Lots of small changes. Many one-off giveaways. Lots of headline-grabbing announcements. Legislative tinkering.
The Chancellor “Austerity is coming to an end but discipline will remain”.
So, the Budget was earlier than we were expecting, to avoid clashing with the final stage of Brexit negotiations in November. Of course, this is the final Budget when the UK is part of the European Union, so how the economy is prepared for the UK’s exit featured significantly in the speech.
Arguably, the nature of any deal struck with the EU – or the failure to reach any kind of deal – would have a much bigger impact on the nation’s finances than anything Mr Hammond has said in the Budget. The Chancellor has effectively said that in the event of a “no deal Brexit” then this Budget will be “torn up” and he will have to start again.
Much of what is detailed in Philip Hammond’s speech and in the red book has already been announced. We know that the government has committed to funding an extra £20billion for the NHS by 2023, and the Chancellor today announced a new, special allocation of funds for mental health crisis support. The PM has said that the borrowing cap for local councils wanting to build new homes will be scrapped. And there have been a lot of other Treasury announcements in recent days: potholes (£420 million), interest-free loans etc etc….
The main spending review will occur in the Spring and the outcome will be announced in the Spring statement. However, a few immediate plans were announced in the Budget, including £650m for local council social care, an immediate £1billion for defence, a one-off cash injection for schools, and £160 million for immediate counter-terrorism police resourcing.
Some basic background facts
A total of 31 million people pay income tax in the UK: 18 million men and 13 million women.
Some 25.6 million of these taxpayers pay income tax at the basic rate.
The amount earned a year before this basic rate of income tax is paid – called the personal allowance – stands at £11,850.
The current rate of corporation tax is 19% and is set to fall to 17%.
Here are the main headlines from both the speech and the small print subsequently issued (there’s lots of it, and we cover only the main points of direct relevance here).
Technology, innovation and entrepreneurship
- A new “2% digital services tech tax” for global business with global profits in excess of £500 million. Note that this is not a digital tax on consumers but designed to stop multi-national established tech-cos from diverting real economic profit offshore. It’s quite a big deal for the UK to go alone on this without OECD/G20 cooperation.
- Re-introduction of a PAYE limit for loss-making SME payable credit R&D Tax Relief with effect from 1 April 2020. This is to stop large R&D claims being made where little is paid by the companies in PAYE and to target some specific tax avoidance schemes. The payable R&D credit will be limited to three times the company’s total PAYE and NICs liability for the year.
- CGT Entrepreneurs’ Relief was expected to be targeted. Thankfully it has not been abolished, but the holding period to obtain relief is being increased from 12 months to 2 years for disposals made on or after 6 April 2019. This will have an impact on shares held directly and on shares acquired through the exercise of EMI options. It has been confirmed that the changes made in 2017 to prevent the loss of ER up to the point when dilution takes a shareholding below 5% will not be affected. Under those rules, relief will be able to be made on gains up to the point when the shareholding was diluted to below 5%. (See also below under tax avoidance.)
My view: Could be better, could be worse. Nothing huge to discourage innovation and entrepreneurship but no great incentives either.
- No change to the planned reduction in the main corporation tax rate to 17%.
- A new structures and buildings allowance and a temporary increase in the Annual Investment Allowance from £200K to £1million for two years from 1 January 2019.
- Capital allowances special rate to reduce from 8% to 6% from April 2019.
- Corporate capital losses to be treated in same way as trading losses, with a 50% loss-use restriction but with a £5million de minimis limit.
- Subject to consultation, the introduction of targeted relief for the cost of acquired goodwill.
- Personal tax allowance and higher rate threshold to be increased so as to reach manifesto commitments by 2019, a year earlier than expected. The PA will be £12,500 and HRT will be £50,000.
- Off-payroll working (“IR35”) changes to mirror those introduced for the public sector. The onus will be on the organisation to operate it. Effective from 2020 with exemptions for small organisations.
- No significant changes to pensions and savings taxes.
- Despite widespread predictions, the VAT threshold will not be reduced until at least April 2022.
Another raft of measures aimed at tackling tax avoidance and abuse, including:
- Entrepreneurs’ Relief: as well as the current requirement on share capital and voting rights, from 29 October 2018 the shareholder must also be entitled to at least 5% of the distributable profits and net assets of the company.
- Rules to counter profit fragmentation (extension of transfer pricing rules).
- Consultation on a new market value rule for consideration liable to SD and SDLT.
We expect the Finance Bill (the draft legislation which Parliament will debate) to be published around 7 November.
When is the next Budget? It should be at about the same time next year, but lots can happen before then…..
There is the spring statement, usually in late February or early March, which updates the state of the nation’s finances.
There is always the chance of a mini-Budget, or a major financial statement of some kind, if and when a Brexit deal is announced.
If you need help or clarification…. Please speak to me