect you.

Personal allowance

The personal allowance, which is the amount of money you earn before paying tax, has now increased from £11,000 to £11,500 for basic rate tax payers. If you’re a higher rate tax payer the threshold has risen from £43,000 to £45,000.

Corporation tax

Corporation tax, which is the amount of tax that companies pay on their profits, reduced from 20% to 19% on 1 April 2017.

Value Added Tax

The threshold at which companies have to register for paying VAT on taxable supplies increased on 1 April 2017 from £83,000 to £85,000. This raised threshold is estimated to take approximately 4,000 businesses out of having to register for VAT.

Minimum Wage

From 1 April 2017 the National Living Wage increased from £7.20 an hour to £7.50 an hour for workers age 25 and over. Rates have also increased for workers under 25 years who receive the National Minimum Wage – see our previous article for a full breakdown of the wage rises involved.

Off payroll working – IR35

From 6 April 2017 new rules apply to the taxation of workers who provide services to the public sector, either through their own company or via an agency, who are known as ‘off payroll’ workers. The onus is now on the engager, rather than the worker, to determine whether or not IR35 personal service company and intermediary rules apply to their relationship. In an unconventional move, if IR35 is deemed to apply, the worker will become subject to PAYE and NIC deductions by the public sector engager. Further detail can be read in our article from January this year.

Mortgage interest relief

New measures have been implemented which affect landlords who are individuals (but not those who are limited companies). As of 6 April 2017 it will no longer be possible to deduct all of your mortgage interest and other finance costs from your property income in order to calculate your property profits. The rules are being phased in gradually, and so for the 2017/18 tax year only 75% of your finance costs will be deductible in arriving at rental profits, and the remaining 25% will only qualify for a basic rate tax reduction, something that works very differently to what you’ll be used to. This deduction will reduce annually to 50%, then 25% and by 2020/21 all finance costs incurred by a landlord will be given only as a basic rate tax reduction. More details are available in our September 2016 news article.

Main residence nil-rate band

A new inheritance tax initiative came into effect on 6 April 2017 designed to help families reduce their IHT burden. An additional main residence nil rate band is being introduced in stages, starting at £100,000 per individual for the 2017/18 tax year and rising to £175,000 by 2020/21. Previously your estate paid 40% tax on any value above £325,000 (£650,000 for couples), so now this has increased to £425,000 (£850,000 for couples). This allowance only applies when the property concerned is the principal residence, and it is passed onto direct descendants such as children and grandchildren. More information can be read in our article from November 2015.

If you would like clarification on any of these recent tax changes please contact us and we’ll be happy to help.