|There was wide-ranging speculation in the run up to this year’s Budget, with experts predicting that, whilst Brexit and ending austerity would be the most prominent features, Chancellor Phillip Hammond would also take the opportunity to make changes in other areas such as pension contributions tax relief and the tax regime for digital-only businesses. As is usually the case, some of the predictions (in particular those relating to austerity, Brexit and digital-only businesses) proved to be correct, but it will be of great relief to many individuals that the Budget did not include proposals to change the current rules for pensions tax relief.
The Chancellor said that this Budget – the first Budget to take place on a Monday since 1962 – would be a ‘Budget for hard-working families….for strivers, grafters and carers’. He said that the last eight years had been ‘driven by necessity’, but public finances have now reached a defining moment where ‘austerity is coming to an end’. The economy has grown every year since 2010, and is projected to continue growing in each year of the current forecast. The unemployment rate is at its lowest for over 40 years, and the Office for Budget Responsibility (OBR) forecasts 800,000 more jobs by 2022.
Around 2.4 million people are expected to benefit from an increase in the National Living Wage from April 2019, when the rate for those aged 25 and over will rise from £7.83 per hour to £8.21 per hour. For a full-time worker, this increase represents a pay increase of £690 a year.
The Chancellor confirmed that the Government would meet its manifesto pledge of raising the personal tax allowance to £12,500 and the basic rate threshold to £50,000 within the current parliamentary term. These increases will take effect from April 2019 – a year earlier than originally planned – and will be maintained in 2020.
The Government is to allocate £1.7 billion to increase existing work allowances in Universal Credit (UC), which should mean that working parents and people with disabilities claiming UC will be £630 a year better off. People will also receive extra help as they move from their existing benefits to UC and there will be targeted support for people repaying debts.
Announcements affecting businesses include an increase in the Annual Investment Allowance (AIA) from £200,000 to £1 million for two years until January 2019. Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings from their profits before they pay tax.
For digital-only businesses, in line with the pre-Budget speculation, it was announced that from April 2020, large social media platforms, search engines and online marketplaces will pay a 2% tax on the revenues they earn which are linked to UK users. Full details of this new tax are to be unveiled in due course.
Following strong lobbying against a possible abolition of entrepreneurs’ relief, the Chancellor committed to retaining it for the present time. However, in a bid to support longer-term business investments, 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.
Many experts expected the Budget to include proposals for changes to the existing IR35 rules. The Chancellor announced that IR35 off-payroll working rules, which have already been introduced for the public sector, will be extended to the private sector. However, in response to representations made during the consultation earlier this year, implementation will be delayed until April 2020 and will only apply to large and medium sized businesses. Under the reforms, responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker. According to HMRC, small organisations will be exempt, minimising administrative burdens for the vast majority of engagers, and HMRC will provide support and guidance to medium and large organisations ahead of implementation.
The following paragraphs summarise the key tax points arising from the 2018 Autumn Budget based on the documents released on 29 October 2018. Please remember that these proposals are subject to amendment during the passage of the Finance Bill through Parliament. We will, of course, keep you informed of any significant developments.
|Personal allowance and income tax threshold
The personal allowance for 2019/20 is set at £12,500 (£11,850 in 2018/19), and the basic rate limit will be increased to £37,500 (£34,500 in 2018-19). As a result, the higher rate threshold will be £50,000 in 2019/20. The additional rate threshold will remain at £150,000 in 2019/20. From 2021/22 onwards, the Personal Allowance and basic rate limit will be indexed with the Consumer Price Index (CPI). Changes to the basic rate limit, and higher rate threshold, will apply to non-savings, non-dividend income in England, Wales and Northern Ireland, and to savings and dividend income in the UK.The marriage allowance will rise from £1,190 in 2018/19 to £1,250 in 2019/20.Blind person’s allowance will rise from £2,390 in 2018/19 to £2,450 in 2019/20.Savings allowance and rate
The 0% band for the starting rate for savings income will be retained at its current level of £5,000 for 2019/20 and will not be uprated in line with inflation.For 2019/20, the personal savings allowance will remain at £1,000 for basic rate taxpayers and £500 for higher rate tax payers.
Individual Savings Account (ISA) and Child Trust Funds annual subscription limits
Van benefit charge and fuel benefit charges for cars and vans from 6 April 2019
Legislating the existing tax treatment of expenses for unpaid officeholders
Increasing compliance with the off-payroll working rules in the private sector (“IR35”)
The reform will bring the private sector in line with the public sector, where evidence suggests compliance has improved since the reform was introduced in 2017. HMRC estimate the reform has raised £550 million in income tax and NICs in its first year.
Pensions lifetime allowance uplift
Gift Aid Small Donations Scheme
Private Residence Relief: changes to ancillary reliefs
From April 2020 the relief will change and only be available to those who are in shared occupancy with a tenant. This change will not affect owner-occupiers or landlords who have never lived in the property they are renting out.
Final period exemption
Capital gains tax: annual exempt amount
Taxing gains made by non-residents on UK immovable property
The changes will have effect for disposals made on or after 6 April 2019, subject to the anti-forestalling rule detailed in a Technical Note published at Autumn Budget 2017.
Entrepreneurs’ relief: definition of a ‘personal company’
– 5% of the company’s distributable profits
The new tests will have effect for disposals on or after 29 October 2019.
Entrepreneurs’ Relief: minimum qualifying period extension
IHT: changes to Residence Nil Rate Band
|Temporary increase in the AIA
Legislation will be introduced in Finance Bill 2018/19 to temporarily increase the annual investment allowance (AIA) limit to £1,000,000 from 1 January 2019 for two years.Transitional rules will apply where a business has a chargeable period that spans either of:- the operative date of the increase to £1,000,000 on 1 January 2019, or
– the operative date of the reversion to £200,000 on 1 January 2021.Capital allowances for structures and buildings
The government will introduce a new Structures and Buildings Allowance (SBA) for new non-residential structures and buildings. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of two percent on a straight-line basis.Businesses that incur qualifying capital expenditure on structures or buildings used for qualifying activities will be able to claim the SBA over a 50 year period to encourage investment in the construction of new structures and buildings and the improvement of existing ones. The SBA will be allowed as a deduction from profits at an annual rate of two percent. The relief will be available to businesses that chargeable to income tax and companies chargeable to corporation tax.
The 2% writing down allowance will be at a flat rate, calculated on the amount of original construction expenditure. There will not be a system of balancing charges or balancing allowances on a subsequent disposal of the asset. Instead, a purchaser will continue to claim the annual allowance of two percent of the original cost. This is intended to ensure that the cost of construction and renovation will be relieved over an average life of buildings. The amount eligible for relief will not be increased where a structure or building is purchased and where it has appreciated in value as this does not represent the cost of construction.
Relief will not be available for structures or buildings where a contract for the physical construction works is entered into before 29 October 2018. For speculative building and those structures or buildings constructed ‘in house’, relief will not be available where the construction activity began before 29 October 2018.
Anti-avoidance rules will apply to prevent manipulation of these rules.
Further details of the new relief can be found in HMRC’s technical note Capital allowances for structures and buildings
First-year allowance for electric charge-points
Capital allowances: clarification of allowances for costs of altering land
This change will have effect for claims on or after 29 October 2018.
Ending enhanced capital allowances for energy and water efficient plant and machinery
In addition, the first year allowance for products on the Energy Technology List (ETL) and Water Technology List (WTL), including the associated first year tax credit, are to end from April 2020 onwards. The first year allowance schemes currently allow 100% of the cost of an investment in qualifying plant and machinery to be written off against the taxable income of the period in which the investment is made, improving cash flow for businesses.
Capital Allowances: Reduction of rate of special writing down allowance
UK property income of non-UK resident companies
As part of these changes, a non-UK resident company:
– will not have a disposal event for capital allowances purposes (which could, for example, apply on transition to the new regime) and its income is neither taxed twice nor falls out of account – its expenses are relieved only once
There are also a number of transitional provisions so that a non-UK resident company:
– can carry forward any existing income tax losses to be offset only against future UK property business profits chargeable to corporation tax
Change to the definition of permanent establishment
Legislation has been included in Finance Bill 2018/19 to deny exemption from permanent establishment to a non-UK resident company for these activities if they are part of a fragmented business operation, for example if:
– that company, either alone or with related entities, whether foreign or UK, carries on a cohesive business operation, either at the same place, or at different places in the UK
This change will have effect for companies from 1 January 2019. Where an accounting period straddles that date the provision applies to that part of the company’s accounting period that falls after that date.
Corporate capital loss restriction
Preventing abuse of the R £ D tax relief for SMEs
Digital Services Tax
– apply to revenues generated from the provision of the following business activities: search engines, social media platforms and online marketplaces;
The government will consult on the detailed design of the Digital Services Tax and legislate in Finance Bill 2019/20.
Retail Gift Aid reducing the frequency of letters to donors
Increases to charities’ small trading exemption limits
– annual charity income under £32,000: maximum non-primary purpose trading is £8,000
|VAT: no change in registration and deregistration thresholds
The VAT registration and deregistration thresholds will remain unchanged for 2019/20.Therefore legislation will continue as follows:- the taxable turnover threshold that determines whether a person must be registered for VAT will remain at £85,000;
– the taxable turnover threshold that determines whether a person may apply for deregistration will remain at £83,000;
– the registration and deregistration threshold for relevant acquisitions from other EU Member States will also remain at £85,000.VAT: treatment of vouchers from 1 January 2019
The government will implement an EU Directive on the VAT treatment of vouchers in time for the required date of 1 January 2019. This will simplify the rules for the tax treatment of vouchers, especially where they can be used either in the UK or more widely in the EU. This will prevent either non-taxation or double taxation of goods or services which relate to vouchers.The legislation provides for the VAT treatment of vouchers issued on or after 1 January 2019. It affects only vouchers for which a payment has been made and which will be used to buy something. It does not apply to vouchers issued before 1 January 2019, for which existing rules will continue to apply.
Vouchers, in this context, are gift cards and gift tokens, with examples including simple book tokens, gift vouchers, and electronic vouchers purchased from specialist businesses. The changes do not apply to discount vouchers or money-off tokens.
Under current UK VAT legislation, the customer is deemed to be receiving two supplies, namely a voucher; and an underlying supply of goods or services. The new rules determine that for VAT purposes there will no longer be a separate supply of a voucher. Instead the rules will be simplified so that there is only the supply of the underlying goods or services, which will be provided in exchange for the voucher at a later date.
Changes to the VAT specified supplies anti-avoidance
The Government believes that specified supplies order is currently being exploited by companies that form arrangements with organisations outside of the EU to re-supply or ‘loop’ those services back to United Kingdom consumers, allowing themselves to reclaim the VAT and thereby gaining a competitive advantage over purely UK based companies.
This order seeks to prevent a particular form of this ‘looping’ involving insurance intermediaries by restricting the application of the specified supplies order to cases where the final consumer is not in the UK, as was intended.
The expected implementation date for this change is 1 March 2019.
|Annual Tax on Enveloped Dwellings
The annual charges for the Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation for the 2019/20 chargeable period.Annual chargeable amounts for the 2019/20 chargeable period will be as follows (2018/19 rates shown in brackets):- Property value £500,001 to £1 million – £3,650 (£3,600)
– Property value £1,000,001 to £2 million – £7,400 (£7,250)
– Property value £2,000,001 to £5 million – £24,800 (£24,250)
– Property value £5,000,001 to £10 million – £57,900 (£56,550)
– Property value £10,000,001 to £20 million – £116,100 (£113,400)
– Property value £20,000,0001 and over – £232,350 (£226,950)Changes to the higher rates of Stamp Duty Land Tax for additional dwellings
The time allowed to claim back higher rates for additional dwellings where an individual sells their old home is to be extended. Currently, a successful reclaim must be made by the later of:- 3 months from selling the old home
– a year from the filing date for the SDLT return for the new home.
Where the effective date of sale of the old home is on or after 29 October 2018, the time limit will be the later of:
– 12 months from selling the old home
The meaning of ‘major interest’ in land for the general purpose of higher rates for additional dwellings is also to be clarified by legislation.
SDLT relief for first-time buyers extended
This change will apply to relevant transactions with an effective date on or after 29 October 2018, and will also be backdated to 22 November 2017 so that those eligible who have not previously claimed first-time buyers relief will be able to amend their return to claim a refund.
Stamp Duty, Stamp Duty Reserve Tax: transfers of listed securities and connected persons A new targeted market value rule is to be introduced, applicable from 29 October 2018, where listed securities are transferred to a connected company where stamp taxes on shares group relief is not available. The measure will apply where money is paid or there is nil consideration or where the consideration is other than money. In these circumstances, the transfer will be chargeable to stamp taxes on shares based on the higher of the amount or value of the consideration (if any) for the transfer or the market value of the securities.
Carbon emissions tax
In a ‘no deal’ scenario, the UK would cease to participate in the EU ETS from exit day. This proposals would introduce a tax on carbon dioxide emissions (and other greenhouse gas emissions on a carbon equivalent basis) produced by UK stationary installations currently in the EU ETS. The new tax will be introduced from 1 April 2019, with the first tax period ending on 31 December 2019.
|Voluntary tax returns
Historically HMRC have exercised discretionary collection and management powers to accept and treat voluntary income and corporation tax self-assessment returns received on the same basis as tax returns received under a statutory notice to file. In the light of recent legal challenges to the practice and the validity of returns received voluntarily, legislation will be introduced with retrospective effect to put the practice onto a statutory basis. This change is intended to remove any doubt for taxpayers that voluntary tax returns have and will continue to be accepted as valid returns. The measure will have retrospective and prospective effect from the date of Royal Assent to Finance Bill 2018-19.Interest provisions for late payment, repayment and penalties
The detail of how interest is applied to late payments for corporation tax, Stamp Duty and SDLT and to penalties imposed for failure to comply with obligations under PAYE, is to be clarified.New provisions will also clarify and confirm the basis for interest calculations in respect of Diverted Profit Tax and repayment interest by HMRC, and ensure that the 2009 interest provisions apply in relation to penalties charged under the Promoters of Tax Avoidance Schemes (POTAS) legislation.From Royal Assent of the Finance Bill 2018/19, the changes will have retrospective and prospective effect from the date the relevant interest was first applied.HMRC to join preferred creditor list
From 6 April 2020, the government will change the rules so that when a business enters insolvency, more of the taxes paid in good faith by its employees and customers and temporarily held in trust by the business go to fund public services, rather than being distributed to other creditors. This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE income tax, employee National Insurance contributions and Construction Industry Scheme deductions). The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer National Insurance contributions. This will be legislated for in Finance Bill 2019/20.
Tax treatment of Social Security Benefits
– Young Carer Grant, Best Start Grant, Funeral Expense Assistance and Discretionary Housing Payments, payable under the Social Security (Scotland) Act 2018, will be legislated for as tax exempt.
National Living Wage/National Minimum Wage
– from £7.83 to £8.21 for workers aged 25 and over (the National Living Wage)
Social Investment Tax Relief review
Consultation on the taxation of trusts
Online platforms role in ensuring tax compliance