Having announced at the last Autumn Statement that Spring 2017 would host the last Spring Budget (to be replaced by a Spring Statement; and that the Autumn Statement in 2017 would become the first Autumn Budget)our season-swapping Chancellor duly heralded the daffodils with his promised first and final Budget Statement at this time of year. Some cynics in the tax profession feared that the opportunity of two actual full Budgets in a calendar year would produce even more of a flood of new legislation than has become depressingly usual. But it looks likely to be more of a March shower, although that is on top of a deluge from last Autumn which has already produced a draft Finance Bill of some 400 pages.

At least in terms of the actual speech, the Budget was much closer to the actual meaning of the word "budget" — how is the Government going to spend what it will raise, rather than how will it raise what it will spend? The exception to this was the nasty surprise of the rise in Class 4 National Insurance contributions, but that 'surprise' had been well leaked in advance, with the all-too-typical gloss that the potential rise in the advance warnings was generally higher (and swifter) than what was actually announced. But one can never predict from where Spring storms will come; and this announcement has already attracted such horrified reaction (purported and real) as a breach of manifesto commitments that its survival is already in doubt — and all for relatively little financial gain for the Government.

In dealing more with spending than with tax measures, this Budget only continues and now completes a trend that has been evident for a number of years, in which much more detailed substantive tax announcements have tended to be made in the Autumn Statement; and that has been followed by publication of draft legislation in advance of the actual Finance Bill. This has at least allowed some consideration of proposed changes; such scrutiny had become depressingly scanty during the rapid progress of doorstops of new law through Westminster in recent years. The doorstops may not get any smaller, but at least it is a little easier to see if they will do their job, if one can see the legislation in advance.

The relative paucity of actual new tax announcements was balanced by extensive confirmations of many things that had been announced previously — sometimes on more than one occasion — and a range of consultations, or further consultations, on things still to come. But the big new money raiser was an immediate tinkering with a brand new concept — the dividend tax allowance — which will have a significant negative effect on the saving community as well as those masking self-employment within companies.

The concentration on spending announcements continues another trend — the increasing lack of relevance, or at least differential relevance, of much of what is said in such Westminster set-pieces to Scotland and Scottish taxpayers. Thus, announcements on English schools, on social care provision and even on various reliefs for business rates have no direct application in Scotland, where the Scottish Government has already or will need to make its own decisions on such matters. The continued application of the ever more mysterious Barnett formula will provide some resources to influence these decisions, but whether the figures mentioned should be categorised as "additional" resources is a matter for more political debate.

What is no longer for political debate is the first real direct tax impacts of increased devolution, further increasing divergence between Scotland and the rest of the UK. Thus, the Chancellor made much of his renewed commitment to a £12,500 personal allowance and a combined personal allowance and basic rate band of £50,000; but for Scottish taxpayers, the freezing of the higher rate threshold this year and the prospect of restricted increases in future years will build to at least delay this objective for a number of additional years. Land and Buildings Transaction Tax (LBTT) is now quite substantially different from Stamp Duty Land Tax (SDLT), not only in relation to rates and thresholds, but also on substantive rules such as a "six-or-more" dwellings relief from additional dwelling supplement (available for dwellings in Scotland but not in the rest of the UK). These kinds of divergence are only going to increase in number and significance.

It may be that the new timing of the UK Budget proves incidentally helpful to the development of Scottish tax law. As long as the Autumn Budget is announced reasonably early, it will be before the provisional Scottish Budget; and there may therefore be time to react before the start of the tax year to changes made for the rest of the UK. This would simply not be practically possible for changes announced at the time of what will be the Spring Statement.

Given that there was not really much that was new, the sheer volume of material published with the Budget may be surprising. But as with many Government announcements, it repeated or developed much that had appeared before. The result is that the last Autumn Budget (at least until someone changes the seasons again) has produced as large a crop of measures worth mentioning as many of its predecessors. Furthermore the seeds planted in this Spring seem certain to produce a further substantial Autumn tax harvest.


Allowances and thresholds

The proposed income tax allowances and thresholds for the next two years (with this year's for comparison) are as follows:

Personal Allowance£11,000£11,500
Basic Rate Band£32,000£33,500
Higher Rate threshold£43,000£45,000

The Chancellor set the level of both the personal allowance and the basic rate band in his Summer (post-election) Budget but he has chosen to increase these further. The personal allowance will now be £11,500 and the basic rate band will be £33,500, meaning that only incomes greater than £45,000 will incur higher rate tax.

From 6 April 2017, Scottish tax payers will pay income tax on their non-savings and non-dividends (shortened to NS/ND) income in accordance with rates and bands set by the Scottish Government in its 2016 Budget. Broadly this means that Scottish taxpayers could potentially face differential rates of tax between: on the one hand, their earnings, trading and property income, as well as pensions income and some payments from trusts, all of which will be taxed under the new Scottish rates; and, on the other hand, interest and dividend payments which will be taxed according to the prevailing UK rates and bands.

Following the Scottish 2016 Budget, it seems that the rates and bands for Scottish tax payers' NS/ND income will remain broadly equivalent to those in the rest of the UK. The only current difference is that for Scottish taxpayers, the higher rate of 40% will kick in at £43,000 following a budget deal with the Scottish Greens. The Scottish Government has also distanced itself from proposals by Westminster to increase the higher rate threshold to £50,000. Instead, any future rises in the Scottish higher rate threshold would be pegged to CPI figures. This means that Scots earning over £43,000 will potentially pay (at most) £800 more in income tax per year than their counterparts in the rest of the UK.

UK Income Tax - Rates and Thresholds from 5 April 2017

Scotland - NS/ND incomeroUK NS/ND / All UK savings & dividends
Personal allowance / dividend allowanceup to £11,500 / dividend allowance of £5,000up to £11,500 / dividend allowance of £5,000
Basic rate (20% / 7.5% for dividends)between £11,500 to £43,000between £11,500 to £45,000
Higher rate (40% / 32.5% for dividends)between £43,000 to £150,000between £45,000 to £150,000
Additional rate (45% / 38.1% for dividends)above £150,000above £150,000

The UK Government has a stated objective to raise the personal allowance to £12,500, and the higher rate threshold to £50,000, by the end of this parliamentary term in 2020. The Scottish Government, by contrast, has stated that it intends to effectively raise this to £12,750 over the same period _ presumably by introducing a small nil-rate band.

It is also worth noting that both the £100,000 threshold at which taxpayers begin to lose their personal allowance and the additional rate threshold of £150,000 remain unchanged and this has been so since 2010 _ a good example of fiscal drag where the possibility of raising the main rates has been removed.

National Insurance upper earnings and upper profits limits will increase to stay in line with the higher rate threshold in 2017-18. This is of course the UK threshold, not the frozen threshold applicable to Scottish taxpayers.

The employer's Employment Allowance (a rebate from employers' NIC contributions) having increased substantially from £2,000 to £3,000 in April 2016 is frozen at that level for 2017-18.

The self-employed, working through intermediaries and disguised remuneration

"People doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax"

The announcement of increases in Class 4 NICs is the single item in the Budget that appears to have caused the greatest fuss. The change is not immediate — the main rate of Class 4 contributions rises from 9% to 10% from 6 April 2018; and to 11% from 6 April 2019. The first rise will coincide with the already announced abolition of Class 2 contributions. Despite accusations to the contrary, this may (just) escape contradicting the Conservative Party manifesto on a technicality, in relation to rate increases. Parental benefits for the self-employed have been mentioned as a sweetener in return, and this will be consulted on this summer.

The UK Government confirmed that there will be legislation to impose a burden on public authorities to collect tax and NIC (and make them liable for employers' NICs), in certain circumstances where individuals provide services to the public authority through an intermediary, such as a personal service company, and the individual would be an employee if engaged directly. The public authority, rather than the intermediary, will be responsible for determining whether the so-called IR35 rules apply on a contract by contract basis, and if they do, the public authority will have to calculate the tax and NICs and deduct them from payments to the intermediary. .

It therefore did not come as a big surprise that the Chancellor is turning his attention to the wider, and perceived uneven, playing field. Entrepreneurs, who form a growing area of commerce, are not, it appears from the Twitter-sphere, impressed. Attention is drawn to the (admittedly non-tax) practicalities of self-employment: for example, cover if the individual is ill; time off following the birth or adoption of a child; reward as a return on the risk of self-employment; and holiday pay.

Matthew Taylor is due to report in the summer regarding the "implications of the different employment practices" and has already warned that tax is a "key driver" on the structures adopted by individuals providing services. The example of the differing amount of tax paid given by the Chancellor was stark but rather fails to acknowledge how the income is generated.

Disguised remuneration is to be further attacked by a new charge on disguised remuneration loans — one source of the Rangers "Big Tax Case". Further changes are expected after consultation; and new rules will be introduced to extend the loan charge to the self-employed.

While not relating directly to the self-employed, the reduction in the dividend allowance from £5,000 to £2,000 is also intended to level the tax playing field, this time between those operating as self-employed and those operating through companies (see "Savings and Investment" below).

Other income tax matters

Benefits in kind

It is possible for employees to make a payment in return for benefits in kind that they receive, which can reduce the taxable value of the benefit to as little as zero. The date by which this has to be done is to be fixed at 6 July after the end of the tax year, with effect from 2017-18.

On employee accommodation, which has been under review for several years, a further consultation paper will be launched to include proposals to bring the tax treatment up to date, including exemptions from charge and transitional provisions.

There will also be a more general call for evidence on benefits in kind, in an attempt to ensure more consistency and fairness.

Employee expenses

A call for evidence is to be launched into the use of income tax relief for employee expenses, including those not reimbursed by an employer.

Salary sacrifice

It was confirmed that the tax and employer National Insurance advantages of salary sacrifice schemes will be ended with effect from 2017-18. Any scheme in place before 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

Employees in arrangements relating to pensions (including advice), childcare, cycle to work and ultra-low emission cars will escape the change and continue to benefit from the tax advantages under the current system.

National insurance

National Insurance upper earnings and upper profits limits will increase to stay in line with the higher rate threshold in 2017-18. This is, of course, the UK threshold, not the frozen threshold applicable to Scottish taxpayers.

The employer's Employment Allowance (a rebate from employers' NIC contributions) having increased substantially from £2,000 to £3,000 in April 2016 is frozen at that level for 2017-18.

Proposals to withdraw this allowance from employers who receive a civil penalty in relation to illegal workers are not being taken forward.

Termination payments

The Government will press ahead with changes to the taxation of termination payments from 6 April 2018. These changes include making any Payments in Lieu of Notice (PILONs) fully taxable and subject to National Insurance contributions (NICs), irrespective of whether or not they are contractual. If notice is not worked, employers will be required to tax the equivalent of the employee's basic pay. Qualifying termination payments will still benefit from the £30,000 tax and NIC exemption, but the excess over the £30,000 will be subject to income tax and employers' NICs.

Partnership taxation

A response document and draft legislation is awaited in response to substantial consultations on the possible reform of partnership taxation.

£1,000 trading income allowance

It was confirmed that as from 5 April 2017 there will be a new £1,000 allowance for trading income. Individuals trading turnover below £1,000 will no longer need to declare or pay tax on that income. A similar allowance will apply for property income _ see below. Those with income above that will have a choice to:

  • calculate their taxable profit in the normal way by deducting their expenses; or
  • deduct the £1,000 allowance from their gross income.

Following publication of draft legislation, amendments will be made to prevent this allowance applying to income of a participator in a connected close company; or to any income of a partner from a partnership.


A welcome announcement from the last Autumn Statement was confirmed, in that legislation will be included in the Finance Act 2017 to change the rules on part surrenders and part assignations of life assurance policies, to allow the gains made and taxed to be re-calculated on a just and reasonable basis.

The money purchase annual allowance is to be reduced to £4,000 from 2017-18. This affects the amount of tax relief that individuals can get for contributions to a money-purchase scheme, after they have accessed their pension savings.

Legislation will be included in the Finance Act 2017 to bring the treatment of foreign pension schemes into line with domestic ones.

An important new announcement was made in relation to the tax treatment of Qualifying Recognised Overseas Pension Schemes (QROPS). There will, with some exceptions and the possibility of a re-assessment within five years, be a 25% charge on transfers to such schemes. Furthermore, UK tax rules will be applied to payments from funds that have had UK tax relief and are transferred to such schemes, for five years following the transfer.


After the surprising reduction in CGT rates last year, there were virtually no changes in this tax this time round. The low level of inflation meant that there was no rise in the annual exempt amount in 2016-17; for 2017-18 it rises by £200 to £11,300 for individuals.


The tax-free allowance for dividend income, having just been introduced for 2016-17 at a level of £5,000, is being almost immediately reduced to £2,000 from 2018-19. When the allowance was introduced as part of a complete reform of dividend taxation (including abolition of the dividend tax credit and a series of new rates specifically for dividends), much was made of the removal of complication and something of the elimination of double taxation _ first at the company level and then in relation to dividends. The justification given for the reduction now is to reduce differentials between those operating as self-employed and those operating through companies. It is also admitted to be a revenue raising measure _ the number of individuals affected by a £2,000 tax-free limit will be very much greater than those affected by the former level, although the estimate is still that 80% of "general investors" will not pay dividend tax. In fact, the tax receipts from this change are predicted to be in excess of £800 million a year _ by far the largest revenue raiser in the entire Budget.

The substantial increase in the basic ISA limit to £20,000 from 2017-18 was confirmed.

Details of the 'Lifetime ISA' for adults under the age of 40, which will be available from April 2017, were confirmed. The contribution limit will be set at £4,000 per year, with a 25% bonus from Government funds , including the government bonus from the Lifetime ISA, can be used to buy a first home at any time from 12 months after the account opening, or be withdrawn (thus as a quasi-pension) from age 60.

The new NS&I Investment Bond was confirmed to be available for 12 months from April 2017, with a rate of 2.2% (taxable) for a term of three years. The maximum investment limit is £3,000.

EIS, Seed EIS and VCT Changes

Minor changes confirm announcements made in the Autumn Statement. Relaxations are made in the rules on share conversions; additional flexibility will be given for certain follow-on investments by Venture Capital Trusts (VCTs), to align with Enterprise Investment Scheme (EIS) provisions; and there will be regulations on certain share for share exchanges within VCTs.


In a reform that has been brewing for some years, non-UK domiciled individuals will be deemed to be domiciled in the UK for tax purposes where they have been UK tax resident for 15 of the 20 years preceding a relevant event. In addition, those with a UK domicile of origin but with a different domicile of choice will be deemed UK domiciled when they are UK tax resident. But such deemed UK domiciles will still be able to set up a non-UK-resident trust, and income retained within that trust will not be taxed on the individual.

Furthermore, from April 2017, IHT will be charged on all UK residential property, even when held indirectly by a non-UK-domicile through a non-UK structure. Interests in non-UK companies holding residential property are to be disregarded if they are below 5%, rather than the previously proposed level of 10%.

There will be rules allowing funds to be segregated to clarify how remittances to the UK will be subject to income tax or capital gains tax.


Confirming an announcement from the 2016 Budget and following a consultation on which we have previously reported, a new tax relief will be introduced for museums and galleries which develop new exhibitions. The rate of relief is to be 25% for touring exhibitions and 20% for non-touring exhibitions, on maximum qualifying expenditure of £500,000. This will now include exhibitions that include a live performance. This follows in the footsteps, conceptually and procedurally, of other recently introduced and valuable cultural tax reliefs, Theatre Tax Relief and Orchestra Tax Relief.

The circumstances in which companies can get a 100% deduction for contributions to grassroots sport are to be expanded to include the 100% subsidiaries of governing bodies.


Reduced rate of corporation tax

The first stage of phased reductions in the corporation tax rate comes into effect from 1 April 2017, when the rate is reduced to 19%. There is a further planned reduction, to 17%, from 1 April 2020.

For Northern Ireland, minor amendments are made to the scheme, potentially allowing further reductions to the rate.

Substantial Shareholdings Exemption

Simplifications and improvements are to be made to the Substantial Shareholdings Exemption (SSE), which allows the shares in trading subsidiaries to be sold tax-free. The investing company requirement is to be amended, so that SSE may be available where the selling company is not a trading company. SSE is also to be extended to qualifying institutional investors. This will make the relief much more valuable to a range of different shareholders.

The use of losses

From 1 April 2017, the amount of profit that can be offset through losses carried forward will be limited to 50%. However, this restriction will only apply to profits in excess of £5 million. Companies will be given more flexibility in the manner in which they can use losses carried forward.

Ina measure taking effect from Budget day (8 March), the ability of businesses with loss-making capital assets to convert those losses to trading losses will be prevented.

Corporate interest expense

After extensive consultation, restrictions are to be introduced on the amount of interest that can be deducted for tax purposes. Within complex rules, the restriction will be to 30% of earnings before interest, tax, depreciation and amortisation. Amendments have been made to the draft legislation following consultation.

Patent box

Amendments are made to the patent box rules, covering cost-sharing arrangements by companies undertaking R&D, and ensuring that companies entering into such arrangements are neither penalised nor privileged.

R & D Tax Review

There will be changes made to the administration of R&D tax credits, to increase certainty and simplicity.

Hybrid rules

Hybrid instruments include types of funding instruments that are taxed differently in different jurisdictions, for example by being treated as debt in one country and as equity in another. Hybrid entities are treated differently in different jurisdictions, i.e. as tax transparent in one jurisdiction and opaque in another jurisdiction. Minor changes are to be made to the anti-avoidance rules for such instruments and entities.

Non-resident companies

The Government intends to consult on the option of bringing non-resident companies, currently liable to income tax on UK income and capital gains tax on certain gains, into the corporation tax regime. This would make such companies subject to the general rules for that tax, including various recent restrictions on the use of losses and interest.


Registration and deregistration thresholds

These are increased in the normal way _ to £85,000 for registration and to £83,000 for deregistration.


A specific penalty is to be introduced for participating in VAT fraud.

A consultation is to be launched on supply chain fraud in the provision of labour in the construction industry.

Representatives for overseas businesses, online marketplaces and overseas matters

A call for evidence on this important subject will be launched on 20 March 2017. Alternative methods of collecting VAT are being considered.

There is to be an extension of VAT charged on certain mobile phone charges for use outwith the EU.


£1,000 allowance

As with trading income (see above), from 5 April 2017 there will be a new £1,000 allowance for property income. Individuals with property rents below £1,000 will no longer need to declare or pay tax on that income. Those with income above that will have a choice to:

  • calculate their taxable profit in the normal way by deducting their expenses; or
  • deduct the relevant £1,000 allowance from the gross income.

Offshore property developers

Recent legislation in the Finance Act 2016 will be amended to ensure that all profits from trading in and developing land in the UK will be taxed. The legislation was intended to prevent avoidance where there was, or was alleged to be, no permanent establishment in the UK. Most aggressively, a transitional rule, which allowed that sales of land under contracts entered in to before 5 July 2016 would be exempt from the new rules, has been removed with immediate effect. As such, any profits from trading and developing land will be subject to the new rules from today, irrespective of the date of the sale contract.

Rent a room relief

After a long time at a fixed amount, this relief was substantially extended last year. There is to be a consultation on proposals to ensure that it is targeted to support longer-term lettings _ which seems likely to exclude those offering Airbnb and similar short-term lettings.


In a minor act of mercy, the deadline for submitting SDLT returns will be retained at 30 days for another year. The planned reduction in the deadline to 14 days will now take effect from April 2018.

At the more esoteric end of the land taxes spectrum, a minor change to the annual tax on enveloped dwellings (or ATED, the much maligned relative of stamp duty land tax) capital gains tax rules is also introduced with immediate effect. This change removes the ability of taxpayers with dwellings held in corporate structures to elect how their gains are taxed, adding yet another layer of complexity to the considerations around extracting (or "de-enveloping") property from such structures. The change may be especially relevant to those using offshore holding companies to hold UK dwellings.


A discussion paper is to be published on 20 March 2017 on a competitive tax regime in relation to late life oil and gas assets. A new advisory panel is also to be established to consider the issues, including on decommissioning.

Regulations will be laid to extend the scope of certain investment allowances. There will be some administrative relaxations in relation to opting fields out of Petroleum Revenue tax; and in relation to reporting requirements for that tax.


This (the "sugar tax") was confirmed, with details of rates, although the revenue expected has been downgraded. It is also expected that producers will be able to minimise their charges by altering the recipe of their products fairly readily.


Fuel duty was frozen for another year.

Tobacco duty was previously scheduled to rise by 2% above inflation and this will continue.

Beer, cider and wine and spirits duty are to rise in line with the Retail Price Index (RPI).

The Climate Change Levy is to be increased in line with the RPI, with above-inflation increases scheduled for 2019-20.


Air passenger duty (which is another tax due to be devolved to, and on current plans reduced by, the Scottish Government) is, in the meantime, to increase in line with the RPI.


There will be a significant increase in the standard tax rate of 2% from June 2017.


Rates are to be increased in line with the RPI.


In a change with immediate effect, rules will be introduced to ensure that promoters of tax avoidance schemes are not able to circumvent the relevant rules by disguising control of their businesses.

Furthermore, new penalties will be introduced for “enablers” of tax avoidance schemes that are later defeated by HMRC in the courts. The rules on how enablers will be considered by the General Anti Abuse Rule Panel will also be clarified; and legislation will also attempt to make it clearer as to when taxpayers have taken “reasonable care” in defeated tax avoidance cases.

There will be a strengthening of the requirements to correct previous non-compliance in relation to offshore interests.

There has been a further announcement on the hidden economy, including developing the idea of making access to certain licences and services conditional on tax registration. But further and harsher penalties are also under consideration.

Legislation will be introduced in the Finance Bill 2017 to strengthen the regime for the disclosure of indirect tax avoidance. This will make promoters responsible and extend the regime to all indirect taxes.


Various simplifications are to be made to the regime for “making tax digital”; and to facilitate its introduction. Notably, it is to be made easier for businesses, including property businesses, to operate on a cash basis. More generally, the introduction of the new digital regime for businesses below the VAT registration threshold has been deferred until April 2019.

Ominously, there is to be consultation on late submission penalties and penalty interest on late payments in relation to the new digital regime.


Alan Barr


Isobel d'Inverno

Director of Corporate Tax