UK Budget 2018 – Executive Summary

The core elements of this Budget were to encourage investment and spending, and to promote the UK as an attractive destination for businesses.

We have summarised the main changes in our following analysis.

Corporate/OMB/ Entrepreneurs

• Introduction of a Digital Services Tax on revenue with effect from April 2020.
• Entrepreneurs’ relief changes extending the ownership period from 12 months to 2 years.
• Corporate capital loss restriction on gains in excess of £5m.
• Changes to the Capital Allowances regime, including:
  • An increase in the Annual Investment Allowance from £200,000 to £1m;
  • A reduction in the special rate allowance (e.g. for high emission vehicles and integral features assets) from 8% to 6%;
  • A new allowance of 2% (straight line allowance over 50 years) on construction costs of building new, non-residential structures and buildings used in qualifying activities.
• Proposals and consultations on reforms to the corporate intangible fixed assets regime and R&D tax relief for SME’s.
• Employment Allowances to be restricted where the Employment NIC liability exceeds £100,000.
• Businesses that use the services of personal service companies and off-payroll workers will, from April 2020, be responsible for assessing whether the contractual arrangement should be one of employment. The rules are currently in force for the public sector but will be introduced for large and medium businesses.  The Budget Brief clarified that the reform will not be retrospective and indicated that there will be further consultation on the detailed operation of the reform to be published in the coming months.

Private Client

• Income tax allowances and tax threshold increases were brought forward. From 2019/20, the personal allowance for an individual will be £12,500 and the basic rate tax limit at £37,500.  Effectively, this means an individual can receive income of up to £50,000 and not pay any higher rate taxes.
• Principal Private Residence relief on the disposal of main residences to be tightened, with the final exempt period reducing from 18 months to 9 months as of April 2020.
• Lettings relief available on disposals of main residences will also be restricted to shared ownership properties with effect from April 2020.

Indirect Tax (VAT & Stamp Taxes)

• SDLT and First Time Buyer’s relief is being extended to abolish the charge up to £500,000 on acquisition of shared ownership properties. This change is retrospective and will be treated as in effect from 22nd November 2017.
• New anti-avoidance measures are being introduced to impart a Stamp Duty charge on transfers of large value share portfolios, designed to catch non-monetary transactions.
• VAT remained largely unaffected apart from some technical amendments. It was however confirmed that the VAT registration threshold would remain unchanged at £85,000; it will remain frozen at this level for two years from April 2020.

Non-resident/International Issues

• UK non-resident companies that are in receipt of UK property income are currently subject to income tax and file paper format tax returns. With effect from 6th April 2020 these companies will be required to file corporation tax returns under the corporate regime and profits will be subject to corporation tax.  This will mean that accounts will need to be prepared in the iXBRL format for filing purposes and will prove to be an additional cost for companies.  Furthermore, corporate tax rules will prevail and there could be further implications in relation to borrowings and interest payable with regard to worldwide debt cap rules.
• It is proposed the government will introduce measures to ensure that the creators of offshore structures (e.g. trusts, non-resident entities etc.) will have an obligation to notify HMRC of their creation. The proposal is to use of a scheme by which any person or business who creates an offshore arrangement for a UK taxpayer with certain ‘characteristics’ would be required to notify the arrangement to HMRC. Such arrangements would be issued with an identification number and be obliged to be disclosed on the UK taxpayers’ personal return. This proposal will affect private individuals using offshore structures, in particular, non-domiciled remittance-basis users and multi-jurisdictional businesses with UK-based shareholders.
• It was confirmed the government would also issue an update on its offshore tax compliance strategy. This update is widely expected to introduce tougher sanctions to those individuals and businesses that are non-compliant with tax legislation.
• At present, non-UK residents holding any property or assets other than UK residential property are not subject to UK Capital Gains Tax (CGT) on their disposal. From April 2019 any disposals of commercial property by a non-UK resident will be subject to CGT on any gain realised by an offshore company. This charge will also be extended to any disposals of shares which derive at least 75% of their value from UK property. The gains calculation will not include the gain on historic costs, rather the gain from April 2019, i.e. the assets will be rebased from this date.

Other Issues

• Legislation is to be introduced to the insolvency rules thereby making HMRC a preferential creditor. At present, preferential creditor status is not held, thereby making it harder for HMRC to pursue outstanding taxes when insolvency occurs.  The revision to the legislation will ensure it is harder to close entities/file for bankruptcy, with HMRC more likely to be eligible for a greater share of payments relating to VAT, PAYE, NIC and CIS.

di Phil Stevens