Autumn Budget 2018 - An End to Austerity?
Our Tax specialists have prepared an in-depth analysis following the Autumn Budget, as delivered by Philip Hammond this afternoon, promising that,
“… (the) era of austerity is finally coming to an end".
As the Chancellor, the Government and the economy all plan for Brexit in March, the 2018 growth forecast was upgraded from 1.3% to 1.6% and the Budget deficit forecast for the 2018/19 fiscal year was cut to £25.5bn from £37.1bn previously forecast.
The acceleration, to April 2019, of the £12,500 Personal Allowance and increase in the higher rate threshold to £50,000, will steal the income tax saving headlines, perhaps with the new tax on the manufacture and importation of plastic packaging with less than 30% of recycled material.
Changes to Entrepreneurs’ Relief for Capital Gains Tax (CGT), including amendments to the definition of ‘Personal Company’ (which are effective today) and an increase in the minimum qualifying period may affect those selling their businesses, and further restrictions to main residence relief may mean that more CGT is paid on the sale of some residential properties.
The Chancellor also announced that the intended changes to the IR35 rules for off-payroll workers in the private sector will be introduced from April 2020, with small organisations being exempt.
All this and more, and there’s still the promise/threat from the Chancellor that the 2019 Spring Statement may be upgraded to a full Budget, if required. Let’s see what March and Brexit bring…
A summary of all key tax measures follows below. We look forward to receiving more detail on all measures announced and expect the Finance Bill to be published on 7 November 2018.
Income Tax and National Insurance
- Tax-free personal allowance will increase to £12,500, and the higher rate tax threshold will increase to £50,000, in April 2019.
- It will remain at the same level for 2020/21 and then increase in line with the Consumer Price Index (CPI).
- No changes to the National Insurance Rates.
Stamp Duty Land Tax
- First Time Buyer’s Relief in England and Northern Ireland will be extended so that all qualifying shared ownership purchasers can benefit, even if they have not elected to pay SDLT on the full purchase price of the property. This is backdated to include purchases since 22 November 2017.
Capital Gains Tax
- Entrepreneurs’ Relief: From 6 April 2019 the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months.
- Entrepreneurs’ Relief: Two new conditions have been added to the qualification of a shareholding as an individual’s ‘Personal Company’ for ER purposes. The new conditions require the individual to be beneficially entitled to at least 5% of the company’s distributable profits, and 5% of its assets available for distribution to equity holders in a winding up. This is an anti-avoidance rule designed to counter schemes where voting rights were held, but no real entitlement to economic benefits in the company.
- Principal Private Residence Relief: From April 2020 Lettings Relief for PPR properties will be restricted to circumstances where the owner is in shared occupation with the tenant.
- Principal Private Residence Relief: Also from April 2020, the final period exemption will be reduced from 18 months to nine months. The 36 months final period exemption will continue for disabled people or those in a care home.
- The annual exemption has been increased in line with CPI to £12,000 for individuals and personal representatives and £6,000 for trustees of settlements.
Pensions and Savings
- Lifetime allowance to increase in line with CPI to £1,055,000 for 2019/20.
- Adult ISA limits unchanged, Junior ISAs uprated in line with CPI to £4,368.
- The Government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
- The Annual Investment Allowance (AIA) is to be increased to £1m (from £200,000) for all qualifying investment in plant and machinery made on or after 1 January 2019 until 31 December 2020.
- A Structures and Buildings Allowance (SBA) is to be introduced for non-residential structures and buildings.
- SBA will be effective from 29 October 2018 and will be based on the original costs of construction or renovation.
- SBA will be available on various assets including offices, retail and wholesale properties, hotels, nursing homes and factories.
- The SBA will provide a 2% straight line capital allowance.
- The rate of writing down allowance (WDA) for special rate qualifying plant and machinery (long life assets and integral features) will reduce from 8% to 6% with effect from 1 April 2019.
- Enhanced Capital Allowances (ECAs) and first year tax credits for technologies on the Energy Technology and Water Technology list are to be withdrawn from April 2020.
- A targeted relief for the cost of goodwill attaching to businesses acquired with eligible intellectual property is to be consulted upon.
- The relief is subject to a short consultation and is to be introduced with effect from April 2019.
- The de-grouping charge applicable to a sale of intangible assets is to be aligned with that for corporation tax on chargeable gains. The change will take effect from 7 November 2018.
Research and Development
- The payable R&D credit in any tax year is to be restricted to three times the company’s total PAYE and NIC liabilities.
- The restriction, which is subject to further consultation, is to be introduced from 1 April 2020.
- The utilisation of brought forward capital losses is to be aligned with that of income losses for large groups and companies.
- The utilisation of brought forward capital losses is to be restricted to 50% of the available loss subject to the unrestricted use of up to £5m of capital or income losses each year.
- The restriction is to be introduced from 1 April 2020.
- The off-payroll rules (IR35) as they apply to public sector bodies are to be extended to the private sector.
Accordingly responsibility for operating the rules will fall to the businesses, agencies or other third parties engaging the worker.
The changes, to be introduced from April 2020, will exclude small businesses.
- The Employment Allowance (which provides a £3,000 relief from the employer’s NIC bill) is to be restricted to employers with an NIC bill below £100,000 in their previous tax year.
The restriction will have effect from 5 April 2020.
- Business rates are to be reduced by one third for retail properties with a rateable value below £51,000.
- The reduction will apply for two years commencing April 2019.
- The Government is to consult on criteria under which self-catering and holiday lets become chargeable to business rates (rather than Council Tax).
Digital Services Tax
- A Digital Services Tax (DST) is to be introduced subject to consultation on the detailed design.
- The DST will be introduced from April 2020 in the absence of and until an appropriate international tax framework is developed by the G20 and OECD.
- DST will apply a 2% tax on revenues generated from businesses providing search engines, social media platforms and online market places.
- DST will only apply to groups that have in scope revenues of £500m and above per annum and will be subject to a £25m allowance for those activities linked to the participation of the UK users.
- HMRC is to be a preferred creditor in insolvencies in respect to taxes where the insolvent business acts as collector, that is, in respect to VAT, PAYE income tax, employee NICs and construction industry deductions.
- Directors and others involved in tax avoidance, evasion or 'phoenixism' are to be made jointly and severally liable for company tax liabilities where there is a risk that the company may deliberately enter insolvency.
The measure will tax effect from royal assent of Finance Bill 2019/20.
- The government is to consult on aligning the consideration rules for stamp duty and stamp duty reserve tax and will also introduce a general market value rule for transfers between connected persons.
Registration and deregistration
- The VAT registration and deregistration limits will remain frozen for 2 years at £85,000 and £83,000 respectively. The Government may look at introducing changes to the limit when the impact of Brexit is known.
Amendment to anti-avoidance provision
- The anti-avoidance measure which applies to recipients of reverse charge supplies will be amended so that HMRC can prevent it from applying where it is not intended to apply.
VAT on vouchers
- As previously announced, the EU Vouchers Directive comes into effect on 1 January 2020. This will mean that there is no longer a separate supply of a voucher, only the underlying goods or services for which a voucher can be redeemed.
- An anti-avoidance provision is being introduced in respect of specified supplies in insurance. Supplies falling within the Specified Supplies Order are eligible for input VAT recovery. Some insurance intermediaries have been using the Order to artificially make themselves eligible for input VAT recovery by routing supplies outside the EU, before re-importing them. The measure will prevent this.
VAT on unfulfilled supplies
- With effect from March 2019 VAT will become due on all prepayments where a customer has failed to collect what they paid for and has not received a refund.
- The rules regarding retrospective reductions in prices will be amended so that businesses will have to adjust their VAT returns within set time limits and send a credit note to their customers.