Autumn Budget 2017 – Our view
Chancellor Philip Hammond delivered his first Autumn Budget today surrounded by the uncertainty of Brexit negotiations. He declared it as “building a Britain fit for the future”, but with little in the way of encouragement for businesses or taxpayers, did he spend too much time on puns and wordplay than on building confidence in the economy?
With a somewhat quiet Budget, with very little in the way of economic policy, three themes emerged:
Personal allowance increase
The Government announced a rise in the personal allowance to £12,500 by 2020 – meaning it will have nearly doubled in the last decade. From April 2018, the personal allowance will be increased to £11,850 and the higher rate band will be increased to £46,350.
Our view – This measure had already been announced in previous budgets so this is not a surprise – perhaps an accelerated time frame would’ve been more welcome.
Class 4 NICs
Government will no longer proceed with an increase to the main rate of Class 4 NICs from 9% to 10% in April 2018 and to 11% in April 2019.
The Government has previously considered introducing a 30 day payment window to pay a capital gain arising on a residential property. The introduction of these new rules will be deferred until April 2020.
Our view – This is the only good news for residential property investors who have in recent times been targeted by the Treasury as easy tax wins.
Company cars and vans
The van benefit charge and the fuel benefit charge will increase from 6 April 2018. The van benefit charge will increase from £3,230 to £3,350, the multiplier for the car fuel benefit charge will increase from £22,600 to £23,400 and the flat rate van fuel benefit charge will increase from £610 to £633.
The Government is bringing forward to April 2018, the switch in the measure of inflation from RPI to CPI. Also frequency of revaluations for business rates will be increased from every five years to every three years.
Cutting down on diesel
The demonisation of diesel cars continues in the bid to provide the next generation with cleaner air. By way of tackling the issue, the diesel supplement (used to calculate company car tax and car fuel benefits in kind) for company diesel cars will increase from 3% to 4% and will apply to all diesel cars registered on or after 1 January 1998.
Over recent years, the Government have been encouraging the use of hybrid and electric cars as company cars (with enhanced capital allowances and reduced benefit in kind charges) and the additional supplement that now applies to diesel cars supports these previous attempts to reduce the number of polluting diesel cars on our roads.
The Chancellor also confirmed that no benefit in kind will arise on employees who charge their electric car at their workplace.
Our view – A very clear message from the Government today on clean air and clean energy. With the focus on discouraging dirty diesel cars and enhancing investment in electric cars. Companies should consider the benefits of electric cars, lower BIK, 100% allowances etc when looking to replace company cars. Penalising motorists with additional tax will eventually dissuade clients from buying diesel.
Encouraging investment through Enterprise Investment Schemes (EIS)
Under current rules, an investor who invests into an EIS qualifying company can claim an income tax deduction of 30% of the amount invested, up to £1m.
In order to encourage more investment in knowledge-intensive companies, the Government has increased the threshold from £1m to £2m. The annual EIS limit for knowledge-based companies receiving investment will rise from £5m to £10m, applying to shares issued on or after 6 April 2018.
Our view – Rumours had been circulating in respect of EIS and how the Government would look to tighten the restrictions regarding qualifications and holding period. The changes actually put a spotlight on the capital invested and the element of risk. If no entrepreneurial challenge is present the relief will be denied. How this will work in practice is unclear at this stage.
The increase in the threshold may be useful to some larger investors, but in our experience very few exceed the current limit of £1m.
An investment into Research and Development, but with a focus on large businesses
The Chancellor confirmed that the Government is taking steps to encourage businesses to invest in R&D by increasing the tax relief for large companies, which carry out qualifying R&D and claim the Research and Development Expenditure Credit (RDEC).
The RDEC (also known as the ‘Above the Line’ credit) is a standalone credit which is brought into account as a receipt in calculating profits. The current general rate is set at 11% of qualifying expenditure, increasing to 12%.
This change may also affect small and medium (‘SME’) sized companies who currently receive state aid/government grants to fund their R&D or who have been subcontracted to undertake R&D work by a large company. Although SME R&D tax relief is not available to companies which receive state aid or who have been subcontracted, they may be eligible to make a claim under the large company scheme. These changes therefore provide The increase in the RDEC rate will have effect for expenditure incurred on or after 1 January 2018.
Our view – This has limited application to our clients as the SME thresholds are generous and most clients fall within this much more attractive regime, with 230% relief. The additional 1% announced by the Chancellor will have limited application. However, what must be remembered is that if you are an SME that receives grant funding, R&D relief is limited to the large company limit – so in these circumstances, clients will benefit.
The indexation allowance on corporate capital gains for disposals of property or assets on and after 1 January, will be frozen at the amount that would be due now based on the Retail Prices Index for December 2017. This will effect disposals on and after 1 January 2018.
Corporation Tax Rates – Maintained at 19%
For the current 2017 financial year the main rate of Corporation Tax is set at 19%. This rate will continue for 2018 and 2019, reducing to 17% in 2020.
Our view – Again, this measure has been announced previously and it is good to see that the Chancellor is holding firm with the reduction in company tax. The benefit of the reduction in CT will have been nibbled away at in this Budget by the indexation freeze and in previous Budgets by the changes to the dividend tax credit.
VAT registration limit to remain as is for two years
The Chancellor announced that the VAT registration and deregistration thresholds will not change for two years from 1 April 2018. The taxable turnover threshold which determines whether a person must be registered for VAT, will remain at £85,000, with the threshold for deregistration remaining at its current level, £83,000. The registration and deregistration threshold for relevant acquisitions from other EU Member States will also remain at £85,000, whilst the UK is a member of the EU.
Our view – This is very good news for small business as there had been rumours circulating of a significant cut to the threshold. The administrative burden on small business is already high, coupled with the onset of ‘Making Tax Digital’ this definitely would not have been a popular policy.
Income tax charge for online royalties in low tax jurisdictions
In an attempt to capture UK individuals using online marketplaces to sell goods but currently escaping HMRC’s reach, legislation has been announced which will hold the online marketplaces jointly and severally liable.
The measure extends existing joint and several liability legislation to:
- Enable HMRC to hold online marketplaces jointly and severally liable for any future unpaid VAT of a UK business which arises from the sale of goods in the UK via that online marketplace.
- Enable HMRC to hold online marketplaces jointly and severally liable for any unpaid VAT of a non-UK business arising from sales of goods in the UK via that online marketplace, where that marketplace knew or should have known that the non-UK business should be registered for VAT in the UK.
- Will require online marketplaces to display a valid VAT number for all of their sellers using their platform, when they are provided with one. They will also be required to ensure that VAT numbers displayed on their website are valid. This ensures that fictitious and hijacked VAT numbers are not displayed. These requirements will be supported by a penalty and it is yet to be determined what level of penalties will be applied.
The legislation will only affect those businesses which are not compliant with their VAT obligations and HMRC will only issue notices to online marketplaces where it is satisfied that a business is non-compliant.
Our view – This is a bold announcement from the Chancellor but one which some feel is long overdue. Traders who sell on sites and do not comply with their VAT liabilities have an advantage over those small businesses and individuals who do. By making the online market responsible for the VAT, the Government is forcing the marketplace to police the seller and enforce good behaviour. This will level the playing field for small businesses that are compliant and shows some inventive thinking from the Treasury.
Amendments to the Corporate Interest Restriction rules
Large businesses within the charge to Corporation Tax which incur net interest expense and other financing costs (within the scope of CT) above £2 million per annum will be affected by the changes, which were originally introduced in April 2017.
Trouble in paradise?
New anti-avoidance rules will be introduced relating to the taxation of income, and gains, arising in offshore trusts. The measure will ensure that payments from an offshore trust intended for a UK resident individual do not escape tax when they are made via an overseas beneficiary or remittance basis user.
The Government had already announced, from April 2019, tax will be charged on gains made by non-residents on disposals of all types of UK immovable property. A consultation has been issued on this proposed measure inviting comments on how the new legislation will operate and whether it will have unintended consequences. The consultation will close on 16 February 2018.
Our view – With all the focus on offshore tax avoidance and evasion it was inevitable that the budget would contain some provisions for taxing funds coming into and out of the UK, which have previously escaped the UK tax regime.
Welcomed news in the property sector, but not a solution to the UK’s housing crisis
The Chancellor’s key message in today’s Budget was to solve the country’s housing problem by way of investment in the building sector, planning reform and tax breaks for first-time buyers. Mr Hammond vowed to increase the annual number of new homes built per annum to 300,000 which will be aided by £44bn investment and loans. Planning reforms will be enacted to incentivise housebuilders to build new, affordable homes.
Although these new measures will be welcome by those struggling to get onto the property market, experts have predicted that the short term impact of these measures could actually hike up house prices. Solving the housing crisis will not be an easy fix.
Stamp duty abolished for first time buyers
With housing on the agenda, the main tax break came in the form of a Stamp Duty Land Tax (SDLT) exemption for first time buyers. From 22 November 2017, first time buyers paying up to £300,000 for a residential property will pay no Stamp Duty Land Tax (‘SDLT’). This relief is also extended to the first£300,000 for those who pay up to £500,000 for their first property. SDLT will be payable at 5% on the excess above £300,000. This will only apply to first time buyers who have never owned a property and intend to occupy it as their main residence. This relief will fractionally reduce the initial cost for first time buyers. For a £300,000 home, this would offer a £5,000 tax saving.
Our view – This was the surprise of the day, reminiscent of George Osborne’s amendment to the SDLT slab system. It is clear that the Government are looking to assist first time buyers to make owning your own home affordable. What it doesn’t do is address the shortfall in housing stock and the affordability of what there is.
The measure will definitely not benefit multiple time buyers, buy to let, commercial property and acquisitions through a company which have been subject to significant change and increased taxes in recent years.
100% Council Tax rate for empty properties
Making reference to the UK’s homeless problem, the Chancellor announced that Local Authorities will have the power to charge a 100% Council Tax premium on empty properties – explaining that it simply wasn’t fair for properties to sit empty whilst there are people without homes.
Our view – With increased Council Tax rates this will be a major concern to buy to let owners and property companies where circumstances dictate that it is not feasible/ possible to let a property at a particular point. It may also disadvantage property owners who have bought a second property with the view to selling the first and the market has stagnated. Therefore not only will they have the issue of the additional stamp duty land tax but also, the additional Council Tax.
This is a naive fix to the much larger issue of available housing stock.
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This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.