Please note this content was written contemporaneously, and may well now be superseded
The 2018 Autumn Budget took place on Monday 29 October 2018. This summary has been written a few hours after the Budget Speech, and details will doubtless evolve over time when Parliament debates the Budget, and more details and analysis of proposals come to light – alas sometimes the devil is in the detail, and often it doesn’t come to light until closer scrutiny.
As always we’ve selected items likely to be of interest to our clients, rather than comment on everything in the Budget papers.
For many Whitefield clients the confirmation of the extension of reverse status decisions from the Public Sector to the Private Sector will be a matter of interest / concern, albeit this is deferred to to 2020. We’ve written some thoughts on this below.
General
Compared to some recent Budgets, this was quite a packed Budget with many announcements, of course not all in the speech – the detail is in the documents released simultaneously. There is a lot to pick though in these documents, and alas they are not all in one place.
However standing back there is a feel of a lot of increased public spending commitments – money for this, money for that – off the back of better growth and an end to austerity post the 2008 financial crisis. Of course there is an elephant in the room, viz Brexit, and its hard not to see this Budget as a confidence booster for the UK as a whole, coming into potential “turbulent times”. Indeed cynically it may be a Budget to prop up a struggling Government, or a leadership play by the Chancellor.
At face value though, the release of extra Public Expenditure without matching tax rises can only be a positive thing for our Public Sector, especially Health.
How things will look in 6 to 12 months will be the acid test, and, again, this depends on Brexit negotiations and execution; to be honest everything is contingent on that at present.
Business Tax Measures
- Change to Entrepreneurs Relief on disposal of a company, to restrict it where the claimants shares don’t have rights to profits and assets on winding up – commonly such restrictions can feature when Alphabet shares are used, so this is a detail to watch. Also an extension of asset ownership period prior to winding up – from one year to two years. Transitional rules will apply where the claimant’s business ceased before 30 October 2018.
- Industrial Buildings Allowances make a return, now known as Structures and Buildings Allowance. 2% relief per annum on construction costs for commercial new builds after Budget day, pool of unrelieved expenditure transferring to new owners. No relief for expenditure pre Budget day, or for the post Budget purchase of pre Budget buildings. No relief for construction of residential buildings, or “home offices”.
- No changes to VAT registration thresholds this year, or for two years from 1 April 2020 – sensible as VAT is closely linked to the EU, and this needs revisiting post Brexit
- Temporary increase in maximum Annual Investment Allowance from £200k to £1m from January 2019 for two years.
- Capital Allowances – Special Rate Writing Down Allowance reduced from 8% to 6%. In HMRCs words “Special rate expenditure includes expenditure on long-life assets, thermal insulation, integral features and expenditure incurred on or after 1 April 2018 on cars with CO2 emissions of more than 110 grams per kilometre driven”. In practical terms this will most be noticed in reducing the annual claim rate on higher polluting cars – but you still get the relief, just later.
- Revised VAT rules on vouchers, enacting a EU directive from 1 January 2019, presumably for three months. Vat and vouchers should be so simple, but it has caused angst over the years.
- No major changes to tax rates across Income Tax/Corporation Tax/CGT/IHT/VAT/NIC
Personal Tax Measures
- Personal Allowance rises to £12,500 for 19/20, Higher Rate threshold rises to £50,000 – a useful adjustment given these bands have sometimes been frozen.
- Some changes to IHT Residence Nil Rate Band rules, to tidy up anomalies and clarify the scope of the relief – no substantive changes for most estates.
- CGT exemption rises to £12,000 for 19/20
- No major changes to tax rates across Income Tax/Corporation Tax/CGT/IHT/VAT/NIC
Property Tax Measures
- Tidying up Stamp Duty on multiple properties, and extending time limits for relief claims where a new home is bought before the old one is sold. No material change in rates or incidence of duties.
- Reform of two CGT allowances for Private Residences. First “lettings relief” will be restricted to periods when the property is in shared occupation between owner and tenant – to all intents and purposes this relief is now abolished, as this revised period would almost certainly have been exempt anyway due to occupation of the property by the owner – the relief doubled the otherwise pro rata’d Private Residence Relief up to a maximum of £40k and was a useful relief in situations where a former private residence had been let. Secondly, the exemption from CGT for the last 18 months of ownership is reduced to 9 months – not so long ago it was 36 months – again this mostly impacted properties that had been a Private Residence for part of their period of ownership and then let out – another useful relief lost. These changes will not cause CGT to be payable on the sale of a property that has always been your main home, but will effect situations where your home is let out whilst you live elsewhere.
Other Notable Measures
- “Offshore Receipts in Respect of Intangible Property” – provisions to tackle perceived avoidance by multinationals who hold their IP in a low tax jurisdiction and remit licensing fees there ex the UK. Tackling the Starbucks etc of this world.
- A “Digital Services Tax” on Social Media and Search Engines revenue attributable to UK users. Only applies to businesses with £500m global revenue. Ebay, Facebook, etc.
- Tidying up of “Diverted Profits Tax”, again targeting multinationals – the Amazons and Apples of this world.
- Extension of full capital allowances on Electric Vehicle Charge Points to 2023.
- HMRC get preference on some debts in insolvency. Some provisions to protect HMRC by making Company Directors liable for taxes “where there is a risk of a
company deliberately entering insolvency to avoid or evade tax” – arguably this liability already existed, so this is nothing new.
- Business Rates support package for retail properties with rateable values below £51k – Rateable Values below £12k are already exempt with a tapered relief between £12k and £15k – this new relief reduces rates by 1/3rd for properties in the £12k to £51k. It may be worth more than that, as at face value it seems to apply on a per property basis, whereas the existing relief are totalled over all properties a business occupies. Professional Services and Estate Agents excluded, aim is to target retail and leisure (“shops, restaurants, pubs, hairdressers”). More guidance promised.
- Additional package of support for High Streets. Taken with the Business Rates Relief, this is clearly intended to level the playing field between bricks and mortar businesses and online traders.
IR35 Reform
To recap, IR35, introduced in 2000, brought in a concept of Disguised Employment status where an individual (a Contractor) used their own company (now called a Personal Service Company or PSC) to provide services (an Engagement) to an end client (Engager) often via an Employment / Recruitment Agent. Officially the legislation is called the “Intermediaries Legislation”. The Contractor was required to assess whether the Engagement was one of Disguised Employment, and if so nearly all revenues had to be subject to PAYE/NI within the PSC.
This is a summary of some very complex rules that, at the time, caused much angst.
Historically all the compliance responsibilities were on the Contractor / PSC – this has increasingly been seen as failing by Government / HMRC.
The first change was in April 2017 where for Engagements in the Public Sector, compliance responsibility shifted to the Engager. They had to assess whether the Engagement was Disguised Employment or not, and make PAYE/NI deductions where this was the case.
Fast forward to late 2017 and a consultation was initiated into extending these rules to the Private Sector. The consultation responses were published with Budget 2018.
Consultation Responses
Summary of Budget 2018 Announcement
So, Government / HMRC are pressing ahead with introducing reverse compliance in the Private Sector. Broadly:
- Engagers will be responsible for determining the IR35 status of an Engagement, i.e. whether the contract is caught by IR35 or not.
- Engagers will be responsible for deducting Tax and NI for IR35 fails.
- To come in from April 2020
- Promise of no retrospective targeted campaigns addressing the earlier years status of those paying tax under IR35 for the first time (how much this assurance is worth isn’t clear)
- Exemption for Engagers who are “small companies” (broadly turnover under £10.2m)
Notably, there are no changes to the IR35 tests – control, personal service, mutuality of obligation, and hence the scope for disagreement about whether an engagement is inside or outside IR35 still remains.
So, that’s where we are. All change from 2020. We are promised another consultation on the detail of the changes.
So is it the end of Contracting as it’s known? Probably not. Those of us around in 1999 when the original IR35 press release came out lived and worked through a period of both gloom and uncertainty, and ultimately a Modus Vivendi came to pass – things were different, there were uncertainties, but broadly there was a way through. There is every reason to think the same will happen this time. Yes, it’s disappointing that these changes are arising, but the need for a flexible labour force is still there, and Engagers will still need cost effective short term labour and specialist skills – the market will adapt to enable this, we are sure.
More to follow in coming months.