Budget Breakfast 2018

Transcription

1 Budget Notes 2018

2 Contents Page 1. Personal taxation Income tax rates and bands Income tax allowances Scottish taxation Welsh taxation Capital gains tax rates ISAs and Junior ISAs Minimum wage increases National Insurance Contributions Annual Tax on Enveloped Dwellings charges Entrepreneurs Relief Changes to IR Private Residence Relief changes to lettings relief and final period relief Gift Aid Small Donations Scheme Charities Small Trading Tax Exemption Gift Aid Retail Gift Aid Scheme Earlier announcements relating to National Insurance Contributions Market value rule for Stamp Duty and Stamp Duty Reserve Tax Cryptoassets Taskforce publication IHT residential nil rate band Inheritance tax treatments of trust additions Capital gains tax emigrating trusts Business taxation Annual investment allowance Capital allowances Other capital allowances announcements NICs Employment Allowance restriction Corporate taxation Restriction on the use of corporate capital losses Reform of the corporate intangible fixed assets regime Digital services tax Restriction on payable research and development (R&D) tax credits for SMEs Changes as a result of OECD and EU initiatives Property taxation Non-resident capital gains tax extended to all gains on immovable property Technical changes to Stamp Duty Land Tax Additional Stamp Duty Land Tax charge for non-residents Capital gains tax payment window residential property VAT and indirect taxes 21 Page 2 of 26

3 Contents Page 5.1 Registration thresholds to remain unchanged VAT gap and avoidance measures Changes to VAT treatment of prepayments Insurance intermediary offshore loop VAT and vouchers Other VAT changes VAT grouping Other indirect tax changes Administration and compliance HMRC preferred creditor in insolvency Directors to be jointly and severally liable for company tax debts Trust taxation Offshore time limits Voluntary tax returns Short term business visitors Making Tax Digital 26 Page 3 of 26

4 1. Personal taxation 1.1 Income tax rates and bands For and , the higher rate threshold will be raised to 50,000, and the personal allowance raised to 12,500. From onwards, the personal allowance and higher rate threshold will be indexed in line with the Consumer Price Index (CPI). The rates and bands of income tax are set out in the table below. Different thresholds apply in Scotland see below at 1.3. Tax rate Taxable income Taxable income Starting rate for savings only: 0% 1-5, ,000 Basic rate: Income other than dividend income: 20% Dividend income: 7.5% Higher rate: Income other than dividend income: 40% Dividend income: 32.5% Additional rate: Income other than dividend income: 45% Dividend income: 38.1% 1-37, ,500 37, ,000 34, ,000 over 150,000 over 150,000 Dividends are treated as the top slice of income. The trust rate of income tax remains at 45%, with the trust dividend rate at 38.1%, where total trust income exceeds 1, Income tax allowances There are various tax allowances which are set out in the table below. Allowance Personal allowance * 12,500 11,850 Income limit for personal allowance 100, ,000 Marriage allowance ** 1,250 1,190 Married couple s allowance at 10% *** For people born before 6 April ,915 8,695 Minimum amount 3,450 3,360 Page 4 of 26

5 Income limit for married couples allowance 29,600 28,900 Blind person s allowance 2,450 2,390 Dividend allowance (regardless of level of non-dividend income) 2,000 2,000 Personal savings allowance For basic rate taxpayers 1,000 1,000 For higher rate taxpayers For additional rate taxpayers Nil Nil *Allowance reduced by 1 for every 2 over limit (where applicable). For those with income over 125,000 in the personal allowance is reduced to nil ** A spouse or civil partner may transfer up to this amount of their personal allowance to their spouse or civil partner, provided neither is liable to income tax above the basic rate. Only available to people born after 6 April Relief is restricted to 20%. *** Allowance reduced by 1 for every 2 over limit. 1.3 Scottish taxation The Scottish Government has the ability to vary the income tax rates independently, move thresholds and introduce or even abolish rates. For there is a system of five tax rates and bands. We do not yet know whether this will remain the same for , but this is expected to be announced in the Scottish Draft Budget on 12 December Welsh taxation From 6 April 2019, the Welsh Assembly will be given devolved powers to set Welsh rates of income tax. The Welsh Government has announced that it proposes to set the Welsh rates of income tax for at a level that will keep rates of tax for Welsh taxpayers at the same rate as English and Northern Irish taxpayers. 1.5 Capital gains tax rates The capital gains tax rates remain unchanged and are set out in the table below. From 6 April 2019 Capital gains tax Capital gains tax on residential property and carried interest Basic rate 10% 18% Higher and additional rate 20% 28% Trustees 20% 28% The annual exemption for is 12,000 for individuals and 6,000 for trustees. Page 5 of 26

6 1.6 ISAs and Junior ISAs The annual subscription limit for adult ISAs will remain at 20,000 for The subscription limit for Junior ISAs will be slightly increased in line with CPI to 4, Marriage allowance Marriage allowance was introduced in 2015 and allows individuals to transfer 10% of their personal allowance to their husband, wife or civil partner (whether living or deceased) where the recipient is not a higher rate or additional rate taxpayer. Individuals can backdate claims for up to four years. The allowance is currently 1,190 and is set to increase to 1,250 in Minimum wage increases The Government will implement the suggested increases to the National Minimum Wage and National Living Wage as recommended by the Low Pay Commission. It was also announced that the accommodation offset which reduces the National Minimum/Living Wage payable to employees in receipt of employer provided accommodation will increase from 7 to 7.55 per day from 1 April Next year, the Government will announce a remit for the Low Pay Commission to consider the level of the National Living Wage for the years beyond This will include engagement with stakeholders including businesses, employees, and the TUC. Hourly rates National Living Wage for workers aged over National Minimum Wage for workers aged National Minimum Wage for workers aged National Minimum Wage for workers aged National Minimum Wage for apprentices aged under 19 or in their first year of apprenticeship National Insurance Contributions Rate/limit Employee s Class 1 NIC on earnings between primary threshold and upper earnings limit 12% 12% Employee s Class 1 on earnings above upper earnings limit 2% 2% Employer s Class 1 on earnings above secondary threshold 13.8% 13.8% Page 6 of 26

7 Primary threshold (weekly) Secondary threshold (weekly) Upper earnings limit (weekly) Self-employed Class 4 on profits between lower and upper profits limits 9% 9% Self-employed Class 4 on profits above upper profits limit 2% 2% Lower profits limit (annual) 8,632 8,424 Upper profits limit (annual) 50,000 46,350 Class 2 (per week) Annual Tax on Enveloped Dwellings charges The ATED charge increases in line with CPI each year. The rates for the and chargeable periods are: Property Value Annual charge for the chargeable period Annual charge for the chargeable period 500,001 to 1,000,000 3,650 3,600 1,000,001 to 2,000,000 7,400 7,250 2,000,001 to 5,000,000 24,800 24,250 5,000,001 to 10,000,000 57,900 56,550 10,000,001 to 20,000, , ,400 20,000,0001 and over 232, , Entrepreneurs Relief Entrepreneurs' Relief (ER) allows office holders and employees to benefit from a 10% tax rate on capital gains realised from qualifying disposals including the disposal of shares in trading companies, if certain conditions are met. Changes have been made to the conditions for which relief is available as follows: a. For disposals on or after 29 October 2018 changes to the definition of a personal company : Page 7 of 26

8 One of the requirements to obtain relief is that the company is the individual s personal company, which previously required the individual to be beneficially entitled to at least 5% of the ordinary share capital of the company and 5% of the voting rights. From 29 October 2018 the legislation has been updated so that the individual must also be beneficially entitled to at least: 5% of the company s distributable profits; and 5% of the company s assets for distribution to equity holders in a winding up. This change has been made to ensure that only shareholders with a true 5% economic interest in the company are entitled to the relief. b. With effect from 6 April extension of the qualifying period from 12 months to 2 years: Anti-dilution From 6 April 2019, individuals will need to meet the qualifying conditions for ER (including the personal company condition outlined above) for a minimum of two years (increased from 12 months currently. Although the measures outlined above tighten the conditions for ER, they are to be implemented alongside a previously announced change relaxing the relief. As announced in the Autumn 2017 Budget, measures are being introduced to allow a claim for ER in instances where an individual meets the 5% personal company test (for the necessary qualifying period) but later fall below the 5% threshold such that ER would no longer be available. Draft legislation has now been published, which essentially allows the individual to make an election for ER to be available in relation to any capital gain accruing up to the date the individual ceased to meet the 5% personal company test. However, the election can only be made in cases where the individual s interest has been diluted below the threshold by virtue of a subscription for new shares in the company consisting wholly of consideration in cash. HMRC acknowledge that making the election may crystallise a capital gain when the individual has not sold any shares, thereby incurring a dry tax charge, and therefore the capital gain can be deferred, by making a further election, until there is a subsequent sale of the underlying shares. For the purposes of valuing the shares at the date of the relevant election it is necessary to calculate the capital gain based on the value that represents a pro rata share of the consideration that would be received from a sale of the whole company. This is necessary in order to avoid including a discount, which would ordinarily apply to minority interest shareholders Changes to IR35 The Budget has confirmed changes to the intermediaries rules (commonly known as IR35) extending the previous public sector only rules to cover the private sector. Currently, where a private sector business/organisation engages a contractor through a personal service company (PSC) the legislation requires that the PSC consider whether the contract falls within IR35 (that is, in broad terms, whether the contractor would have been an employee of the business if engaged directly rather than via the PSC). Where IR35 does apply, the PSC is required Page 8 of 26

9 to deduct income tax and NICs via PAYE, removing the potential tax advantage of operating through the company. HMRC have long been concerned that many PSCs are incorrectly determining contracts to be outside IR35: their most recent estimate is that only 10% of individuals working through PSCs operate the rules correctly, leading to hundreds of millions of pounds in lost tax and NICs. It is not surprising, then, that the Government is looking to take action in this area. Although several options were consulted on earlier in the year, the Budget has (as was widely expected) confirmed that the Government plans to extend rules already in place for public sector contracts to the private sector, albeit with a delay in implementation until April From then, it will be the engaging business, agency or third party which will need to determine whether or not a contract falls within the IR35 rules, and not the PSC. Where a contract does fall within IR35, the contracting entity will need to deduct tax and NICs. The Government s policy costings document expects that these changes will generate billion in additional tax in , with ongoing additional revenue in excess of half a billion pounds in subsequent years. This change will affect medium and large (as defined in Companies Act 2006) private sector businesses engaging contractors through PSCs. The Government does not plan to extend the rules to the UK s 1.5 million smallest businesses, who will continue to operate the existing rules. The Government will publish a consultation in the coming months which is expected to contain further details on the operation of the rules. The draft legislation is then expected to be published as part of next summer s draft Finance Bill. Businesses, organisations and agencies will need to ensure that they are equipped not only to determine whether or not a contract does fall within IR35 which can represent a significant challenge in itself but also, where it does, to make the correct tax and NICs deduction from payments. This may mean changes to current payroll, finance and HR processes. Potentially affected businesses, organisations and agencies should, therefore, prepare early to make sure that they are ready for the April 2020 changes. The Government has indicated that it will provide detailed guidance and support for business in the run up to the changes, but will also be looking at potential sanctions for any businesses failing to take reasonable care when arriving at a decision. In addition, the Budget documents do not contain any comments on the wider reform of the employment status rules for both employment law and tax, which were the subject of consultation earlier in the year following Matthew Taylor s 2017 review of modern working practices Private Residence Relief changes to lettings relief and final period relief Private Residence Relief exempts the capital gain arising on the sale of a main residence from Capital Gains Tax. The Budget has introduced two changes restricting the relief available. Lettings relief: Where a taxpayer lets out their home for a period of time, providing Private Residence Relief is available on a portion of the gain, lettings relief can also be claimed. The amount of relief is the lower of: The Private Residence Relief being claimed Page 9 of 26

10 40,000 The gain in the let period; and Therefore the maximum relief that can be claimed is 40,000 ( 80,000 per couple). In the Budget the Chancellor announced that from April 2020 lettings relief will only be available to those who are in shared occupancy with a tenant. Final period exemption: Where a property has been an individual s main residence at any time in the period of ownership then currently the final 18 months of ownership will qualify for private residence relief, regardless of what the property was used for in this period. From April 2020 this will be reduced to nine months. This was reduced from 36 months in April Example: A married couple bought a house in April 2010 for 500,000 and lived in the property as their main residence for three years, let the property out from April 2013 and sold the property in late March 2020 for 750,000. The total capital gain is 250,000. Under the current rules their tax position would be as follows: Taxable gain: Gain which qualifies for Private Residence Relief Total ownership period months Period which qualifies for Private Residence Relief 36 months (occupation) and 18 months (final period) - total qualifying period 54 months Total = 250,000 / 120 months x 54 months = 112,500 of Private Residence Relief Lettings relief: Lower of: The gain in the let period ( 137,500) The Private Residence Relief ( 112,500) 40,000 Therefore the total lettings relief is 80,000 ( 40,000 per spouse). The taxable gain would be 57,500 ( 250, ,500-80,000) which would be taxable at 28%, ie 16,100 (based on their annual exemptions not being available). Now suppose the property is sold post 5 April 2020 after the reduction in the final period exemption and the restriction on the lettings relief has been introduced. The position would be: Total ownership period 121 months Page 10 of 26

11 Taxable gain: Period which qualifies for main residence relief 36 months (occupation) and 9 months (final period) total qualifying period 45 months Total = 250,000 / 121 months x 45 months = 92,975 of private residence relief The taxable gain would be 157,025 ( 250,000-92,975) which would be taxable at 28%, ie 43,967 (based on their annual exemptions not being available). No lettings relief is due Gift Aid Small Donations Scheme The Small Donations Scheme allows charities to claim Gift Aid on small cash and contactless card payments without the need to obtain a Gift Aid declaration from the donor. From April 2019, the limit for small donations will be increased from 20 to Charities Small Trading Tax Exemption Charities do not pay tax on profits generated from charitable trading that is part of its primary purpose. Where a charity engages in a trading activity that does not relate to its primary purpose, the Small Trading Tax Exemption means that the profits generated are tax exempt as long as the turnover from this activity is below a certain limit. From April 2019, the Small Trading Tax Exemption limits will increase to the following: Annual charity income Small Trading Tax Exemption limit Under 32,000 8,000 32,000 to 320,000 25% of income Over 320,000 80, Gift Aid Retail Gift Aid Scheme Gift Aid is not available for the donation of clothes, art or other valuable items to charity shops. Under the Retail Gift Aid Scheme, charity shops (including online shops) act as a selling agent for the donor, rather than selling donated items on their own behalf. Once an item is sold, the sale proceeds may be donated to the charity and the donation therefore qualifies for Gift Aid. The scheme enables the charity to claim additional Gift Aid payments and for the donor to obtain additional tax relief. Under the current rules, the charity shop must write to the donor every tax year when their goods raise less than 20 a year. From April 2019, charities will only need to write to such donors every three tax years. This should therefore reduce the administrative burden for charity shops Earlier announcements relating to National Insurance Contributions As announced in September 2018, the proposed abolition of Class 2 National Insurance Contributions (NICs) is being scrapped. Page 11 of 26

12 Despite ostensibly being a tax relief, in fact the abolition would have disadvantaged the low paid, as such individuals would have needed to make Class 3 contributions at higher rates to maintain pension and benefit entitlement. The legislation abolishing Class 2 NICs was originally to have formed a part of a NICs Bill, published in draft in December The Government has now announced that the remaining measures in this Bill will still be legislated and will now take effect from April These measures will cap the employers NIC exemption for termination payments at 30,000 and the exemption for noncontractual payments to sportspersons as part of their testimonial at 100,000. This latest announcement is a further deferral of these NICs changes, which had previously been expected to take effect from April Market value rule for Stamp Duty and Stamp Duty Reserve Tax Currently when property is transferred to connected company there is charge to Stamp Duty Land Tax (SDLT) based on the market value of that property. There was previously no similar rule for Stamp Duty (SD) or Stamp Duty Reserve Tax (SDRT) on the transfer of shares to connected companies. With effect from 29 October 2018 the Government has introduced a market value rule for SD and SDRT (for listed securities) transferred to connected companies. The Government has also announced consultation on the impact of aligning the SD and SDRT consideration rules, which currently are worded slightly differently, and introducing a general connected party market value rule Cryptoassets Taskforce publication The Chancellor created the Crytpoasset Taskforce, which consists of HM Treasury, the Financial Conduct Authority and the Bank of England, in March 2018, with the purpose of setting out a clear path to the establishment of the UK s policy and regulatory approach to cryptoassets and distributed ledger technology (DLT). The Taskforce has released a final report, which has been published alongside the 2018 Budget documentation. The Taskforce broadly concluded that strong action should be taken to address the risks associated with cryptoassets that fall outside the existing regulatory frameworks and the authorities plan to engage with international bodies to ensure a comprehensive response. The authorities will keep their approach to crytpoassets and DLT under review to ensure the UK continues to support innovation, while maintaining safe and transparent markets. HMRC are also engaged in updating their guidance on the taxation of the cryptoassets and this is expected to be published early in IHT residential nil rate band In Summer 2015 the Chancellor announced an additional inheritance tax nil rate band where a property (or an interest in a property) which has at some point been the main residence of the deceased passes on death to a child or grandchild. Where there are several such properties or interests in the deceased s estate, the executors are able to nominate the property to which the additional tax free allowance shall apply. Page 12 of 26

13 The new allowance started to be phased in from 6 April 2017 as follows: 6 April ,000 6 April ,000 6 April ,000 6 April ,000 The Chancellor has announced some minor technical amendments in relation to the operation of the main residence nil rate band to ensure fairness. The amendments to the relief are to ensure that: a. In downsizing calculations the value of any part of a residence that is inherited by an exempt beneficiary (ie spouse, brother, sister or non-lineal decedent of the deceased) is taken into account in determining the total relief available; and b. Where a residence forms part of a person s estate immediately before their death due to the operation of the gift with reservation of benefit rules, it will only be treated as being inherited by a direct descendent if the property becomes immediately comprised in the direct descendant s estate as a result of the original gift Inheritance tax treatments of trust additions The Government will introduce legislation in Finance Bill to confirm the IHT treatment of additions to existing trusts. Where a trust has been settled by an individual who is not domiciled or deemed-domiciled (ie is a non-dom ) in the UK then the trust will own excluded property to the extent that non-uk situs assets are held directly by the trustees. The legislation to be introduced will confirm that additions of assets by UK-domiciled or deemed domiciled individuals to a trust which was originally settled by a non-dom will NOT also be excluded property. The Government have advised that the legislation will apply to IHT charges arising on or after the date on which the Finance Bill receives Royal Assent. The Government have also advised that legislative amendments will be made to ensure that transfers between trusts made after the date the Finance Bill receives Royal Assent will be subject to additional excluded property tests. We are uncertain what these tests may be but anticipate that this may include a further review of the settlor s domicile status or may mean that the settlor must be non-uk domiciled and non UK-deemed domiciled at the point that the transfer is made between the trusts Capital gains tax emigrating trusts When a UK resident trust ceases to be UK resident, for capital gains tax purposes it is deemed to have disposed of all of its assets on its last day of UK residence. It will therefore have a capital gains tax charge (an exit charge ) in respect of any gains deemed to arise. In 2017, the Court of Justice of the European Union ( CJEU ) ruled that the application of this law when the trustees of a trust move to another EU or EEA member state was not contrary to the Page 13 of 26

14 freedom of establishment principles. However, it ruled that where a trust has economically significant activities in the state to which it emigrates, it should be offered the ability to defer the capital gains tax due. From April 2019, legislation will be introduced to bring the existing rules in line with the CJEU ruling. 2. Business taxation 2.1 Annual investment allowance The annual investment allowance (AIA) limit is being increased for qualifying investment in plant and machinery from its permanent rate of 200,000 to 1,000,000 from 1 January 2019 for a period of two years. The measure is intended to stimulate business investment in the economy by providing immediate tax relief for plant and machinery investments. Where a business has a chargeable period that straddles the commencement date of 1 January 2019 then the maximum allowance for the transitional chargeable period comprises two parts, namely: a. the AIA entitlement, based on the 200,000 cap for the portion of the period falling before 1 January 2019; and b. the AIA entitlement based on the 1,000,000 cap for the portion of the period falling after 1 January The maximum AIA for the business in the straddle period would be the sum of (a) + (b). Example: Where a business has a chargeable period from 1 July 2018 to 30 June 2019 the maximum AIA for this period would be 600,000, calculated as follows: a. the proportion of the period from 1 July 2018 to 31 December 2018, that is, 6/12 x 200,000 = 100,000; and b. the proportion of the period from 1 January 2019 to 30 June 2019, that is 6/12 x 1,000,000 = 500,000. However, in relation to part (a) no more than a maximum of 200,000 of the company s actual expenditure during that six month period would be covered by the transitional AIA entitlement, due to the restriction of the maximum claimable amount applying to that period, before the increase to 1,000,000. A similar calculation would need to be applied for the period straddling the chargeable period in which the AIA reverts to the permanent rate of 200,000 ie from 1 January Page 14 of 26

15 2.2 Capital allowances The Chancellor announced the introduction of a new 2% capital allowance the Structures and Buildings Allowance (SBA) for qualifying expenditure on new non-residential structures and buildings incurred on or after 29 October. Over the next five tax years the measure is expected to cost the exchequer an additional 1.9bn, the majority of which will be offset by a reduction in writing down allowances from 8% to 6% for assets in the special rate pool, which is expected to generate additional tax revenues of 1.6bn. Structures and Buildings Allowance: The case for widening the scope of the capital allowances legislation to include expenditure on structures and buildings has long been requested by businesses and has also recently been a recommendation of the Office for Tax Simplification. The costs associated with the construction of structures and buildings, or the improvement or conversion of existing structures and buildings are already depreciated in the accounts of many businesses but no tax relief has been available in relation to such expenditure since the abolition of the previous Industrial Buildings Allowances rules. The key features of the SBA are as follows: a. relief will be given at a flat rate over a 50-year period at a rate of 2% per annum; b. relief will be available for new commercial structures and buildings, including costs for new conversions or renovations; c. relief is available for UK and overseas structures and buildings, where the business is within the charge to UK tax; d. relief will be limited to the costs of physically constructing the structure or building, including costs of demolition or land alterations necessary for construction, and direct costs required to bring the asset into existence; e. relief is available for eligible expenditure incurred where all the contracts for the physical construction works were entered into on or after 29 October 2018; f. claims can only be made from when a structure or building first comes into use; g. land costs or rights over land will not be eligible for relief, nor will the costs of obtaining planning permission. This means that a valuation will be required to separate out the cost of the land (not allowable) from the cost of the structure or building; h. the claimant must have an interest in the land on which the structure or building is constructed; i. dwellings (including university or school accommodation, military accommodation or prisons) will not qualify, nor any part of a building used as a dwelling where the remainder of the building is commercial; Page 15 of 26

16 j. sale of the asset will not result in a balancing adjustment - instead, the purchaser takes over the remainder of the allowances written down over the remaining part of the 50- year period; k. expenditure on integral features and fittings of a structure or building that are currently allowable as expenditure on plant and machinery, will continue to qualify for writing down allowances for plant and machinery including the Annual Investment Allowance (AIA) up to its annual limit; l. SBA expenditure will not qualify for the AIA; m. where a structure or building is renovated or converted so that it becomes a qualifying asset, the expenditure will qualify for a separate 2% relief over the next 50 years. The relief will apply to qualifying expenditure incurred where the contracts for the physical construction works of the structure of the building are made in writing and are entered into on or after 29 October Legislation underpinning the SBA will be introduced in Finance Bill , with the detail to follow in secondary legislation. This is to ensure that the rules come into force as soon as possible whilst still providing a consultation period over the winter in relation to the application certain aspects of the legislation. Further rules apply in relation to various matters including the treatment of leasing transactions, acquisition of ready built assets. Legislation will also include anti-avoidance provisions to prevent the manipulation of contracts that were entered into prior to the 29 October 2018 commencement date in order to benefit from the relief. Reduced rate of special writing down allowance: Legislation is being introduced to reduce the rate of writing down allowance (WDA) on the special rate pool of plant and machinery from 8% to 6%, which will apply from 1 April 2019 for business within the charge to corporation tax and 6 April 2019 for businesses within the charge to income tax. The special rate pool includes expenditure on long-life assets, thermal insulation, integral features and expenditure incurred on or after 1 April 2018 on certain polluting cars. The rate of WDA on the main pool remains at 18%, and the rate of WDA on the special rate pool remains at 10% for certain ring fenced trades, including those in the oil and gas industry. The measure is a significant change, which is expected to affect up to 240,000 businesses. 2.3 Other capital allowances announcements As well as the changes above, Budget 2018 contained some other announcements on capital allowances. Clarification of allowances for costs of altering land: The existing capital allowances legislation will be amended to clarify the capital allowances treatment of alterations to land. Expenditure on land alterations will only qualify for capital Page 16 of 26

17 allowances where the purpose of the alterations is to install plant or machinery that also qualifies for capital allowances. End of enhanced allowances for energy and water efficient plant and machinery: From April 2020, energy and water efficient plant and machinery on the Energy Technology List (ETL) and Water Technology List (WTL) will no longer be eligible for 100% first year allowances, or the associated first year tax credit for loss-making businesses. First year allowances for electric charge points: To encourage investment in infrastructure for electric vehicles, the current 100% first year allowances for expenditure on electric charge points, introduced in November 2016, will be extended until NICs Employment Allowance restriction The NIC Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by reducing their employers NIC liability. The initial allowance was 2,000 (per employer per annum) which was increased to 3,000 in April In this Budget the Chancellor has announced the intention to restrict access to the Employment Allowance and from only those businesses and charities with an employers NIC liability below 100,000 will be able to claim. Where employers are connected for purpose of the Employment Allowance rules the threshold will apply to their aggregated liability. 3. Corporate taxation 3.1 Restriction on the use of corporate capital losses Since 1 April 2017, groups with profits of more than 5 million can only offset most losses against 50% of the profits above 5 million. From 1 April 2020 these rules will be extended to include capital losses. The 5 million allowance will apply to both trading losses and capital losses. For example, a group with brought forward trading losses of 4 million and brought forward capital losses of 2 million would be able to offset the brought forward trading losses in full but only 1.5 million of the brought forward capital losses - being 1 million of the remaining 5 million allowance and 50% of the losses in excess. The Government considers that capital losses are less relevant following reforms to the chargeable gains regime over the past 20 years. However, many groups will be carrying forward historic losses with the expectation that they will offset gains on investment assets. By their nature, investment assets are held for the long-term and the restriction on the use of capital losses may represent a significant additional tax cost. Anti-avoidance rules will be introduced to target scenarios where capital losses are delayed or refreshed so that they become current year rather than brought forward capital losses. Page 17 of 26

18 In addition, anti-forestalling rules will be introduced to prevent groups realising chargeable gains before 1 April 2020 when the new rules come into force. A consultation document published alongside the Budget gives some examples of where these rules could apply. 3.2 Reform of the corporate intangible fixed assets regime In his speech the Chancellor announced a targeted tax relief for the acquisition of IP-rich businesses. This is in fact a partial reinstatement of a relief which was removed in Companies can claim tax relief for the amortisation of intangible assets but with effect from 8 July 2015 this excluded goodwill and customer-related intangible assets. We commented at the time that this removed one of the main tax benefits of an asset purchase rather than one of shares. The Government will now consult on the reinstatement of tax relief for the cost of goodwill in the acquisition of businesses with eligible intellectual property. It is intended that the change will be effective from 1 April 2019 and we may see some transactions delayed until then in order to take advantage of the relief. In addition, the degrouping rules will be amended with effect from 7 November 2018 so that tax charges arising from previous group restructuring of intangible assets can be exempt under the substantial shareholding exemption where the conditions are met. 3.3 Digital services tax One of the headlines from the Chancellor s speech was the introduction of a Digital Services Tax from 1 April This is a new 2% tax on the revenues of certain online platforms which are generated from UK users. The DST is likely to apply to a very small number of businesses. It will only apply where the revenues generated from UK users are greater than 25m and where global revenues are greater than 500 million. And it will only apply to certain business activities ie search engines, social media platforms and online marketplaces. As such the DST will only apply to revenues earned from intermediating sales, not from making the online sale. For example, if a social media platform or search engine generates revenues from targeting adverts at UK users, the ad revenues will be subject to the 2% tax. The Government will also publish its response to the call for evidence The Role of Online Platforms in Ensuring Tax Compliance by Their Users, which was launched earlier this year. This will set out the Government s intention to improve collection of tax from those using online platforms (such as ebay) to generate profits. 3.4 Restriction on payable research and development (R&D) tax credits for SMEs Under the SME R&D tax credit rule, a company can claim an enhanced deduction, meaning that a company spending 100 gets a deduction of 230 against its profits. A loss-making company can either carry these deductions forward, or surrender the deduction and claim a payable tax credit. Until 31 March 2012, the amount of the payable credit was restricted to the PAYE and NICs which had been paid by the company during the accounting period. Page 18 of 26

19 This restriction was removed with effect from 1 April 2012 but a new restriction will now be reintroduced for accounting periods beginning on or after 1 April The payable tax credit will be restricted to three times the PAYE and NICs paid by the company during the accounting period. Companies which use external consultants, or which have employees outside the UK (both of which are outside the scope of PAYE and NIC) are likely to be most affected by this change. 3.5 Changes as a result of OECD and EU initiatives Among other things, the OECD Base Erosion and Profit Shifting (BEPS) project recommended changes to double tax treaties to prevent groups from splitting activities between companies in order to avoid creating a permanent establishment. The UK has signed up to the OECD multilateral instrument which implements these recommendations in treaties and similar changes will now be made in UK legislation. This will mean that a non-uk company will have a permanent establishment in the UK if it carries on a cohesive business in the UK with related companies, and taken together the activities would create a permanent establishment. Minor changes are being made to the controlled foreign company (CFC) and hybrid mismatch anti-avoidance rules to ensure they are compliant with the EU Anti-Tax Avoidance Directive (ATAD). It is likely that these changes will remain following Brexit. The EU has also introduced mandatory disclosure rules in relation to specified tax avoidance arrangements. Subject to Brexit transitional arrangements, these rules will apply in the UK with the first disclosures being made in 2020; however, any arrangements put in place on or after 25 June 2018 will need to be disclosed. 4. Property taxation 4.1 Non-resident capital gains tax extended to all gains on immovable property The measures announced at the Autumn Budget 2017 regarding the extension of non-resident capital gains tax will take effect from 6 April 2019 as originally planned. Draft legislation was published in July 2018 and will take effect from 1 April 2019 for companies and from 6 April 2019 for individuals and trustees. By way of a reminder, the changes include the following: a. Disposals of non-residential property Non-residents are currently within the scope of non-resident capital gains tax (NRCGT) in respect of gains realised on the disposal of UK residential property. From April 2019, this will be the case for all UK real property. b. Indirect disposals Non-residents may also be within the scope of UK taxation (either corporation tax or capital gains tax) on the disposal of interests in companies and other entities which derive their value from UK property. In order to be within these rules, two conditions must be met: Page 19 of 26

20 i. The entity in question must be property rich ; more than 75% of the gross value of its assets must derive from UK property. Where a number of entities are sold in a single arrangement, the assets will be aggregated to establish whether the 75% test is met. ii. The non-resident must hold an interest of at least 25% at the date of disposal, or at some point within the previous two years. Interests held by certain persons connected with the person making the disposal will also be taken into account in establishing whether the 25% test is met. A trading exemption will apply to a disposal of an interest in a property rich entity if it is trading before and after the disposal. This may be relevant to those investing in trading businesses with significant real estate such as hotel groups or retail groups. c. Disposals by widely held companies and Collective Investment Vehicles Under the existing rules, non-residents are only subject to NRCGT if they are closely held. The rules will be expanded to include widely held companies including life assurance companies. In addition Collective Investment Vehicles will also be within the scope of UK taxation. These funds, other than those structured as partnerships, will be treated as companies for the purposes of these new rules. However, UK Real Estate Investment Trusts which are property rich will be exempt on gains realised on the disposal of UK property rich entities. As previously announced, the changes will only apply for capital gains accruing from April 2019; however, taxpayers will have the option to elect to use the original acquisition costs of an asset. Any capital loss arising where the election is made will not be an allowance loss. Non-residents will pay tax at the same rate as an equivalent disposal by a UK resident on all UK property disposals, ie companies will pay corporation tax and individuals/trustees will pay capital gains tax. Moreover, relief for losses and exemptions will work on broadly the same terms as they do for UK residents. 4.2 Technical changes to Stamp Duty Land Tax The Budget included certain technical changes to SDLT. Firstly there will be a retrospective amendment to the rules for First Time Buyer relief, which sometimes fails to apply properly to those buying in shared ownership situations. In such cases refunds can be claimed for purchases made on or after 22 November Secondly, at present where an individual pays the 3% additional rate of SDLT on the purchase of a residential property, but then subsequently qualifies for relief on the sale of their former home relief must be claimed within three months. This will be extended to 12 months for sales on or after 29 October Thirdly, there is currently some debate between the tax profession and HMRC as to the meaning of the phrase major interest in land. Certain SDLT reliefs and charges only apply to major Page 20 of 26

21 interests, such as First Time Buyer relief and the 3% additional charge. It was thought, based on a 2013 case Pollen Estate Trustee Company Ltd and King s College London v CRC that jointly held property did not qualify. The legislation will be amended to put beyond doubt that jointly held property is indeed a major interest, taking effect for land transactions on or after 29 October Additional Stamp Duty Land Tax charge for non-residents As announced at the Conservative Party conference, the Government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland. 4.4 Capital gains tax payment window residential property As previously announced, the deadline for paying any capital gains tax due on a UK property disposal will be shortened to 30 days from the date of completion in the following circumstances: a. From 6 April 2019, non-uk residents subject to capital gains tax on any direct or indirect disposal of UK property. b. From 6 April 2020, UK residents subject to capital gains tax on the direct disposal of UK residential property. A tax return reporting the disposal and tax due will also be due within 30 days of completion. The 30 day payment and return window will not apply to the following disposals: a. Disposals by non-uk resident companies. b. Disposals by UK residents of non-uk property. The taxpayer may not have all of the information needed to accurately assess their capital gains tax liability at the point when the payment will be due. The tax paid will therefore act as a payment on account and may be adjusted when the annual tax return is filed. When calculating the payment on account, any unused capital losses and the annual exemption may be taken into account. In order to determine whether the 18% or 28% of capital gains tax is applicable, individuals should estimate their taxable income for the year. Where market valuations are required to file the return, but these are not available before the deadline, reasonable estimates may be used. 5. VAT and indirect taxes 5.1 Registration thresholds to remain unchanged A Value Added Tax ( VAT ) registration will continue to be required where taxable turnover exceeds 85,000. The de-registration threshold remains unchanged at 83,000. The Government has indicated that the registration and de-registration thresholds will remain at this level until at least 31 March Following the OTS VAT simplification review in 2017, the Government has carried out a consultation on potential changes to the registration threshold, including smoothing mechanisms to lessen the burden for businesses that have just exceed the threshold or exceeded for the first time. The outcome of the consultation is that there is no lead Page 21 of 26

22 option for reform, and whilst it will remain on the Government agenda, no changes will take place until 2022 at the earliest. 5.2 VAT gap and avoidance measures The Government estimates that the VAT gap for is in the region of 13.3bn, or 9.6% of the VAT that it believes should be paid. As a result the Government continues to target specific areas where there is perceived VAT avoidance. As part of its anti-avoidance programme, it was confirmed that the proposed reverse charge in the construction sector will go ahead from 1 October The reverse charge means that the customer, rather than the supplier accounts for VAT. The customer can also recover this VAT if it would have been able to if the supplier had invoiced with VAT. The objective is to stop fraudulent traders going missing in the supply chain without accounting for VAT on their supplies of labour. However, it is wide ranging and all businesses involved in the construction supply chain could be affected. There is an exclusion from the reverse charge for end-users of construction services such as individuals, housebuilders and housing associations where the work is to the customer s land or building. 5.3 Changes to VAT treatment of prepayments It was announced that the Government intend to regularise the treatment of prepayments for all goods and services to ensure that where VAT is charged it is paid to HMRC. In certain sectors, VAT can be adjusted when a prepayment is made, and the customer does not collect their supply. This is common in the hotel sector where no-show policies can result in payments being compensation rather than a prepayment for the supply. This change comes into effect on 1 March No further details have, as yet been made available. HMRC also announced that it intends to tighten the rules to ensure credit notes are issued by businesses when there has been an adjustment to the consideration. This appears to be aimed at a perceived avoidance whereby suppliers are adjusting the price and not refunding VAT amounts to the customer (and potentially indirectly to the Government). 5.4 Insurance intermediary offshore loop A specific anti-avoidance measure, announced earlier in the year, aimed at insurers who insert an offshore intermediary in their supply chain which then supplies insurance to UK customers, has been confirmed. This is a targeted anti-avoidance measure aimed at the sector following the Hastings Insurance Services Limited case. The insertion of the non-eu intermediary allowed VAT recovery which would not have been possible had the UK insurer made the supply to the UK customer. 5.5 VAT and vouchers The Government confirmed that the VAT rules in respect of vouchers will be amended on 1 January This change was announced in the 2017 Budget and is an EU-wide harmonisation. The main change will be a widening of the definition of a single purpose voucher, meaning more vouchers will be taxed at issue rather than on redemption. A SPV is a voucher that can only be Page 22 of 26