October is a strange month. In the supermarket, Halloween costumes and Christmas decorations compete for our attention, making us choose between broomsticks and baubles, between horror and joy. The Chancellor faced a similar dilemma in the run-up to the Budget. Should he continue to chase a budget surplus, slashing tax reliefs and making deeper cuts to public spending; or should he signal an end to austerity, borrowing to fund gifts for the NHS and others?
Buoyed by improved fiscal forecasts, the Chancellor opted for mince pies over pumpkins; to use his own words, his speech was less ‘Hammo House of Horrors’ and more ‘Spreadsheet Phil turns Santa Claus’. Almost all of us made it onto the nice list in some way or another, thanks in large part to the Chancellor’s decision to accelerate increases in the income tax personal allowance and the higher rate threshold. However, the Budget was not short of shock; some may shiver at the changes to the IR35 rules for larger businesses, for example.
A summary of the main Budget announcements is provided below.
The outlook is much improved on the Spring Statement: borrowing for the year is £11.6bn lower than expected, coming in at 1.2% of GDP and it is set to fall to 0.8% of GDP by 2022-23; and national debt, which peaked at 85.2% of GDP in 2016-17, will fall to 83.7% this year and to 74.1% in 2023-24. Add to this the continued ‘jobs miracle’ – the OBR predicts 800,000 more jobs by 2023 and sustained real wage growth in each of the next five years – and you begin to understand why the government feels able to loosen the purse strings to such a significant extent.
Income tax and National Insurance (NI)
In the run-up to the Budget, there had been speculation that the Chancellor would abandon planned increases in the personal allowance and the higher rate threshold. Not so. Rather, the Chancellor has chosen to ‘double down’; the personal allowance will stand at £12,500, and the higher rate threshold at £50,000 one year ahead of schedule, from April 2019. See HERE for how this could affect you
There is little to report from an NI perspective, other than the reform of the £3,000 employment allowance. From April 2020, this will be restricted to employers with an employer NI bill below £100,000. This looks to be a smart move for the government; larger businesses are unlikely to Complain too loudly about losing £3,000 per year, and the government will save £1.3bn by 2023-24 as a result of the measure.
Probably best to get the bad news out of the way first.
As expected – some may say, feared – the government has confirmed that it will reform the off-payroll working rules (IR35) in the private sector, bringing businesses in line with public-sector organisations. See HERE for more detail.
This will be a hugely unpopular move in some quarters but if there is some good news, it’s that the changes will not take effect until April 2020. Further, the changes will not apply to smaller businesses. The government has pledged that HMRC will provide support and guidance to medium and large organisations ahead of implementation.
Another revenue-raiser for the government is the introduction of a new digital services tax (DST). From April 2020, the government will charge a 2% tax on the ‘global giants’ with regard to search engines, social media platforms and online marketplaces with UK users. The government will apply the DST until such time as a multinational solution to the digital services issue is in place.
Other changes include:
- a new tax on income from intangible property held in low-tax jurisdictions to the extent that it is referable to UK sales. You may remember this one as the Royalties Withholding Tax;
- a new restriction for brought forward capital losses similar to that applying for other types of losses (eg relief restricted to 50% of the gain; large businesses only);
- reducing the administrative burden on charities by, amongst other things, increasing the threshold for small trades;
- a tightening of the rules for entrepreneur’s relief. See HERE for more detail
- With immediate effect, shareholders must be entitled to at least 5% of the distributable profits and net assets of a company;
- and with effect from 6 April 2019, the minimum qualifying period will be extended from 12 months to 24 months;
- the return of a PAYE and NIC cap for the payable R&D tax credit for SMEs. To prevent abuse of the rules, the amount of the payable credit will be
- restricted to three times the company’s total PAYE and NIC liability for that year; and
- a reduction in the capital allowances special rate from 8% to 6% from April 2019.
That said, it’s not all bad news for businesses. Positive measures include:
- the temporary increase from 1 January 2019 of the annual investment allowance to £1 million;
- a new 2% capital allowance for new non-residential structures and buildings where contracts are entered into on or after 29 October 2018; and
- changes to the intangible fixed assets rules to give relief for goodwill on the acquisition of a business with eligible intellectual property from April 2019; and the reform of the de-grouping rules with effect from 7 November 2018 so that they more closely align with equivalent rules for other assets.
Importantly, the reduction in the rate of corporation tax to 17% from April 2020 remains on the statute book.
The Chancellor continues to follow some clear trends with regard to property taxes; there is support for payers of business rates, more help for first-time buyers and a further tightening of the rules for landlords.
The main winner under the business rates heading is the high street. From April 2019, the government will cut business rates bills by one-third for retail properties with a rateable value below £51,000, benefiting up to 90% of retail properties.
To prevent abuse of the business rates rules, the government will consult on the criteria under which self-catering, and holiday lets become chargeable to business rates rather than to council tax.
First-time buyers’ relief from Stamp Duty Land Tax (SDLT) will be extended and backdated to 22 November 2017 so that all qualifying shared ownership property purchasers can benefit from the relief. The government will consult on an SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
Pity the landlord.
Often the target of tax hikes, the landlord has been hit again, this time when they come to sell the property.
From April 2020, principal private residence relief lettings relief will be restricted so that it only applies where the landlord is in shared occupancy with the tenant. In a related move, the final period exemption will be reduced from 18 months to 9 months.
Capital Gains Tax
An increase in the personal allowance lever before CGT applies and some amendment to Private Residence Relief. See HERE for full details of the proposals
Pension and Savings
Some small tinkering with rates and an introduction to ban cold-calling to pensioners. See HERE for in-depth details of the changes
The government had been looking at options to reform the design of the VAT threshold. However, this will be put on the back-burner with the current VAT threshold of £85,000 to be maintained until April 2022. There was no mention of Making Tax Digital which will begin with VAT, from April next year.
Subject to consultation, from April 2022 the government will introduce a tax on the production and import of plastic packaging which does not contain at least 30% recycled plastic.
Avoidance and evasion
As for previous budgets, there is a raft of measures under this heading, some of which have an immediate effect.
A headline announcement is that HMRC will be made a preferred creditor in business insolvencies. The changes will apply from April 2020 with regard to taxes collected and held by businesses on behalf of other taxpayers (e.g. VAT, PAYE, employee NI contributions and construction industry scheme deductions).
In a related move, directors and others involved in tax avoidance, evasion or phoenix schemes will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.
Other changes include:
- aligning the consideration rules for Stamp Duty and Stamp Duty Reserve Tax and introducing a General market value rule for transfers between connected persons. A targeted market value rule will apply to prevent forestalling; and
- the publication by HMRC of revised VAT grouping guidance effective from April 2019. The guidance will amend the definition of ‘bought-in services’ to ensure that such services are subject to UK VAT and will provide clarity on HMRC’s protection of revenue powers and treatment of UK fixed establishments.
Not only did the Chancellor speak for longer than expected, he also hinted at a return to the spotlight in the near future. With Brexit negotiations stepping-up a gear, the Chancellor suggested that Spring Statement 2019 could be upgraded to a full fiscal event or in other words, another Budget. There may well be more to come.