This afternoon, the Chancellor Philip Hammond delivered his Autumn Budget speech, which from the outset focused on preparing the UK not only for the future with regards Brexit, but also the brave new technological world that will shape and change the lives of UK taxpayers and businesses. The information found within the Treasury’s budget report can be extensive and at times overwhelming. Tomorrow we will publish our official budget summary, but in the meantime we have consolidated the key announcements and changes that may affect your business and have provided our comments to help you understand them:-
Personal allowance and higher rate threshold
The government is committed to raising the PA to £12,500 and the HRT to £50,000 by 2020 – which will mean a increase PA of over 90% in the space of a decade. The Budget announces that in 2018-19 the PA and HRT will increase further, to £11,850 and £46,350 respectively. This will mean that in 2018-19 a typical taxpayer will pay at least £1,075 less tax than in 2010-11.
Our View: This is a bit of clever spin from the chancellor, comparing it to 8 years ago! As a taxpayer you will want to know how it affects you now. So here you are in clear and simple terms; for someone earning £46,350 now, they will save £340 in 2018/19 compared to 2017/18.
Off-payroll working in the private sector:
The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company. It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.
Our View: This issue has been on the government’s agenda for a number of years now and the revised legislation effective April 2017 is their latest attempt to force through their views on this, starting with the public sector. If this legislation is being as effective as they think (and it is a little too early to tell at present), then expect it to be rolled out to the private sector very soon, regardless of any “consultation”. It is therefore an area all privately-owned companies should continue to liaise with us about!
Benefits in kind: electric vehicles
From April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees’ electric vehicles.
Our View: This is seen a boost for the electric car industry and for many who have campaigned for cleaner energies. This will also be an incentive for companies and individuals to move to using electric vehicles.
Capital Gains Tax (CGT) payment window
The introduction of the 30-day payment window between a capital gain arising on a residential property and payment will be deferred until April 2020.
Our View: Currently, CGT on the sale of residential property is payable anywhere between 9 months and 21 months after the sale, depending on when exactly in a tax year the property was sold. If you are looking to sell and not pay the capital gains tax immediately, you have a stay of execution on this.
Research and Development
The UK has one of the most competitive tax regimes for business, with the lowest corporate tax rate in the G20. The Budget reaffirms the government’s commitment to low, stable taxes. It takes steps to support businesses to invest by increasing the R&D expenditure credit from 11% to 12%, while introducing measures that ensure businesses pay their fair share, including those seeking to evade or avoid tax using offshore structures.
Our View: This is great news for businesses investing in R & D and the increase in rate is very welcome for the large companies. The UK is a technology hub and breeding ground for technological innovation. We have been able to achieve amazing results in this incentive for our clients and are pleased that we can continue to do so over the coming year. It has enabled our clients to expand their workforce and invest further to set them apart from their industry competitors. The government has recognised the part that these businesses are playing in the GDP creation in the UK. If you want to find out if you qualify we are well placed to assess and advise in this regard.
In light of the recent rise in inflation, over the next 5 years the government will provide a further £2.3 billion of support to businesses and improve the fairness of the system in
- bringing forward to 1 April 2018 the planned switch in indexation from RPI to the main measure of inflation (currently CPI)
- legislating retrospectively to address the so-called “staircase tax”. Affected businesses will be able to ask the Valuation Office Agency (VOA) to recalculate valuations so that bills are based on previous practice backdated to April 2010 – including those who lost Small Business Rate Relief as a result of the Court judgement. The government will publish draft legislation shortly
- continuing the £1,000 business rate discount for public houses with a rateable value of up to £100,000, subject to state aid limits for businesses with multiple properties, for one year from 1 April 2018 increasing the frequency with which the VOA revalues non-domestic properties by moving to revaluations every three years following the next revaluation, currently due in 2022. To enable this, ratepayers will be required to provide regular information to the VOA on who is responsible for business rates and property characteristics including use and rent. The government will consult on the implementation of these changes in the Spring
Our View: This is a welcome change as CPI is normally lower than RPI, also there is a welcome discount for public houses. Overall this is seen as a positive move to help SM’s with business rates.
Withholding tax: royalties
With effect from April 2019, withholding tax obligations will be extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located.
Our View: This is a major change and will result in additional tax liabilities for entities receiving or paying such royalties. Those affected should seek advice on any potential mitigation / planning as soon as possible and at the very least look at the financial implications of the changes to the business structure.
Value Added Tax
Routes to Simplification, the government will consult on the design of the threshold, and in the meantime will maintain it at the current level of £85,000 for two years from April 2018.
Our View: Although the government are currently reviewing the VAT threshold level as it is one of the highest in Europe, many UK businesses will welcome the fact that the threshold will not be reduced for two years. This is seen as a positive move, as registering for businesses that deal directly with consumers who cannot reclaim back VAT automatically makes their supplies 20% more expensive.
Making Tax Digital (MTD)
As announced in July and legislated for in the Finance (No. 2) Act 2017, no business will be mandated to use MTD until April 2019. Only those with turnover above the VAT threshold will be mandated at that point, and then only for VAT obligations. The scope of MTD will not be widened before the system has been shown to work well, and not before April 2020 at the earliest.
Our View: This is as expected, many campaigned for the initial roll out of MTD to be pushed to 2019/2020 and the government listened. This will enable companies and taxpayers enough time to adapt their finance systems to meet the requirements of the biggest organisational change of a tax administration system in a generation.
Should you have any questions with regards to any of the points raised in this article, please speak to a member of our tax department.