We needed a Budget to encourage investment, technological advancement, entrepreneurial behaviour, innovation and talent development. It was therefore pleasing to see the Chancellor maintain entrepreneurs’ relief, and reform the annual investment allowance. This is vital both to improve the chances of the businesses of tomorrow getting their ideas off the ground and creating the technology needed for the next 20 years.
A more targeted employment allowance can only help, but with employment levels at record highs will it help with the war for talent?
The announcement of a digital services tax shows that, if international progress is too slow, the UK is unafraid to move forward to ensure the tax system keeps pace with changes in modern business practices.
The UK needed a Budget that increased the level of household income and encouraged consumer spending. We are pleased that the proposal to raise personal allowances and the higher rate threshold, which represents a tax cut for an estimated 32 million people, will assist this, albeit marginally. Given how important income tax is, there was limited scope to reduce it and maybe stimulate consumer spending.
The non profit sector makes a huge contribution to the fabric of British society. The proposed simplification of tax for them might not go far enough, but it should start to reduce some of the administrative burdens that can deflect them from focusing on the good work they do.
Ultimately, it is possible that we might have a further Budget sooner than next autumn given the complexities around leaving the EU, as well as the political uncertainty and potential instability that we may see in coming months.
Partner, Head of Manufacturing
We have to consider this Budget against the context of what kind of deal is achieved for Brexit, and the Chancellor has confirmed he may upgrade the Spring Statement to a full Budget if required.
However, there is a lot to support in this Budget. The economy is growing and public sector borrowing figures have combined to give the Chancellor a lot more elbow room than he might have imagined a year ago.
Many of the changes will make calculations and administration harder for growing businesses, or those approaching the margins of moving from ‘smaller’ to ‘larger’.
We welcome the increase in Annual Investment Allowance – the 100% write off of qualifying capital expenditure against profits for tax purposes, which is up to £1 million per annum from £200,000 for two years, from 1 January 2019.
This will provide a great boost for some businesses, but only those with large capital expenditure plans/needs. Some businesses may decide to defer planned spend until the New Year.
Other announcements to be welcomed include the cut in business rates which aims to benefit 90% of all independent high street businesses. The Chancellor’s support for retailers dealing with the changing face of the high street includes not only rate relief, but also help for councils to produce their plans to manage the transition where, in many cases, commercial to residential will be an inevitable consequence of the UK’s faster than average adoption of online shopping. However, this creates more opportunity for the construction industry, which in turn creates more demand for the manufacturing supply chain.
Elsewhere, the digital services tax, announced today which will be introduced in April 2020, will target only those companies with global revenues in excess of £500 million per year, and be based on revenue, not profits. This is important as the Chancellor doesn’t want to hit growing UK-based digital businesses that at present can only dream of global revenues of that size.
Other measures to be welcomed include the freezing of beer, cider and spirits duties and the decision to freeze the fuel duty for the ninth year in a row. Additionally, the Chancellor’s decision to support the Air Ambulance service with £10 million is to be particularly welcomed. Until now, the Air Ambulance movement has been entirely self-funding, but one hopes that this donation by the Chancellor is the start of on-going help for this invaluable service, not a one-off gesture.
Partner, Corporate Finance
Entrepreneurs' Relief (ER) remains an attractive and essential tax incentive that drives UK innovation and entrepreneurship. That said, it is disappointing to see amendments made to the relief which may impact the ability of certain individuals to benefit from it in the short term. There will be a number of mergers and acquisitions (M&A) transactions currently in progress which will likely be put on hold to ensure participants are able to qualify for ER in due course.
This change only emphasises the importance of business owners taking specialist advice, and being prepared, long in advance of the time they are considering succession and exiting their business. We await the specific details of when this change will be implemented but anyone who is considering selling their business in the next 12 months, and is unsure if they, their management team and/or other shareholders will qualify for ER, should seek advice now and consider immediately the implications of this change.
Partner, Private Clients
It was pleasing to see the personal allowance and higher rate tax brackets raised a year early, but it will be interesting to see whether the Chancellor treats this as a ceiling. Rates could now be frozen for following years, which would turn the tax cut into a hike very quickly. In the mid to long-term, this may not protect the inflationary impact that a no deal Brexit may have.
Partner, Head of Financial Planning
The move to raise the personal tax allowance to £12,500 and raise the higher rate tax threshold to £50,000 from 6 April 2019 is a move that should be welcomed by most pensioners, making their pension savings go that much further.
Under the pensions ‘freedom and flexibility’ rules, individuals could take up to £16,666 each tax year from their pension fund before they begin paying income tax. This is achieved through a combination of 25% tax-free cash (£4,166) and the new £12,500 personal tax allowance. Careful planning will help pensioners' money go further and minimise their liabilities to tax in retirement.
Partner, Tax Investigations
Buried deep in the Budget red book was a small section stating that the government will publish an updated offshore tax compliance strategy to build on the substantial progress the UK has made in tackling offshore tax evasion and non-compliance since the previous strategy was published in 2014.
The updated strategy should include a structured mechanism under which those with undeclared taxes linked to offshore matters are encouraged to come forward voluntarily rather than placing a huge burden on HMRC to investigate any potential problems. At present, a penalty of at least 100% of the tax, as well as the tax itself plus interest, applies to offshore irregularities, which is so high it is likely to encourage taxpayers to try and stay hidden rather than do the opposite.
Under Common Reporting Standard, HMRC has received a vast amount of data from around the world relating to financial assets held by UK taxpayers. There is therefore no doubt that tax irregularities will eventually be unearthed by HMRC but the data could take years to plough through. Why not instead incentivise taxpayers to come forward now by introducing a disclosure facility whereby individuals are subject to the normal penalty regime if they make a voluntary disclosure of unpaid taxes before being challenged by HMRC? But the new 100%+ penalties apply if they are found out by HMRC before any such disclosure is made. Now that the new offshore penalty regime is in place and HMRC has the offshore data, this will provide a very real incentive to come forward quickly.
Partner, Head of Tax
The 2018 Budget included a range of measures that indicate the Chancellor has listened to representations from sector bodies and business groups, with something for almost everyone. This included measures for NHS spending, additional money for schools to purchase extra resources and materials, a plastics tax and help for homes for first time buyers. This should all be comforting news for a range of different groups in an economy, which is still dominated by Brexit uncertainty.
One surprising announcement was the introduction of the digital services tax (DST). The Chancellor has been talking tough on this topic for a while, but the idea that the UK would take unilateral action at this point in our Brexit negotiations seemed unlikely.
The concern about introducing a unilateral tax is that other countries may introduce their own versions of similar (or worse) unilateral taxes, which are costly for UK taxpayers; or that companies may choose not to do business in the UK to avoid paying the tax, which would impact on levels of employment and ultimately tax revenues. Additionally, it might adversely impact our home grown digital companies and entrepreneurs.
The DST will be 2% ‘of the money made from UK users’ and is intended only to apply to profitable companies, with turnover of more than £500 million from the business lines in scope. This does suggest the Chancellor is targeting digital giants to avoid extra costs and compliance for start-up businesses.
There is lots of detail in these headlines to unpack and a future consultation announced which gives an opportunity for interested parties to thrash out the details. There is also the olive branch to the international community that the UK would adopt an international agreement in place of the UK DST if one emerges in time.
Partner, Head of Retail
There is at last something in a Budget to bring cheer to the struggling retail sector but retailers might have to look quite hard to find it.
The proposed changes to business rates are good news for smaller retailers, but will not benefit larger high street retailers. More significantly, the 2% digital sales tax on the UK revenues of big technology companies, from April 2020, is at last some recognition that we need to even the playing field between the taxation of traditional ‘bricks and mortar’ retail and online retailers. Whether or not it is sufficient to overcome the seismic change in retail that we have seen over the last decade remains to be seen. One cannot help but think that this is akin to King Canute trying to hold back the tide, even with the proposed £650 million to rejuvenate high streets.
The abolition of Stamp Duty Land Tax (SDLT) for first time house buyers for shared ownership should help stimulate the first time buyer market, which may boost sales for those retailers serving the home furnishing and DIY sectors. One has to wonder though whether the relatively high SDLT being paid for properties priced at over £1 million in the South East will mean that the housing market remains stagnant in this area.
The more positive news relates to the personal allowance and to the higher rate tax threshold. These increases, together with the proposed announcements to the national living wage and universal credit, will hopefully see a rise in consumer spending on which retailers depend. How much of that additional spending is with online versus ‘bricks and mortar’ retail remains to be seen.
Partner, Head of Employers Advisory Services
In April 2017, the government reformed the IR35 rules for engagements in the public sector and early indications are that this has resulted in an increase in compliance within the public sector. This will now be replicated for the private sector, but a reasonable implementation period is vital so the effective date of 2020, and the fact the rules will only be extended to large and medium sized private businesses, are both sensible steps. The Chancellor clearly took on board the feedback from the consultation process over the summer. Engagers should start planning now based on the experience of the public sector in order to have an effective procedure in place for the start date of April 2020.
Partner, Head of Private Clients
It is not surprising to see the Chancellor reaffirm the government's commitment to Entrepreneurs' Relief, albeit with tighter conditions (qualifying period doubled to two years). However, it might have been more effective if the minimum shareholding requirement was abolished altogether – this would incentivise all employee shareholders and not just the C-suite.
The changes to Capital Gains Tax reliefs for the sale of main residences look like an attempt at modernisation. Lettings relief has changed so as not to apply to the Airbnb model - relief applies only for shared occupation. The shortening of the ‘period of absence’ from 18 to nine months for Principal Private Residence relief will need to be monitored closely, as any slowdown in the housing market (where it may take more than nine months to sell) may result in an overall reversal.
Partner, Corporate Tax
The Chancellor's statement was made against a background of political uncertainty, mixed economic signals and an increasingly protectionist agenda from many of our trading partners. Tax is one of the most politically high profile things a government can do, and this was one of the most political budgets a Chancellor has had to deliver for decades.
The UK doesn't raise enough tax to keep providing public services at the current level, especially given the aging demographic. A tax system that raises more tax will need to be more efficient, perceived to be more fair and find new 'pockets' of wealth or bad behaviour that can be taxed without political risk.
An autumn Budget also has the advantage of kicking the can down the road given that the majority of changes will only kick in from April next year if not later. However, this is the first glimpse we have of the type of post Brexit fiscal landscape the government wants to create.
The announcement of a potential digital services tax (DST) makes sense. Global companies need to be seen to be paying their 'fair share'. They don't have votes, so are an easy target. Playing tough with the DST is politically attractive even if this causes conflicts with other tax jurisdictions. It is unlikely such measures will find much opposition in Parliament given the ground has been well prepared. How our trading partners (and particularly the US) react will be the real challenge. Retaliatory measures will not help the British economy. Therefore by outlining a timetable to introduce measures in 2020 he has provided cover for trying to get international agreement. Talking tough, but deferring action makes other parts of the Budget more palatable.
Elsewhere, plastics have found themselves in the environmental firing line and it was an easy, and politically popular decision, to try and find ways of taxing its use. Requiring more usage of recycled plastics is a way of stimulating that industry while being seen to be tough on pollution. The challenge with all sin taxes is that if they are too effective, the source of revenue will dry up. The damage that plastics can do is all too obvious, the Chancellor is no doubt sincere in his desire to reduce our use, but would be grateful if industry doesn't take action too quickly.