‘I present to the House a Budget for Britain’s future; a Budget that shows the perseverance of the British people finally paying off.’
Philip Hammond, Chancellor of the Exchequer
Making Tax Digital
The government is phasing in its landmark Making Tax Digital (MTD) initiative, which will see the introduction of a fully digital tax system, with businesses and individuals being required to register, file, pay and update their information via a secure online tax account.
From 1 April 2019, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD ‘functional compatible software’. The government recently announced that it has made the decision to delay the mandation of MTD for VAT until 1 October 2019 for a small minority of VAT-registered businesses with ‘more complex requirements’.
Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2020, although businesses below the VAT threshold which have voluntarily registered for VAT can opt to join the scheme.
‘Functional compatible software’ is defined as ‘a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)’. The software must be capable of keeping records in digital form; preserving records in digital form for up to six years; creating a VAT return from the records held; providing HMRC with VAT data on a voluntary basis; and receiving information from HMRC via the API platform.
Firms are permitted to keep digital records in a range of compatible software programs. The use of spreadsheets is also permitted, provided that this is in combination with MTD software. However, HMRC has outlined that manual data transfer is not allowed: copying by hand or manual transposition of data into software is not permitted, and cut and paste will not be acceptable in the long-term.
HMRC will not be providing taxpayers with MTD software. Currently, it is working alongside software developers in order to ensure products are on the market by the MTD start date. HMRC will provide a full list of MTD-compatible products as soon as possible: an initial list can be found on the gov.uk website.
Hammond delivers pre-Brexit Budget for a ‘brighter future
Chancellor Philip Hammond has delivered his second Autumn Budget, exactly five months before Britain is due to leave the European Union. The Chancellor was in bullish mood, asserting that the era of austerity is ‘finally coming to an end’ after a ‘long, hard journey’. However, he maintained that UK debt remains too high and highlighted the importance of continuing to reduce debt and borrowing.
Citing the latest economic forecasts from the Office for Budget Responsibility, Mr Hammond revealed that the UK growth forecast has been upgraded from 1.3% to 1.6% for 2019, while public borrowing in 2018/19 is set to be £11.6bn lower than previously forecast at the time of the Spring Statement. With the Brexit negotiations ongoing, the Chancellor announced an additional £500m of departmental funding for Brexit preparations. He also raised the possibility of upgrading the 2019 Spring Statement to a ‘full fiscal event’ if no deal was agreed.
Key announcements for businesses include a two-year cut in business rates for small retail properties in England from April 2019, worth £900m, together with a £675m fund to help rejuvenate high streets. The Annual Investment Allowance will also increase from £200,000 to £1m for a period of two years. Meanwhile, individual taxpayers are set to benefit from a bringing forward of the planned increase in the income tax personal allowance, which will rise by a further £650 in April 2019 to £12,500. The higher rate threshold will also increase from £46,350 to £50,000. However, from 2021, both thresholds will rise in line with CPI inflation.
The stamp duty relief for first-time homebuyers will be extended to shared equity purchases of up to £500,000, while the lifetime allowance for pension savings will increase to £1,055,000. As widely anticipated, the Chancellor confirmed plans to introduce a new tax on the UK revenues of digital services companies from 2020, applying to those with global sales of more than £500m per annum. However, plans for a tax on takeaway coffee cups were overruled in favor of a new tax on plastic packaging containing less than 30% recycled material.
Turning to duties, tax on beer, most cider and spirits has been frozen. Wine duty will rise in line with inflation, while tobacco duty will continue to rise by inflation plus 2%. Other announcements include confirmation of an extra £20.5bn for the NHS over the coming five years, together with additional funding to help welfare claimants transfer to Universal Credit. An additional £950m will be made available for the Scottish government, with £550m for the Welsh government and £320m for the Northern Ireland Executive for the period to 2020/21.
- Two-year cut in business rates for small retail properties from April 2019
- Increase in personal allowance brought forward to April 2019
- Annual Investment Allowance increasing to £1m
- New 2% Digital Services Tax to be introduced from 2020
- Stamp duty exemption for first-time buyers extended to shared equity homes
- New tax on non-recycled plastic packing
- VAT threshold to remain unchanged until April 2022
- Access to Employment Allowance restricted from April 2020
Business tax and investment incentives
Corporation tax rates are as follows:
|Financial Year from||1 April 2018||1 April 2019||1 April 2020|
|Corporation tax rate||19%||19%||17%|
Annual Investment Allowance (AIA)
The AIA will be temporarily increased from £200,000 to £1m. This change will have effect in relation to qualifying expenditure incurred from 1 January 2019 to 31 December 2020.
Capital allowances – special rate pool
The rate of writing down allowance on the special rate pool of plant and machinery will be reduced from 8% to 6%. The new rate will be effective from 1 April 2019 for businesses within the charge to corporation tax and 6 April 2019 for businesses within the charge to income tax.
Structures and Buildings Allowance (SBA)
The government will introduce a new SBA to provide relief for qualifying expenditure on new non-residential structures and buildings. Relief will be available for eligible expenditure incurred where all contracts for the physical construction works are entered into on or after 29 October 2018. Relief will not be available for the costs of land or dwellings. The SBA will be available at an annual rate of 2%. This will be at a flat rate, calculated on the amount of original construction expenditure. There will not be a system of balancing charges or balancing allowances on a subsequent disposal of the asset. Instead, a purchaser will continue to claim the annual allowance of 2% of the original cost.
First Year Allowances (FYAs)
Legislation will be introduced to end the FYA and first year tax credits for products on the Energy Technology List and the Water Technology List from April 2020.
The current 100% FYA for expenditure incurred on electric charge-point equipment will be extended for a further four years. It will expire on 31 March 2023 for corporation tax and 5 April 2023 for income tax purposes.
Corporate capital loss restriction
The government will legislate to restrict companies’ use of carried forward capital losses to 50% of capital gains from 1 April 2020. The measure will include an allowance that provides companies unrestricted use of up to £5m capital or income losses each year. An anti-forestalling measure to support this change will have effect on and after 29 October 2018.
Research and Development (R&D) tax relief
A limit will be introduced on the amount of payable tax credit that can be claimed by a company under the R&D SME tax relief. The limit will be set at three times the company’s total PAYE and NICs payment for the period. The change will have effect for accounting periods beginning on or after 1 April 2020. Any loss that a company cannot surrender for a payable credit can be carried forward and used against future profits.
Digital Services Tax
From April 2020, the government will introduce a new 2% tax on revenues of certain digital businesses which derive value from their UK users.
The tax will:
apply to revenues generated from the provision of search engines, social media platforms and online marketplaces
apply to revenues from those activities that are linked to the participation of UK users, subject to a £25m per annum allowance
only apply to groups that generate global revenues from in-scope business activities in excess of £500m per annum
include a safe harbour provision that exempts loss-makers and reduces the effective rate of tax on businesses with very low profit margins.
UK property income of non-UK resident companies
As previously announced, from 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to corporation tax, rather than being charged to income tax as at present.
Legislation will be introduced to increase the small trading tax exemption limits. These limits apply to trading that does not relate to the charity’s primary purpose. The current exemption threshold of £50,000 will be changed to £80,000 and the lower band changed from £5,000 to £8,000. The changes will have effect on and after 6 April 2019 for unincorporated charities and from 1 April 2019 for incorporated charities.
Corporate intangible fixed assets regime
The government will publish detailed proposals on how it intends to partially reinstate relief for acquired goodwill in the acquisition of businesses with eligible intellectual property. It will also alter the regime’s de-grouping charge rules so that a charge will not arise where de-grouping is the result of a share disposal that qualifies for the Substantial Shareholding Exemption. The changes to the de-grouping rules will have effect in relation to de-groupings occurring on or after 7 November 2018.
Off-payroll working rules
Responsibility for operating the existing off-payroll working rules, and deducting any tax and NICs due, will move from individuals to the organisation, agency or other third party paying an individual’s personal service company. Small organisations will be exempt. This change will come into effect from 6 April 2020.
The government will legislate to restrict access to the NICs Employment Allowance to employers with an employer NICs liability below £100,000 in their previous tax year. Where employers are connected under the Employment Allowance rules the threshold will apply to their aggregated liability. This will take effect from 2020.