Rebecca Cave reviews the proposed increases in fees, levies, rates and supplements.
Cast your mind back a year to the pre-election period when Conservative politicians were promising not to raise taxes. On winning the election they met that promise by legislating for a tax lock which froze the rates of income tax, VAT and class 1 NIC for the extent of this Parliament. Corporation tax rates are set to reduce to 18% by 2020.
If the main taxes can’t go up, what does a politician do? Raise money in other ways of course, and hope no one notices those sneaky new taxes. Here is the evidence.
Tax tribunal fees
The Ministry of Justice is advocating fees for taxpayers who challenge HMRC decisions at the tax tribunal. Currently the taxpayer pays no court fee to have their appeal heard.
The proposed fees will start at £50 to list a basic case, rising to £200 for complex cases. If the hearing goes ahead, the taxpayer will have to pay up to £1,000 and further fees in order to appeal to the Upper Tier Tribunal. These costs will only be refunded to the taxpayer in very exceptional circumstances; for example, where HMRC’s behaviour has been unreasonable.
In order to active a deceased person’s will, the executors of the estate need to apply for probate and pay a registration fee of £215. This fee currently applies where value of the estate is £5,000 or more. The Ministry of Justice wants to increase that fee threshold to £50,000, but also raise the minimum fee to £300. This may relieve 57% of estates from paying any probate fee at all, but larger estates will pay fees on a sliding scale of up to £20,000 for an estate valued at £2m or more.
The Government wants employers to fund more apprenticeships. The logical way to do this would be to increase employer’s class 1 NIC. However, the tax lock has blocked any increase in class 1 NIC.
Instead the required funds will be raised via the apprenticeship levy. This will apply from 6 April 2017 at the rate of 0.5% of employees’ wages, calculated in exactly the same way as employer’s class 1 NIC. The apprenticeship levy will be reported in a new box on the RTI returns and every employer will have a £15,000 allowance to set against the levy. The net effect is that only the largest employers will pay the apprenticeship levy, but every employer will have to calculate the levy and claim the allowance.
The self-employed will not pay the apprenticeship levy, but they may well pay increased rates of NIC from 6 April 2017, or whenever class 2 and class 4 are combined.
Stamp Duty Land Tax (SDLT) was not included within the tax lock, so the Government is free to raise the rates or reduce the thresholds. The new SDLT supplement does both of those things, by imposing a 3% charge on the entire purchase price of a second home, or on any residential property acquired by a company from 1 April 2016.
Second homes in Scotland will be subject to a similar land and buildings transaction tax (LBTT) supplement, also imposed at 3% on the entire purchase price from 1 April 2016. The exemptions from the LBTT supplement mimic those for the SDLT supplement. For instance, neither supplement will apply to properties worth less than £40,000.
Income tax rates were frozen by the tax lock, so the Chancellor can’t increase income tax on dividends. His solution was to invent a new tax: dividend tax, which operates like income tax, but only applies to dividends in excess of £5,000 per year.
Thus the UK tax system becomes encumbered by three more taxes, two more allowances, and two more sets of compulsory fees.
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.