2018 BUDGET COMMENTARY
The tone of the Chancellor’s speech, one of confidence placing faith in the UK’s economic future, is a novel departure for Philip Hammond. We are not used to such positive action from him.
If it all works out, then well and good: if it doesn’t, expect another Budget next Spring, putting us back where we were before.
Main features affecting the affairs of clients of Nicholas Ridge CTA are:
Extra funding for the NHS
Presumably, the bulk of the extra money will go into employing more people, in particular where involved with mental health.
Is the extra money conditional upon reform – see the Chancellor’s references to its 10-year plan? The NHS, which employs 1.7 million, is after all the world’s fifth largest employer, and is the only UK institution to make it into the top 10 biggest employers.
The plan, Mr Hammond informs us, will be published shortly.
Digital Services Tax
From April 2020, the government will introduce a new Digital Services Tax aimed principally at US tech giants who are seen to be avoiding the legitimate tax expectations of countries where they make profits, without however having a full tax presence there.
HMRC will need to work hard if it is to sustain the Chancellor’s insistence that it is not an online-sales tax on goods ordered over the internet.
The tax will remain in place pending international agreement on a permanent solution to the issue.
The fact that the tax is expected to yield a mere £400m, compared with total tax take for corporation tax of £56bn in 2016/17, illustrates that this is a toe in the water.
On the face of it, such an approach indicates that HMRC does not feel strong enough, or is not inventive enough, to challenge such arrangements robustly on broader grounds, ie that the organisation involved has a Permanent Establishment in the UK, taxable in its own right on a fair share of the worldwide profits of the enterprise.
Introduction with immediate effect of a new allowance, for non-residential structures and buildings: the rate of allowance is 2% per annum. A bold move.
Capital Gains Tax private residence relief
From April 2020, the final 9 months only of ownership will be counted as a period of residence – previously, 18 months. The £40000 lettings exemption will be abolished, for most cases.
Minimum qualifying period for holding business assets increased from 1 year to 2 years for disposals on or after 6 April 2019: Entrepreneurs’ Relief allows capital gains on disposals to be taxed at concessionary rate of 10%.
Re-introduction of some corporation tax relief for goodwill
Corporation tax relief for the cost of goodwill was abolished in 2015. There is to be consultation on reintroducing some relief from April 2019.
The rules introduced into the public sector last year for stricter policing of the application of IR35 to contractors, will be extended to the private sector, for large employers only, from April 2020.
Capital gains tax: no change to rates;
National Insurance: no increase to fund extra spending for the NHS;
No change to corporation tax rates, currently 19%, due to drop to 18% from 1 April 2020;
No new restrictions on income tax relief for pension contributions;
Income tax – reductions accelerated to 6 April 2019, personal allowance, £12500; basic rate band, £37500. The combined total of £50000, on which people will pay basic rate tax only or less, equates to approximately 180% median UK disposal household income of £27300;
VAT threshold, unchanged for the time being at £85000 – this is despite suggestions that the current threshold acts as a deterrent to expansion by small businesses, and should be reduced
Other tax measures
Non-residents selling commercial property in UK will be subject to UK Capital Gains tax from 5 April 2019: they are already liable for UK Capital Gains tax on disposals of residential property;
Some relaxation of rules from April 2019 for charities for nominal levels of trading, and extension of Gift Aid for small donations.
The Chancellor also announced measures, among others, to fund revitalisation of High Streets, and promoting the role and status of credit unions.
Please contact Nicholas Ridge CTA, for further information on any of the points set out in this Commentary.