The briefest of Acts

The Finance Act rushed in before Parliament dissolved ready for the snap election was very, very short.

It had the bare minimum of information needed to keep tax running. By law, if Parliament closes with no Finance Act in place, all power to tax is lost.

There was nothing on Making Tax Digital. Many other pre-announced changes, eg to non-domicile status, were also omitted.

This does not mean that MTD is being abandoned! It may mean that the start dates are pushed back again. It also gives a welcome opportunity for further consideration of responses to consultation.

Over summer there is likely to be a Finance Bill, probably soon after the election, whatever the outcome. I would expect this to include much of what was omitted from the current FA, with the benefit of longer for drafting.

NICs again

The rise in national insurance contributions for the self employed has been abandoned. I don’t find sudden u-turns impressive, as anything this swift suggests more consultation was needed before deciding on the now-scrapped increase. However, this is good news for many of my self-employed clients who would have been hit by this measure.

Class 2 NI is continuing to cause issues – clients are receiving recalculated tax with these left out when they were in fact due. If you receive any recalculation or any letter asking for a payment of Class 2, please let me know.

2017 Budgets

The first of two budgets for this year.

The timetable shifts after this to autumn budgets. This is potentially useful, as future changes to tax will be announced earlier giving more time for planning and preparation. With the uncertainty that EU negotiations will bring later this year, it also gives the chance to respond quickly without being seen to declare an emergency budget.

Key points most likely to affect my clients are summarised here in the BUDGET NEWS page, and please see the link on the right under TAX LINKS to allowances and rates. A key development is rises in national insurance rates for the self employed (which at the time of writing have not yet been updated on HMRC’s website). There was a ‘tax lock’ which was supposed to guarantee no rises of this sort, however this lock would appear to have been picked.

Please look out also for details on Making Tax Digital. This is the new reporting system set to replace the current tax returns. Instead, five submissions a year – four quarterly ‘updates’ plus an annual adjustment – will go to HMRC. Coming for all businesses and landlords: from April 2018 for those above the VAT threshold, April 2019 for other businesses.

Flat rate VAT complications

Many VAT-registered businesses use the flat rate option. It saves time, means less record keeping is needed, and can bring cashflow and overall financial savings.

HMRC have brought in restrictions which make using the flat rate more complicated and generally less favourable for many from April 2017. Where businesses spend less than a certain amount per quarter on particular goods, they will be classed as ‘limited cost traders’, which means that their flat rate for that quarter rises to 16.5%.

Staying in the scheme will therefore involve more record keeping and extra calculations to determine the rate, and becomes financially less attractive to many, especially those who are service providers and whose expenses tend to be on services rather than goods. There will still be advantages for some: anyone in the flat rate scheme should consider during March 2017 whether or not to notify HMRC that they wish to leave it, and prepare VAT returns on the conventional basis, and keep the records needed accordingly.

Second class service

Class 2 self-employed National Insurance contributions are now collected through self assessment, and next year will be abolished.

Unfortunately they are not going quietly! There have been several issues with collection. These include:

  • Recalculation and refunds by HMRC of Class 2 payments which are actually due for payment
  • Taxpayers showing as no longer registered for Class 2 when they should be
  • Information entered on self assessment returns not feeding through to National Insurance records
  • Taxpayers working as self employed overseas using an A1 certificate to excuse them having to pay contributions elsewhere may have to pay their Class 2 in two parts: some direct to the NI section of HMRC (invoiced by post) and the rest via self assessment

Rather a mess. I have been dealing with any issues for clients as they come up. Any clients receiving a letter regarding Class 2, or particularly in invoice, should please let me know. Only one more year’s Class 2 to deal with.


Whatever other reactions there have been, the referendum result has sparked a great deal of uncertainty.

In terms of any impact on tax, I shall watch for developments and communicate points most likely to affect my clients.

Just before the referendum, George Osborne warned that leaving would necessitate considerable tax rises. There is a possibility of a post-referendum budget (which was always possible, whatever the result). However we are still waiting to hear anything from a chancellor following the referendum. My impression is that the powers that (for now) be gave far more attention to preparing for a ‘remain’ result than to contingency planning in case of a ‘leave’ outcome.

A reminder amid everything else happening that the rules for the 5 April 2016 tax return, due to reach HMRC between now and 31 January 2017, are already set. A change to current rules (to affect the following return, for the tax year we are now in) is very unusual, though not unheard of.

Business, as far as possible, as usual for now, as we wait for further developments.