Posted on 30 October 2018
Mr Hammond described the 2018 Budget as a Budget for Britain’s future, for the strivers, grafters and carers. He faced a tough proposition with this year’s Budget speech due to the continued economic uncertainty with Brexit and the (early) affirmation from Prime Minister Theresa May at the Conservative party conference that ‘austerity is over’.
The Budget 2018 speech had been brought forward a month so as not to be a distraction for ministers as the Brexit negotiations advance ever-slowly to a conclusion. We expected it to be a fairly ‘vanilla’ Budget, with little of note. Instead there is much of interest for businesses and, in my analysis below, I detail the ‘highlights’ and identify those areas where care is needed, or planning may need to be undertaken. For help or advice, please do get in touch.
If you’d prefer to watch rather than read my Budget analysis, please see below for our short Budget 2018 video. It’s my first one, so do be kind with any feedback!
Simon Littlejohns, Head of Tax, Friend Partnership Ltd
Budget 2018: key points for businesses
- Annual Investment Allowance up from £200,000 to £1 million for expenditure incurred in the two years starting 1st January 2019.
- Tax relief for IP-rich businesses – following a short consultation the government will seek to introduce targeted relief for the cost of goodwill in the acquisition of businesses with eligible intellectual property from April 2019.
- Structures and buildings allowance – for new, non-residential structures and buildings there will be a new 2% annual capital allowance for contracts for works entered into on or after 29 October 2018.
- Entrepreneurs’ Relief is to remain as it is despite calls for it to be scaled back or abolished. Mr Hammond believes the relief encourages entrepreneurship, but he has taken one step to ensure that it truly is targeted at entrepreneurs by increasing the qualifying period from 12 months to 24 months. The new rules will apply to disposals on or after 6 April 2019.
- IR35 rules extended. Following recent consultation there is to be reform of the off payroll working rules (IR35) for the private sector. This follows the reform which has taken place in the public sector. The rules will be extended to large and medium sized businesses in the private sector in April 2020.
- Mr Hammond announced a Digital Services Tax at a rate of 2% of UK revenue generated by large digital organisations such as Google and Facebook. This is not an initiative aimed at online retailers but a more narrowly targeted measure that will be introduced after consultation in April 2020. It is expected that the new tax could raise more than £400 million per year. This is good news for UK technology companies that are currently competing with global organisations based in more favourable tax regimes.
- The VAT registration threshold is to remain at £85,000 for the next two years.
- Mr Hammond announced a raft of anti-avoidance measures that he hopes will generate £2 billion of extra tax over the next five years. As part of these measures HMRC will be a preferred creditor in liquidations to ensure that HMRC receives its dues on company failures. There will be measures to deal with insurance companies based offshore, with UK operations.
- One surprising announcement was the potential imposition of a restriction on R&D tax credit payments, which will be linked to a company’s PAYE bill. From April 2020, the maximum R&D tax credit payment a qualifying loss-making company can receive will be limited to three times the company’s PAYE bill. Companies may need to review, and potentially revise, the management and staff remuneration arrangements within the business.
- To tackle the decline of the high street, Mr Hammond announced a £675 million Future High Streets Fund to assist local councils. In addition, he announced a cut in business rates for smaller high street retailers of a third in each of the next two years. This will potentially save 90% of such businesses up to £8,000 in business rates.
- In recognition of the increased awareness of plastic pollution, Mr Hammond announced some measures to potentially deal with this issue, but he shied away from imposing a one-off tax on disposable cups used for coffee and other beverages. There is an intent to address environmental issues – but only after consultation to ensure that the measures which might be considered are appropriate.
Main Budget points for individuals – personal tax, property and pensions
Mr Hammond finished with a flourish with his personal tax announcements. He had been under pressure to freeze the proposed increase in the individual personal allowance and higher rate threshold, with the potential tax saved used to support the increased NHS spending.
However, instead he has brought forward the promised increases to April 2019.
- The basic personal allowance will go up to £12,500 and the higher rate threshold to £50,000. In so doing, he has honoured the manifesto pledge one year early. He describes this as a measure to show individuals that hard work pays.
- The Capital Gains Main Residence Relief will be restricted, with the final qualifying period of ownership reduced from 18 months to 9 months. From April 2020, the government will also reform the main residence lettings relief, so it will only apply when the owner is in shared occupancy with the tenant.
- There will also be an extension of the Stamp Duty Land Tax (SDLT) exemption for joint first-time buyers acquiring a property valued up to £500,000. This measure is retrospective and first-time buyers will be able to claim a refund.
- One interesting omission from his budget speech was any reference to pensions. In the lead up to the Budget Mr Hammond described the various pension tax reliefs as ‘eye wateringly expensive’, so many commentators (including ourselves), were expecting changes. However, not a word was mentioned in the speech, so pension savers can rest easy.
There is clearly lots for businesses to think about; issues to grapple with and opportunities to investigate.
The Chancellor concluded with the affirmation that austerity is coming to an end, but his speech included caution that, should Brexit negotiations not conclude favourably, the Spring statement could become a ‘full fiscal event’. In other words – there may be another Budget in the Spring.
Simon Littlejohns is a partner and Head of Tax at Birmingham accountancy and business advisory firm, Friend Partnership. He works with business owners, owner managed businesses, entrepreneurs and High Net Worth individuals.
For a confidential conversation about your personal or business tax affairs, please contact Simon Littlejohns here.