Budget 2018 Winners and LosersPosted 2018 by Chris Davies
With Brexit looming no-one was really expecting any earth shattering news but better than expected tax receipts allowed the chancellor to make some welcome tax cuts whilst taking the opportunity to tighten up some perceived abuses.
Described by himself as his “rabbit out of the hat” he heralded an increase in the personal allowance and basic rate band from April 2019 to £12,500 and £37,500 respectively, a year earlier than he had previously predicted. This means that 40% tax will only apply for those with taxable incomes in excess of £50,000 from April 2019.
The existing IR35 rules require Personal Service Companies (PSCs) to pay PAYE and NIC on income from engagements that are effectively employments. From April 2017 where the individual in the PSC works in the public sector, the responsibility for deciding “what is effectively employment” was imposed on the public sector engager. HMRC is convinced that his has reduced non-compliance, and has been consulting about extending the same rules to the private sector. Representative and professional bodies have protested that the rules are unclear and complicated and increase cost and uncertainty for all parts of the professional flexible labour market.
The Chancellor announced that the rules will be extended to the private sector, but has taken account of representation made. The changes will not apply until April 2020, and only large and medium sized engagers will be affected.
The exemption for gains on a taxpayer’s only or main residence is one of the most generous tax reliefs of all. For disposals after April 2020, there will be two key changes. First, the final period exemption which allows exemption to continue after a person has moved elsewhere will be reduced from 18 months to 9 months. Second, letting relief which can exempt up to an additional £40,000 of gain where a property has been let during the period of ownership, will be restricted to periods during which an owner was in “shared occupancy” with a tenant.
Changes were announced to Entrepreneurs’ Relief including extending the qualifying period to 2 years for disposals after 6 April 2019, and for disposals after 29 October 2018 requiring the claimant to have a minimum 5% interest in both the distributable profits and net assets of the company.
Aimed firmly at businesses such as Apple, Amazon and Google with global annual turnovers in excess of £500M the Chancellor announced a 2% UK digital services tax from April 2020.
The increase in Annual Investment Allowance from £200,000 to £1M will be welcomed by most business reliant on investment in plant and machinery although the complex calculations required where a company’s financial year is not coterminous with the dates of change will not be.
From April 2020 the £3,000 Employers Allowance will only be available to employers with a National Insurance liability below £100,000 in the previous tax year.
Whilst a pledge has been given to increase investment in the R&D Scheme, the reintroduction of the PAYE cap on R&D tax credits will be a blow for staff-light start-ups.
There had previously been much speculation whether there would be any substantial change to the cliff-edge VAT registration threshold that is seen as distorting the behaviour of small businesses who may be restricted from growing above the limit. Instead the current registration threshold was fixed at £85,000 until April 2022 but will keep the situation under review until the UK’s terms of exit from the EU has become clearer.
Fuel duty is frozen for the eighth consecutive year and duty on beer, cider (except for white cider) and spirits is also frozen.
The volume of added complexity in tax law introduced by all the changes is disappointing but at least no new announcements were made in the area of pension relief, apart from the inflation uplift to the Lifetime Allowance, so perhaps we should be grateful for some small mercies.