chartered accountants & tax advisers AUTUMN BUDGET 2017 November 2017 - The Budget The Chancellor Philip Hammond delivered his second Budget earlier this afternoon, in uncertain, pre-brexit times. Delayed by a few minutes by an overrunning Prime Minister s Questions, which included a debate on tax avoidance, the Chancellor tried to lighten the mood a little by including a few jokes in his speech. Turning to more serious matters though, growth forecasts for the UK economy have been cut sharply following changes to estimates of productivity and business investment. With our national debt remaining high, Mr Hammond announced a balanced approach of fiscal responsibility and investment in skills and infrastructure, whilst putting aside a 3bn Brexit contingency. The abolition of Stamp Duty Land Tax for many first time property buyers is of course the headline grabber, along with other measures to encourage development and occupancy of property. Non-resident owners of commercial property will be less pleased to see the extension of Capital Gains Tax to these properties. haysmacintyre 2017 The Enterprise Investment Scheme (EIS) allows valuable and tax-efficient investment in companies: the investment limit will be doubled for knowledge intensive companies, whilst tax relief will be restricted for low-risk capital preservation schemes. Additional relief will also be available to companies undertaking research and development, with an increase to the R&D tax credit to 12%, from January 2018. Many small businesses will be relieved that the Chancellor has maintained the VAT Registration Threshold at 85,000, but a more fundamental review of the VAT system is to follow, as we progress towards Brexit. We look forward to receiving more detail on all measures announced: we expect the Finance Bill to be published on 1 December. Katharine Arthur, Head of Tax at haysmacintyre T 020 7969 5610 E karthur@haysmacintyre.com Twitter: @katharinearthur 1
Personal tax The tax-free personal allowance will increase to 11,850 and the basic rate band will increase to 34,500, meaning higher rate tax will commence at 46,350 from April 2018. Lower tax bands may apply in Scotland, as determined by the Scottish Government. National insurance The planned increases to Class 4 NIC from 9% to 11% will not go ahead. Rather than abolish Class 2 contributions, they will be retained until at least April 2019. ISAs and Child Trust Funds The ISA annual subscription limit for 2018/19 will remain unchanged at 20,000. Junior ISAs and Child Trust Fund subscriptions limits will increase to 4,260. Pensions In an otherwise quiet Budget for pensions, the major change will be a small CPI increase in the lifetime allowance to 1,030,000. Trusts The Government will publish a consultation document next year with the intention of making trust taxation simpler, fairer and more transparent. Changes will be made to the rules for payments from offshore trusts to ensure a UK resident individual does not escape tax by having the payments made via an overseas beneficiary or to a remittance basis user. Landlords and property taxes Councils will be given the freedom to charge a premium of up to 100% on council tax for vacant properties in order to encourage occupancy and lettings. Fixed rate mileage deductions will be available for landlords who use their cars for the purposes of a property rental business in order to simplify tax compliance and remove capital allowance claims. There will be a call for evidence to determine if the rent-a-room scheme is successful in promoting longterm lettings. Capital Gains Tax (CGT) The annual exempt amount will be increased to 11,700 from April 2018 for individuals and personal representatives and to 5,650 for trusts. The requirement to pay CGT on residential property sales within 30 days of completion will be deferred until April 2020. Non-residents liability to CGT will be extended to commercial property, as well as residential, from April 2019. Training There will be a consultation on extending the scope of tax relief available to employees and the selfemployed who self-fund work-related training. Self-Assessment Debt Recovery HMRC will use PAYE codes and real-time salary information to speed up the collection of self-assessment tax debts from April 2019. Certificates of Tax Deposit The scheme will be closed from 23 November 2017 and no further certificates will be available for purchase. Existing certificates will be valid until November 2023. Any outstanding certificates will then be repaid to taxpayers. Property Stamp Duty Land Tax (SDLT) An exemption for first time buyers paying 300,000 or less for a residential property is introduced from 22 November 2017. First time buyers paying between 300,000 and 500,000 will pay SDLT at the 5% rate on the purchase price in excess of 300,000. No relief is available where total consideration exceeds 500,000. A first time buyer is an individual who has never owned an interest in a residential property in the UK or elsewhere in the world and intends to occupy the property as their main residence. Minor reliefs are introduced from the higher rates of SDLT where an additional property is acquired following a divorce or there is a transfer of properties between spouses. The Government has confirmed that the reduction in the SDLT filing and payment window, from 30 days to 14 days, will apply to land transactions with an effective date on and after the 1 March 2019. Non-resident property companies UK property income of non-resident companies, currently subject to income tax under the nonresident landlord scheme, is to be charged to corporation tax with effect from April 2020. Gains that arise to such non-resident companies on the disposal of UK property will be charged to corporation tax rather than capital gains tax. 2 haysmacintyre 2017
Business tax Research & Development The rate of Research & Development Expenditure Credit (RDEC) is increased to 12% (from 11%) for expenditure incurred on or after 1 January 2018. Venture capital schemes The EIS investment limit for individuals is increased to 2m provided that any amount over 1m is invested in one or more knowledge intensive companies. The annual investment limit for a knowledge intensive company is increased to 10m. The permitted maximum age rules are to be amended to allow a knowledge intensive company to use the date from which its annual turnover exceeded 200,000, instead of the date of its first commercial sale, when determining the date from which the end of the initial investing period is calculated. These changes will have effect on or after 6 April 2018. A new qualifying condition the risk to capital condition is introduced for the purposes of the EIS, SEIS and VCT rules. The condition introduces a principles based test to determine if, at the time of the investment, a company is a genuine entrepreneurial company and, in particular, whether there is a significant risk of loss of capital. All relevant factors are to be considered in reaching that conclusion. The new test will apply to all investments made on or after Royal Ascent. Withholding tax on royalties Withholding tax obligations are to be extended to royalty payments and payments for certain other rights made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located and will have effect from April 2019. Corporation tax Indexation relief available in computing chargeable gains subject to corporation tax is to be frozen at 31 December 2017 for disposals occurring on or after 1 January 2018. Amendments are to be made to the Substantial Shareholding Exemption and the Share Reconstruction rules to avoid unintended chargeable gains triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company. A consultation is to be undertaken during 2018 on the economic case for targeted changes to the intangible fixed assets regime. Capital allowances First Year Tax Credits under the energy saving and environmentally beneficial first year allowances schemes are to be extended to 31 March 2023. The rate of eligible claims remains at two-thirds of the corporation tax rate. 100% First Year Allowances for businesses purchasing zero emission goods vehicles or gas refuelling equipment is extended for a further three years to 31 March 2021. Business rates Legislation is to be introduced to enable businesses affected by the staircase tax to require the Valuation Office Agency to recalculate valuations so that bills are based on previous practice. The legislation will be backdated to April 2010. The 1,000 business rate discount for public houses with a rateable value of up to 100,000 is to be extended for a further year from 1 April 2018. The planned switch in indexation from RPI to CPI is brought forward to 1 April 2018. The VOA will revalue non-domestic properties every three years following the next revaluation, currently due in 2022. Employment tax A consultation is to be undertaken in 2018 on the intermediaries legislation (IR35) as it applies in the private sector. The consultation will draw on the experience of the public sector reforms and a possible next step is an extension of these reforms to the private sector. The diesel supplement used to calculate company car tax and car fuel benefit charge is to be increased from 3% to 4% and will apply to all diesel cars registered on and after 1 January 1998 that do not meet RDE2 standard. The change will have effect from 6 April 2018. From April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees electric vehicles. haysmacintyre 2017 3
VAT VAT registration The main change to VAT in the Budget was the announcement that the VAT registration limit would be frozen at its current limit of 85,000 until March 2020. Whilst not as dramatic as the speculation from some that it could be cut it will, according to the OTS, have the effect of requiring an additional 8,000 businesses to register for VAT. The Treasury will continue to look at further ways in which the registration threshold could be amended, such as the smoothing measures contained in the OTS review. Online marketplaces The Government also announced that online marketplaces will be jointly and severally liable for any VAT that a non-uk business selling goods via the online marketplace fails to account for where the overseas business was not registered for VAT and the marketplace knew, or should have known, it was not registered. For UK businesses selling goods through an online marketplace, the marketplace will be jointly and severally liable for any future VAT that the business fails to account for, after HMRC has issued a notice to the online marketplace. Online marketplaces will also be required to ensure that VAT numbers displayed for third party sellers are valid and will be required to display a VAT number when they are provided with one by a third party seller operating on their platform. These changes will have effect on or after the date of Royal Assent. Combined authorities In a change which will impact only on combined authorities, fire and rescue authorities, the Scottish Police and the Scottish Fire and Rescue Service, S33 will be amended to allow such authorities to recover VAT they incur in carrying out their statutory duties. OTS review of VAT In addition to the recommendations on the VAT registration threshold, the OTS made a number of other recommendations. The Chancellor has written to the OTS stating that the other recommendations contained in the report would be looked at by the Treasury and HMRC. VAT fraud in the construction industry A technical consultation will be launched in Spring 2018 on draft legislation for a reverse charge with a final draft to follow in October 2018. This follows the consultation launched in the Spring 2017 Budget, a summary of responses to which will be published on 1 December. VAT split payment for online payments A response document will be published on 1 December to this proposal which allows VAT to be extracted from online payments in real time in preparation for a full consultation in 2018. VAT and vouchers A consultation document will be published on 1 December with a view to implementing changes in the treatment of vouchers from 1 January 2019. A call for evidence on the impact of VAT and Air Passenger Duty in Northern Ireland will be published and the postponed accounting system for VAT on imports will be taken into account when considering potential changes after leaving the EU. Late submission and returns A response document to the most recent consultation on this will be published on 1 December with a view to a further consultation on draft legislation in 2018. VAT grouping HMRC will publish a summary of responses to the consultation on VAT grouping on 1 December, and will consider further the scope of VAT grouping, the issues raised and the impact of any potential changes. 4 haysmacintyre 2017
Tax avoidance measures Extending Offshore Time Limits Time limits for non-deliberate offshore tax noncompliance are to be extended to at least 12 years. Depreciatory Transactions The six year time limit for depreciatory transactions is to be removed. Profit Fragmentation A consultation exercise is to be undertaken in 2018 on measures to prevent UK traders or professionals from avoiding UK tax by fragmenting their UK income between unrelated entities. Intangible Fixed Assets The intangible fixed assets rules are to be amended to remove the benefits of related party step-up schemes. haysmacintyre 2017 5
haysmacintyre 26 Red Lion Square London WC1R 4AG T 020 7969 5500 F 020 7969 5600 E marketing@haysmacintyre.com www.haysmacintyre.com @haysmacintyre Copyright 2017 haysmacintyre. All rights reserved. haysmacintyre is registered to carry out audit work and regulated for a range of investment business by the Institute of Chartered Accountants in England and Wales. A list of partners names is available for inspection at 26 Red Lion Square, London WC1R 4AG. Disclaimer: This publication has been produced by the partners of haysmacintyre and is for private circulation only. Whilst every care has been taken in preparation of this document, it may contain errors for which we cannot be held responsible. In the case of a specific problem, it is recommended that professional advice be sought. The material contained in this publication may not be reproduced in whole or in part by any means, without prior permission from haysmacintyre.