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Autumn Budget 2018: Overview

Autumn Budget 2018: Overview

Melissa Geiger, Head of International Tax and Tax Policy at KPMG UK gives her reaction to the 2018 Budget.

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 “In summary, we saw a relatively quiet Budget with lots of little bunnies rather than any big rabbits pulled out of the Chancellor’s hat as he sought to leave himself maximum “headroom” to contend with whatever form the UK’s exit from the EU takes.  What Business really wants is predictability and stability. Brexit politics don’t allow him to deliver that for the moment, but Mr Hammond’s positive tone and enterprise-friendly rhetoric will be welcome.  At this stage his much anticipated announcement to raise more revenue from the tech giants through some sort of digital tax amounts to a declaration of intent rather than a detailed policy statement.   He is rightly hoping that an international consensus will emerge before he has to move on his promise of unilateral action.”

In more detail:

The Office of Budget Responsibility has forecast an improved financial position, compared with March 2018, which has been used to finance the additional spending on the NHS previously announced by the Prime Minister. Most of the large spending decisions were left to the comprehensive spending review in 2019, which will focus on the departmental spending commitments for the 5 year period from 2020.  

From a tax perspective, there is a short term tax giveaway for the next couple of years to encourage consumer and business spending whilst the travails of a Brexit deal are worked through.

Individual taxpayers will benefit from the increase in the personal allowance to £12,500 and the higher rate threshold to £50,000 from April 2019. However the self-employed will continue to pay class 2 NICs.

Businesses will also benefit from a 2 year increase in the annual investment allowance to £1m, which allows an upfront tax deduction for capital expenditure on plant and machinery. This is likely to help bring forward business investment over the short term. 

There is a short term one third reduction in business rates for retail premises up to a rateable value of £51,000 – but this will apply only until the forthcoming business rate revaluation in 2021.

Over a longer term perspective, the budget was broadly neutral from a tax perspective.

The introduction of a new 2% capital allowance for structures and non-residential buildings for contracts entered into from 29 October 2018 has been long sought for by businesses and will encourage investment in UK infrastructure. This will provide an immediate benefit in the effective rate of tax for listed companies.  However this will be paid for by the reduction of the rate of relief from 8% to 6% on long life plant and machinery assets and the removal of enhanced allowances for energy and water-efficient equipment.

The public sector was first in line for the changes in the IR35 employment intermediaries legislation to put the onus on the customer to decide whether to operate PAYE and NIC on services provided via a personal services company. Whilst it has been expected that this would be extended to private sector customers, it is good news that the provisions will not apply until April 2020, allowing business time to put the appropriate procedures in place.

The tax affairs of global digital businesses have been under a fair degree of scrutiny over the past few years, and the proposed introduction of a digital services tax from April 2020 is unlikely to be a surprise.  The approach taken by the UK Government is limited in scope, applying only to search engines, social media and online marketplaces, and not to the supply of goods and services digitally. This compares with the European proposals lead by the French Government on a wider tax on digital activity.

Business will be relieved that changes to the intangible assets regime will bring it in line with the capital gains rules on disposals of businesses. This will facilitate business reorganisations and disposals and acquisitions.

Bookmakers will not be pleased by the Budget – in additional to the restriction to £2 on prizes on Fixed Odds Betting Terminals in shops, which is likely to reduce customer activity on such games, the duty on remote gaming is increasing to 21%.Two of the most expensive capital gains tax reliefs have been restricted – reducing the availability of principal private residence relief where an individual is letting out their main home, and ensuring that entrepreneurs’ relief is only available to shareholders who own an economic stake in their company of at least 5%.

In short, it was a waiting budget with a few announcements with major decisions left until next year.  However, the Chancellor did leave us with a warning, that if the financial forecast was adversely impacted by the Brexit negotiations, then the forthcoming Spring statement could be upgraded to a full Budget.

For an in-depth look at the Autumn Budget, see out overviews below:

Multinationals overview

Business overview

Employers overview

Individuals overview

Key measures

Capital allowances

The changes in respect of capital allowances show a welcome commitment to businesses that invest in their physical capital asset base.

Corporate capital losses

The amount of capital gains that can be relieved by carried forward capital losses will be limited to 50 percent from 1 April 2020.

Digital services tax

The Chancellor has announced the introduction of a new Digital Services Tax in the UK from April 2020.

Entrepreneur’s relief

The Chancellor announced Entrepreneurs’ Relief changes which shareholders need to consider now – the key changes are discussed here. 

Hybrid capital instruments

A fundamental rewrite of the tax rules governing regulatory capital, extending access to the regime beyond the regulated financial sector.

Intangible fixed assets

The Government has listened to concerns raised over the competitiveness of the tax rules for intangibles.

Offshore receipts in respect of intangible property

The Chancellor confirmed the UK will introduce an expanded set of taxing rights in relation to intangible property connected with UK sales. 

Off-payroll working

In a welcome move, the Government’s proposed reforms have been deferred to April 2020.

Private Residence Relief

While PRR will remain for an individual’s main residence, changes will be made to two ancillary reliefs.

Short-term business visitors

The rules on STBVs from overseas branches of UK companies will change in 2020.

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