Posted on 5 December 2017
An hour-long speech and no big surprises. How does the Autumn Budget affect Britain’s future?
Simon Littlejohns, partner and Head of Tax at Friend Partnership Limited takes a look below at the headline measures in the 2017 Autumn Budget and what they may mean to you and your business.
This was Mr Hammond’s first Autumn Budget and as with previous statements it was littered with jokes at the expense of television celebrities, labour MPs and the Prime Minister.
He concluded his speech with the statement that he has a vision for Britain’s future and the measures he announced in the Budget, in addition to the measures already made, will help to create a Britain fit for the future.
He opened his hour-long speech with the comment that the performance of the economy confounds those who continue to talk it down. He indicated that the OBR had down rated the growth forecasts with 1.3% highlighted for 2019. The OBR also indicated that the debt balance will peak this year before starting to fall over coming years.
The Brexit negotiations are viewed by Mr Hammond as a priority with £3 billion now set aside so that the country is prepared for every eventuality. Mr Hammond was very positive with his comments about Brexit, referring to the Government as embracing change and looking forward rather that shying away as he suggested others were doing.
Mr Hammond reaffirmed his commitment to creating a Budget which was balanced.
His overarching stated aim was to lay the foundations for the future which was confirmed with his closing remarks.
Read Simon’s full analysis below. For help or advice on any tax-related matter, contact Simon Littlejohns at Friend Partnership on 0121 633 2007 or click here to email.
The taxation system – the framework
Mr Hammond explained that he wants to make sure that the UK’s tax system has the following characteristics:
- It is competitive;
- It raises the necessary revenue to support public services; and
- It is robust against abuse.
It is evident from the announcements he went on to make that these characteristics are clear in his mind when setting tax policy.
Business taxation – sadly very little good news
Mr Hammond continues in his aim to ensure that the UK remains the number one destination for business investment.
He confirmed that the rate of corporation tax would fall to 17% in 2020 as planned and already announced.
The R & D tax relief for large companies is increasing from January 2018 with an uplift in the Research and Development Expenditure Credit from 11% to 12%. There was no mention of any change for the small and medium sized businesses carrying out R & D.
He also announced a measure to bring the corporation tax treatment of capital gains in to line with the treatment for personal tax with the freezing of the indexation allowance from January 2018. This will have limited impact for most businesses.
One of the major measures already announced is the reduction in the ‘tax-free’ dividend allowance from £5,000 to £2,000 with effect from April 2018. No mention of it this time round so sadly all still on track. However, there was no announcement of any increase in the rate of taxation applicable to dividends.
Mr Hammond challenged the Opposition with his comments that the present Government has done more to deal with tax avoidance than the Opposition had ever done. Mr Hammond explained that £160 billion had been secured over 7 years with the measures which his Government have implemented. He went on to add that the tax gap under the present Government has reduced markedly in these seven years.
He announced new anti-avoidance measures which he expects will raise a further £4.8 billion by 2022/23.
Mr Hammond explained that the UK Government is working closely with the OECD on measures to combat cross border tax avoidance with the claim that the UK is leading the way. There is no doubt that this may be the case, but the underlying legislation needs to be reviewed so that it does the job the legislators intended.
The main international headline was the announcement of the imposition of income tax on royalties from UK sales which are routed by multinational companies to low tax jurisdictions. This will apply from April 2019. This is a thinly veiled attack on many of the well-known companies that have been lambasted in the press over recent years for their commercial practices which many have viewed as not being within the spirit of the legislation as drafted.
Mr Hammond reminded us of the Government’s commitment to raise the personal allowance to £12,500 and the basic rate band to £50,000.
He announced an increase in the personal allowance to £11,850 and the higher rate starting band to £46,350 with effect from April 2018.
This will help to take some out of the tax net and reduce the tax burden for many others. However, this must be set against the earlier announcement that the dividend allowance will be reduced to £2,000 from £5,000 in April next year which will increase the tax burden for many.
The West Midlands
There is clear commitment to the development of regional initiatives.
The ‘Midlands Engine’ was mentioned with the announcement of a £1.7 billion transforming cities fund for local transport which is to be shared with other cities and regions in the UK.
There is also a £28 million housing first initiative to help deal with the rough sleeping ‘issue’ in the region.
Various funds have been set aside to deal with the fast-accelerating electric car market with £400 million allocated for electric charging initiatives. This, along with the R & D change, will help boost the manufacturing sector in the region.
There was a raft of measures announced to stimulate and support house building in the UK.
The main announcement was of a further £15.3 billion of funding over the next five years taking the total to £44 billion. The aim of the support is to build 300,000 new houses annually over the coming years
There will be five new garden towns and a much better use of land in our cities and towns to ensure that the gap between planning permissions granted and houses built is reduced.
First time buyers are a source of concern.
The abolition of Stamp Duty Land Tax for first time buyers buying houses costing between £300,000 and £500,000 was greeted with loud cheers in the Chamber. The first £300,000 of such a purchase will be SDLT free.
Many investment initiatives were announced the most important of which was for the NHS with £10 billion pledged over the course of this Government with an extra £2.8 billion pledged, £350 million of which will be available immediately.
- The proposal for the payment of Capital Gains tax 30 days after a property disposal will be delayed until 2020;
- There will be no change to the VAT registration threshold of £85,000. Mr Hammond and his team will consult on how the threshold is operated to deal with the ‘cliff edge’ problem faced by many small business;
- Online VAT fraud will be dealt with by making the online market places jointly liable for VAT liabilities;
- A new railcard for 26 to 30-year olds will be introduced but this will not be for peak time travel so perhaps an empty gesture;
- A position paper will be issued addressing the taxation issues facing the digital economy;
- Various measures were announced to deal with business rates for smaller businesses;
- Fuel duty will be frozen as will duties on beer, wine and spirits. The duty on tobacco will increase;
- Legislation will be introduced to ensure that no taxable benefit in kind arises for employees charging electric vehicles at work;
- There will be no increase in Air Passenger Duty for short haul and economy passengers; and
- The Government will launch a call for evidence in a bid to reduce plastic waste.
My disappointments were:
- The changes to the R & D rules seemingly only apply to larger companies. There are many small and medium sized businesses which are at the heart of the economy which are carrying out cutting edge R & D work;
- There was no change to the Annual Investment Allowance which remains at £200,000. This is a shame because this is one measure which does help businesses with their capital investment programmes; and
- I have my usual gripe that there was no suggestion of any measures to deal with the simplification of what is a horrendously complicated UK tax code.
‘Thank goodness’ moments
The following are the measures that I had thought might be at risk:
- CGT Entrepreneurs’ Relief – no change;
- Dividend taxation – no change; and
- EIS and SEIS relief – no change.
Thus, there are perhaps some positives to come out of the announcements.
There was nothing in the announcements which requires immediate action.
It must be said that there were no surprises in the Budget – it was very much steady as she goes.
Mr Hammond faced a lot of challenges approaching the Budget, Brexit, slightly worse economic forecasts than he had hoped, political fragility within his own party, which prevented him doing anything spectacular.
Competition is being addressed with measures to combat anomalies with cross border and online activities.
For us in the Midlands we should take heart that the ‘Midlands Engine’ is being soundly supported by Government.
Businesses within the Midlands should also be heartened that the Government is working as hard as it can to stimulate investment and support them with appropriate tax initiatives.