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Autumn Budget 2018 – Office dullard seizes the karaoke microphone

30 October 2018 No Comment

At the Tory party conference in Birmingham, Theresa May confidently declared that the years of austerity were well and truly over. We had never had it so good she said. Hammond quickly distanced himself from becoming his prime minister’s hostage to fortune by opening his statement with a mumbled statement that austerity was merely coming to an end. Although he couldn’t say exactly when. All he could do was acknowledge things were still fairly rubbish but he would do his best to make things appear slightly less bad than they already were by spending money he couldn’t say for certain that he definitely had. And he aimed to distract us by delivering a series of third rate stand-up gags that were so appalling that both sides of the house (and all the listeners on the radio) were squirming in their seats with embarrassment and his attempt to replace austerity with hilarity was greeted with a chorus of groans across the UK.That was a joke right

In the Guardian, John Crace said “So often cast as the Undertaker, Hammond was now reinvented as the Clown. The chancellor’s self-regard is astonishing. It’s bad enough that he imagines himself to be an economic wunderkind, but he’s borderline delusional in believing himself to be a raconteur with comic timing. His only public speaking gift is to make 75 minutes feel like 150.”

And in the Mail, Quentin Letts imagined “As he stood at the despatch box, vulpine, licking his lips with self-pleasure, he plainly thought himself the dog’s dandies…Westminster’s prize bore, fancies himself Mister Showbiz. Lugubrious grey heron imagines it is a peacock. Office dullard seizes the karaoke microphone.” 

He even spent £10m of our money setting up a “wooden zinger” on John MacDonald – “The shadow chancellor’s recent accident has reminded us all how dangerous abandoned waste can be…So I will provide £10m to deal with abandoned waste sites, although I can’t guarantee to the House that £10m is going to be enough to stop him falling flat on his face in the future.” No, I’m sorry, it wasn’t even funny at the time.

And what of Brexit you ask? Well, he used the word once in over an hour of “prose” and tried to gloss over itElephant as quickly as possible. If all went well and the prime minister got her deal, then he set aside £4bn to pay for the issues arising. If she didn’t…well, all bets were off and things would be so catastrophic that an emergency budget would be needed; a budget that he hadn’t yet got round to writing as the mere thought of it gave him nightmares. The no-deal contingency planning was to have no contingency plans. Can you even hide an elephant in the long grass or was this a can rattling down the road…whatever your chosen metaphor, he ignored it. So that’s all OK then. At Halloween aren’t we supposed to imagine monsters under the bed?

And the actual budget? Well Nick Robinson suggested to Hammond that he had “found a magic money tree, chopped it down and then burnt it”. Of course he denied it saying that it was all down to fiscal strictures and the hard work of the British people. “Austerity was over (almost)”, he said but has been replaced by discipline – now that sounds like a Tory BDSM evening!

And so to the fascinating detail:

Corporate taxes

  • Corporation tax rate still planned to fall to 17% in 2020
  • One of Phil’s early rabbits was a temporary increase in the Annual Investment Allowance (AIA), with a rise in the limit from £200k to £1m for a period of two years after many demands for it to encourage investment in plant and machinery by businesses. The plan is to implement this from 1 January 2019, with transitional rules to be put in place where your year end does not coincide with these dates. Of course, this is great for businesses that will spend over £200k pa on kit but it will probably mainly benefit large businesses. It’s welcome nonetheless.
  • A Structures and Buildings Allowance (SBA) for new commercial structures and buildings was announced (didn’t we have this in the old days of the noughties as the old Industrial Buildings Allowance which was phased out in 2008?). This will allow eligible construction costs incurred on or after 29 October 2018 to qualify for relief at 2% per annum on a straight-line basis. This is in addition to the capital allowances already available for plant and machinery within new buildings (which may well qualify for AIAs subject to the above limits), which should encourage capital investment in new commercial buildings. The catch is that this is not available for physical construction works which have been entered into before 29 October 2018.
    The relief will be available regardless of ownership changes, periods of disuse or periods where the building is being used for non-qualifying purposes. The benefit will pass between each owner at the written-down value. This includes offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses but specifically excludes residential property, land, legals and stamp duty costs.
    SBA expenditure will not qualify for the AIA, so businesses seeking to maximise tax relief should contact us to identify separately the costs that will qualify for capital allowances.
  • To pay for this, the writing down allowance of plant and machinery that qualifies for the reduced special rate capital allowances will reduce from 8% to 6% from April 2019. These assets include long-life assets; thermal insulation; integral features and expenditure on cars with CO2 emissions of more than 110 g/km – there go the big engines.
  • Writing down allowances for expenditure on assets in the main pool (currently 18%) and special rate pool allowances for ring-fenced trades (you’ll know if you’ve got one) (currently 10%) remain as they were.
  • Phil announced that the Enhanced Capital Allowance (ECA) for energy- and water-efficient plant and machinery will end from April 2020. The measure will also end the first-year tax credit available on such qualifying technologies from April 2020. This also removes the beneficial first year tax credit which was available to loss-making businesses and which might now remove the incentive for such businesses to focus on environmentally beneficial plant and machinery. Contact us for more details on this if this is applicable to you.
  • There’s some action on losses – from 1 April 2020, it is intended to restrict the proportion of annual capital gain that can be relieved by brought forward capital losses to 50% for larger companies and the restriction will not apply to the first £5m of carry forward loss utilisation.
    There are the usual elements of anti-forestalling legislation to counteract “schemes” and legislation is intended for Finance Bill 2019-20.
  • The Government is seeking to prevent the abuse of the R&D tax relief for loss-making Small and Medium-sized Enterprises (SMEs) by re-introducing a PAYE and NIC limit from 1 April 2020. This could restrict total cash tax credits claimed from HMRC. No amendments were made to the rates of R&D relief but the SME tax credit available to loss-making SMEs will be subject to a restriction mainly aimed at loss-making SMEs who outsource the majority of their R&D activities offshore and therefore have limited UK employees. The Government will consult on how the cap will be applied to ensure the focus is on the prevention of abuse.
  • There is confirmation that tax relief will be once again made available for the amortisation of goodwill on the acquisition of businesses with ‘’eligible’’ intellectual property with effect from 1 April 2019. We will have to wait and see what that actually means.
  • It was also announced that the rules for intangible fixed assets will now be aligned with the chargeable gains regime, which should enable a more flexible approach to transact the reorganisation, purchase or sale of businesses. If you’re buying or selling a business, please make sure you speak to us.
  • In the Autumn Budget in 2017, it was announced an intention to tax income derived from intangible property held in low-tax jurisdictions to the extent that it related to UK sales. This will have effect from 1 April 2019. The collection of tax will be via a direct assessment to tax on the owner of the intangible property, rather than the application of a withholding tax on payments made to the intangible property-owning company by other persons.
  • Following a consultation exercise last spring, the Government has decided to delay introducing a new Enterprise Investment Scheme (EIS) fund structure for Knowledge Intensive Companies (KICs) until 2020. And that’s after Brexit…so I won’t bother you with it now.

Personal taxes and allowances

  • The personal allowance will increase to £12,500 (from £11,850) from 6 April 2019. The basic rate band will rise to £37,500 (from £34,500) so if you have personal income of less than £50,000 a year, you will only pay 20% income tax. For someone earning exactly £50k, this equates to a reduction in their income tax liability of £860 per year. For employees though, this will be clawed back in part by an increase in employee’s NIC.
    The personal allowance and basic rate band will remain at these new levels for 2020/21, and thereafter will increase annually in line with the Consumer Price Index. The personal allowance will also continue to be tapered for those with incomes in excess of £100,000. The level at which the additional rate of income tax of 45% applies will remain at £150,000.
  • Two important changes were announced to Entrepreneurs’ Relief (ER).  ER reduces the rate of capital gains tax (CGT) on disposals of certain business assets from 20% to 10%. There had been some talk of more radical changes even speculating abolishing ER altogether but essentially these changes make ER a bit more difficult to claim.
    Firstly because there has been an  increase to the holding period for business assets and shares held by individuals for disposals made after 6 April 2019 to at least two years, as opposed the current one year so you will need to carefully plan any disposal if this change affects you.
    The second change introduces two additional tests that must be satisfied before ER is available – both take effect from yesterday (29 October 2018). These changes mean that the existing condition that an individual holds 5% of the ordinary share capital and votes will be extended to them holding 5% of distributable profits (dividends); and also 5% of assets available on a winding up of the company. In other words, to qualify for ER, an individual must have a 5% ‘economic interest’ in the company. The change affects the eligibility for ER of those who hold shares that have voting rights but no economic interest. These further conditions are added to the conditions for relief on associated disposals and the withholding of relief on goodwill.
  • If you gain ER by holding options over shares granted under the Enterprise Management Incentive (EMI) regime, the holding period will again be extended from 6 April 2019 to two years for such option holders as opposed to the current one year.  Based on the draft legislation, the changes to the 5% rule outlined above do not appear to affect EMI option holders but whether this will come out in the detail remains to be seen?
  • A transfer of trade in exchange for shares should now benefit from ER, if a trade existed for at least two years prior to incorporation. This is a change from the current regime that would have required the resulting shares to be held for two years before disposal. The change benefits sole traders who incorporate the trade shortly prior to selling the business.
    The current legislation could catch other transactions that involve transfers of business but the full impact of this is yet to be revealed.
  • A useful change was also confirmed to allow minority shareholders to retain their ER in certain circumstances where their shareholding falls below 5% because of equity investment. Under the new rules, a shareholder can elect to claim ER on the gains accrued before the dilution below 5% provided the dilution resulted from an issue of new shares for cash. ER may be claimed on the eventual disposal of qualifying shares.

Principal Private Residence (PPR) relief

  • A consultation was announced on two elements of PPR. The first centres around the allowance of the last 18 months of ownership being classed as occupation. It is proposed that this period will be reduced to the last nine months of ownership for property disposals after 6 April 2020. If the changes come in as planned, individuals buying a new home, before selling their old one, will need to ensure a sale of the old property takes place within nine months to avoid a potential CGT charge.
  • Secondly, the Government is also proposing a big change to lettings relief. This relief applies where an individual sells a property that has been their main home and which has also been let out for a time. Currently letting relief can exempt up to £40,000 of any gain on disposal. the proposal is that from 6 April 2020, lettings relief will only apply in situations where the owner of the property is in shared occupancy with the tenant. As a result of the proposed changes, the relief currently worth up to £11,200 of CGT, would be lost unless the individual selling the property lived in the home at the time it was let out.
  • Despite consultation, there are no changes to the Rent-a-Room Relief.Philip-Hammond-as-Dracula-MAIN

If you’ve got to this point you deserve some light relief…did you know that Phil was at school with Richard Madeley who told Newsnight: “He used to wear, as memory serves, quite a long black leather coat and black leather boots, and he had very long jet black hair that kind of hung like crow’s wings down past his shoulders.

“He was very distinctive to look at, very tall, very aquiline, very thin, very beaky and super confident.” One of the girls said “Who’d have thought Philip Hammond was such a good kisser?”

Trust & IHT tax changes

  • The Government will clarify the inheritance tax (IHT) treatment of additions of assets to existing trusts. HMRC regards such additions by UK-domiciled (or deemed domiciled) individuals to trusts made while they are non-domiciled as not covered by the excluded property rules – others dispute this. The new clauses will formally confirm HMRC’s position and, regardless of the date of the addition, will apply to IHT charges arising on or after the date of Royal Assent to the Finance Bill 2019-20.
    The Chancellor has also announced that a consultation will be launched to examine the taxation of trusts and how this can be made ‘simpler, fairer and more transparent’. Surely something that the Office of Tax Simplification should have had in its sights for years?
  • Since April 2017, an additional nil rate band has been available where an individual leaves the family home to their direct descendants. In addition to having the usual nil rate band of £325,000, a RNRB of £125,000 may also be available. It had already been announced that the RNRB will increase to £150,000 from 6 April 2019 and £175,000 from 6 April 2020. There were a couple of technical changes to the RNRB relating to lifetime gifts and exempt beneficiaries.

Indirect taxes

  • The VAT registration threshold will be frozen at £85,000 for two more years until 31 March 2022. The deregistration threshold will also remain frozen at £83,000.
  • From 1 April 2019, VAT grouping will not be restricted to incorporated entities. An individual or a partnership will be allowed to join a VAT group, provided it controls the companies it is grouped with and is entitled to register for VAT in its own right. That condition does not apply to companies who may join even if they are dormant or wholly exempt.
  • A change will be made to the VAT treatment of deposits on services or goods that have been paid for in advance but which the customer does not use/collect. This change is due to take effect from 1 March 2019. Currently there is no further information on this but it should be available before the end of the year. The change may mean that only fully refundable deposits paid as security will be outside the scope of VAT. This would result in some businesses paying more VAT than at present, but it will ensure that a consistent treatment will be applied to deposits.
  • The Government has confirmed its previous intention to introduce a domestic reverse charge on the supply of certain construction services made in the UK with effect from 1 October 2019. Under the new rules, a VAT-registered business which supplies construction services to another VAT-registered business will be required to issue a VAT invoice stating that the service is subject to the reverse charge. If you’re still with me at this point this could be interesting to you…please call the tax team for more detail. The rest of you, back to sleep!
  • Gaming Duty will increase from 15% to 21% with effect from 1 October 2019. Partially to deal with the reduction in FOBT maximums to £2.
  • The Government is continuing to explore the introduction of a split payment mechanism to combat loss of VAT on sales of goods through online platforms by businesses in the UK. Under the split payments proposal, one party in the payment chain would be required to pay the VAT on each sale directly to HMRC and pay only the balance (ie the net price) to the vendor. This proposal involves using payment technology to enable real-time extraction of VAT, which would then be deposited with the tax authority. Exciting stuff eh?
  • Legislation will be introduced that will significantly affect the VAT treatment of all vouchers issued on or after 1 January 2019. Many more vouchers will become what are called Single Purpose Vouchers (SPVs), where the VAT is accounted for when the voucher is sold and not when the goods or services are purchased using the voucher. This change means that many more businesses will have to account for VAT earlier than at present and will also have to account for VAT even if the voucher is not used fully. A business will not therefore be able to benefit from non-redemption or expiry of these vouchers.

Employment taxes

  • In April 2017, the Government changed the rules for public sector bodies engaging workers through Personal Service Companies (PSCs) this is commonly known as IR35. This shifted the responsibility for establishing whether IR35 applied to the engagement from the worker and their PSC to their engager. If the engager thinks IR35 applies, it is required to deduct PAYE from the payment it makes to the PSC and pay employer’s NIC on that payment. Following a consultation, the Government has announced its intention to extend the rules that currently apply in the public sector to the private sector from April 2020. Small organisations will be exempt, but no details of which organisations will qualify for this exemption have yet been released. Phil expects to gather some serious wonga from this change – £1.1bn in 2020-21.
  • A further delay was announced to the proposed employer’s NIC charge on termination payments over £30,000. It is now intended that the proposed reform will take effect from 6 April 2020. The delay will be a welcome surprise for those employers who were looking to implement any larger redundancy packages before 6 April 2019.
  • The Government remains committed to its original ambition of creating three million new apprenticeships by 2020 and has introduced a number of reforms to strengthen the role of employers. These are mainly aimed at levy paying companies.
  • It’s clear that the value of Employment Allowance (EA) to larger businesses is marginal but it is still very meaningful for smaller businesses, providing them with up to £3,000 off their employer’s NIC bill.  Therefore, from April 2020, the Government plans to make EA available only to employers with an employer’s NIC bill below £100,000 in their previous tax year.

Other taxes

  • For the next two years all retail properties in England with a rateable value of up to £51,000 will receive a one third reduction in their business rates. This relief will then be superseded by the rates revaluation due to take place in 2021. In addition, special reliefs will apply for local newspapers and public lavatories.
  • A new tax on the production and import of plastic packaging is to be introduced. The new tax is intended to encourage a change in behaviour so that plastic packaging that contains less than 30% recycled content is no longer utilised. Subject to consultation, packaging that does not contain enough recycled content will be taxed from 1 April 2022. It was widely expected that there would be some action to tax disposable cups but this has been left alone at present which is a shame as I was looking forward to calling it the “Latte levy”.
  • In insolvency situations, a new measure was introduced which is designed to make directors and others personally liable for business taxes owed when a company has deliberately entered insolvency to avoid or evade tax. And from 6 April 2020, HMRC is to become a preferred creditor for taxes paid by the business’s employees and customers (ie PAYE, employee NIC, VAT and CIS deductions). The rules will remain unchanged for taxes owed by businesses directly to HMRC, such as corporation tax and Employer NIC.
  • On Stamp Duty, a surcharge of 1% to SDLT rates is proposed for the purchase of residential property in England and Northern Ireland by non-residents. It is uncertain however when this would be brought in. And the Government are extending first-time buyers relief in England and Northern Ireland so all qualifying shared ownership property purchasers can benefit. This change will apply on or after 29 October 2018. This change will also be backdated to 22 November 2017 to enable purchasers who have not previously claimed to get a refund.
  • A technical correction was made to extend the time limit within which it is possible to reclaim the 3% higher stamp duty land tax rate when an individual sells their old home within three years of making the subsequent purchase. This change took effect from 29 October 2018.
  • A more straight forward system will be introduced for local authorities to obtain Section 106 contributions from developers towards local infrastructure.
  • The Government has announced that it intends to publish an updated offshore tax compliance strategy. This is expected to set out how HMRC will in future tackle tax evasion and non-compliance related to income, profits and assets located outside the UK on which UK tax is payable. I bet you all can’t to get hold of that – guaranteed to make it onto the Amazon Best Sellers list – not sure whether that’ll be the fact or fiction section though.
  • And he’s having another go at Google, Facebook, Amazon and the like. Due to the difficulties associated with concerted International action, the Government has decided to move unilaterally to introduce a Digital Services Tax (DST) at 2% from 1 April 2020 on revenues derived from search engines, social media platforms and online marketplaces, where those activities are linked to the participation of UK users. There will be a £25m allowance, and the tax will only apply to businesses who generate revenues from in-scope activities of more than £500m per annum.

To be honest, after a point I began to wonder whether this is all a charade. A list of wishes which will have to be revisited in the Spring whatever happens with Brexit? Who knows and frankly, who cares? After all we can only play on the field he’s laid out for us.

And finally:

The Government is cutting taxes for public loos, well business rates actually.

“It’s virtually the only announcement in this budget that hasn’t leaked,” the Chancellor “wisecracked”.

“Finally, local authorities can relieve themselves.”

It’s a shame, then, that he still refuses to “spend a penny” where it’s really needed. If Phil’s betting his fortune on a future as a comedian once he’s inevitably booted out of Number 11, he might want to invest a little more in Universal Credit first.

He might just need to sign on.

You can’t make this stuff up!

You can get the tax team on the following numbers:
Bernice 01752 203651, Nicola 01752 203600, Jenna 01752 203645 & Belinda 01752 203658

We look forward to hearing from you.

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