The Budget announced increases to the personal allowance and higher rate threshold. The Government will also reform the penalty system for late or missing tax returns and will close the certificate of tax deposit scheme for new certificates.
A call for evidence is to be published in December 2017 to establish how rent-a-room relief is used and to ensure it is targeted at longer-term lettings.
The ‘rent-a-room’ scheme allows owner occupiers and tenants to receive tax-free rental income if they provide furnished accommodation in their only or main home.
The annual rent-a-room limit for 2017/2018 is £7,500 which reduces to £3,750 if the property is jointly owned. The relief is automatic for those with income below the limit. Those above can either claim the allowance or claim the expenses incurred in the letting business.
The Government announced at the Spring Budget 2017 that it will consider whether the scheme in its existing form meets the scheme aim, which the Government has stated is relief for income from longer-term lettings.
"As we mentioned at the Spring Budget, it remains unclear what the Government has in mind and what aspects of the relief it feels may not be fit for purpose. Expectations remain that the target may be short-term letting via digital platforms - a growing sector. However, the concern remains that this will simply increase the administrative burden on these landlords for a relatively small increase in the tax yield."
The Government will extend the option to use mileage rates to landlords
Until 2013, HMRC operated a concession, which allowed landlords of unincorporated property businesses to deduct fixed mileage rates when calculating their rental profits. Since this concession was withdrawn, landlords were required to deduct actual motoring expenses incurred for the purpose of the business and claim capital allowances for the cost of the vehicle.
As part of the 2016 consultation on this sector of the rental market, the point was made that the reintroduction of fixed mileage rates would simplify the tax compliance process for landlords.
The Government has agreed with the option now available to landlords from 6 April 2017.
"This is a welcome simplification, which further aligns taxation for landlords with other unincorporated traders who are already able to claim fixed mileage rates. While the tax difference is expected to be negligible in most cases, the reduction in the administrative burden will be gratefully received."
The Government will legislate to simplify the gift aid donor benefit rules for charities, with effect from 6 April 2019.Charities have to consider monetary and percentage thresholds when determining the value of the benefit they can give their donors for a donation on which gift aid tax relief can be claimed.
In addition, the four existing extra statutory concessions will be made law.
The total value of any benefit that a donor can receive will remain at the current level of £2,500.
"Any simplification in the rules and administrative processes charities face is always a welcome change."
The personal allowance and higher rate threshold will increase from 6 April 2018, bringing them nearer to the levels promised in the 2015 Conservative manifesto.
The Government is maintaining its commitments to raise the income tax personal allowance to £12,500, and the 40% income tax threshold to £50,000, by 2020. Accordingly, the personal allowance for 2018/19 will increase to £11,850 (up from £11,500 in the current tax year) and the higher rate threshold will rise from £45,000 to £46,350. These changes are in line with the consumer prices index.
"These increases will be welcomed by many taxpayers.
"The Government’s analysis states that the combined effect of the increases to the personal allowance and higher rate threshold will mean that in 2018/19, a typical taxpayer will pay at least £1,075 less tax than in 2010/11.
"However, not all taxpayers benefit from the increases to the personal allowance. Many on low incomes will not fully benefit from the increase, where their income is less than the personal allowance, or where the increase in after tax pay results in a reduction in means tested benefits.
"In addition, those with incomes above £100,000 will generally continue to see the personal allowance restricted by £1 for every £2 of income above this threshold. This leads to an effective 60% marginal tax rate, subsequently dropping back to 40% (or 70% dropping back to 50% where they also lose some of their pension annual allowance).
"Fiscal drag, as a result of inflation and the £100,000 income limit not having changed since its introduction in 2010/11, will bring more people into this category."
Claims for marriage allowance will now be allowed in cases where a spouse or civil partner died before the claim was made and can also be backdated up to four years.
The marriage allowance took effect from 6 April 2015 and allows taxpayers to elect to transfer up to 10% of their tax-free personal allowance to their spouse or civil partner, provided the recipient of the transfer is not liable to income tax above the basic rate.
"While the announcement is clearly a positive change for those affected, the current benefit of the relief is small (the maximum benefit available for 2017/18 amounts to only £230) and will only benefit couples where one is a non-taxpayer and the other is a basic-rate taxpayer.
"The allowance must be claimed via a standalone online application, which may be the reason it has been largely ignored by the general public, with two million couples thought to have failed to claim the relief due to them. It is also the cause of a marginal tax rate of approximately 23,000% for an individual moving into the higher-rate band by £1."
The Government will consult in 2018 on methods of preventing tax avoidance by fragmenting UK trading income between unrelated entities.
The Government has raised concerns over the avoidance of UK tax by UK traders and professionals who fragment their UK income between unrelated entities including entities offshore; for example, by arranging for the payment of fees to an associated service provider not subject to UK tax. A consultation will be undertaken in 2018 on the best way to prevent this avoidance.
"Anti-fragmentation legislation already exists in relation to dealing in or developing land. As such, one would expect that similar rules will be introduced for all traders and professionals to combat this perceived avoidance.
Consideration will, however, need to be given to targeting these rules correctly to ensure that they do only affect those seeking to avoid tax through fragmenting income."
Under the current timetable, only VAT registered organisations with turnover over the VAT threshold will be mandated into MTD from April 2019. This will be to meet VAT obligations only, by keeping digital records and providing quarterly VAT updates to HMRC. Various exemptions will apply, such as to non-trading charities and those exempt from digital reporting due to infirmity, religion or lack of internet connection. An updated statement of impacts will be published on 1 December 2017.
"HMRC anticipates that most businesses will eventually be required to report digitally for all the main taxes. The technology is currently being developed, with uncertainty as to when the necessary software will become available, including that for VAT. It is not therefore yet clear when HMRC’s vision to expand MTD recording and reporting to other taxes will become a reality. It will not be before 2020, and HMRC has confirmed that the system will need to be shown to work before the scope of MTD is widened. It is estimated that the costs of delays will amount to £585m a year by 2022/23."
The Government will consult further on possible changes to the current system for late payment and late submisison of tax returns.
Final decisions will be made following the conclusion of the further consultation.
"The current regime across the many different taxes is complex but, while any simplification of the regime is to be welcomed, what affect this will have on different tax payers remains to be seen.
"A points-based approach is an interesting idea. As always with the penalty regime, however, safeguards and consistency in approach is key. The consultation process will be important in ensuring the fairness, simplicity and effectiveness that is required. It is surprising to note that HMRC and the Government favour a points based system, whereas a number of respondents to the penalties consultation earlier this year favoured a system of suspension, which would incentivise good compliance."
From 23 November 2017, taxpayers will no longer be able to acquire new certificates of tax deposit. Existing certificates will continue to be honoured for 6 years.
The certificate of tax deposit (CTD) scheme allowed individuals to deposit money with HMRC and use it later to pay certain tax liabilities. CTDs could also earn daily interest for up to 6 years.
The government has announced that no new CTDs can be purchased with effect from 23 November 2017. Existing CTDs will continue to be honoured for six years. Any certificates remaining after this date will be refunded, where possible.
"CTDs were often held against tax liabilities that were under investigation by HMRC. Holding the CTD stopped late payment interest accruing on the amount while it was under investigation but also allowed more flexibility on repayment than is often available under self-assessment.
"However, interest paid on CTDs had fallen to a relatively low rate and was only available on deposits above £100,000. Also, with accelerated payment notices now allowing HMRC to demand payment of tax in advance of conclusion of an enquiry in many circumstances, the usefulness of the CTD was declining.
"It is still somewhat disappointing to see this fall away completely, particularly given the flexibility a CTD could offer. For individuals subject to an investigation, a payment on account of the disputed liability via self-assessment now seems to be the only way to mitigate any late payment interest that may ultimately be due.
"Those holding CTDs should be aware of the deadline of 23 November 2023 by which time action will need to have been taken."
From 6 April 2019, HMRC plans to use new technology to collect self assessment debts in real-time by adjusting individuals' PAYE tax codes.
"This administrative change should help the Government in its goal to make it easier for them to recover outstanding self assessment debts. In practice, there are concerns over this change given the issues with HMRC’s existing real-time PAYE systems, which have resulted in some incorrect adjustments being issued to taxpayers, apparently resulting in excessive PAYE be collected by employers from their employees’ monthly salaries. As such, it will be important that appropriate safeguards are introduced as part of these plans."