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Budget 2018 overview

Mike Wakeford

Philip Hammond’s third budget, and the last one scheduled to take place before Brexit next year did not contain many big headline grabbing tax changes as it concentrated more on increased government spending in what the Chancellor claimed was recognition that the days of austerity are now over as the state of the economy continues to improve.

There is a welcome increase in the personal allowance to £12,500 and the higher rate threshold goes up to £50,000, both increases being achieved a year ahead of the government’s original target.

For businesses, there is an increase in the annual investment allowance from £200,000 to £1 million per annum for the two years from 1 January 2019 to 31 December 2020.  There are two further changes on capital expenditure for business. The first of these sees a reduction in the rate of capital allowances on expenditure in the special rate pool from 8% to 6%, which the government says matches more accurately the rate of accounting depreciation on such assets.  The second is the introduction of a 2% per annum allowance on expenditure on qualifying new buildings and structures where none of the expenditure is contracted for until after 28 October 2018.  This is a kind of replacement for the old industrial building allowances,  but it will apply to a greater range of properties, and the rate of relief is fixed at 2% of the initial cost that will be given each year for 50 years, regardless of any changes in the ownership of the property in that period, and no balancing adjustments will be made when qualifying properties are sold.

The enhanced capital allowance regime for technology on the Energy Technology  List and Water Technology List will end in April 2020, but the 100% allowances on the installation of electric vehicle charging points is to continue until 31 March 2023.

For business people who are looking to claim entrepreneur’s relief on the sale of their business, there is a tightening of the eligibility rules for the relief, with all the requirements now having to be met for 2 years rather than 1 year as at present.  This change comes into immediate effect for any disposal from 6 April 2019 onwards.

The amount of payable research and development tax credit relief will be limited to 3 times the company’s PAYE and NI liability for the year in question, which is being framed as a necessary anti-avoidance measure to combat fraudulent claims. 

There is a new digital sales tax of 2% of revenues from April 2020, but this is aimed only at the very largest companies and is unlikely to affect the vast majority of business who sell using digital channels.
There will be no change to the VAT registration threshold for at least another 2 years, and it remains at £85,000 until 31 March 2022.

For homeowners who are thinking of selling their home there are two changes that may adversely affect their capital gains tax liability.  Firstly the 18 month final period which is exempt from capital gains tax to reflect the fact that it is sometimes necessary to leave a house before it can be sold is to be reduced to 9 months with effect from 6 April 2020.  On the same date, another change will see capital gains tax letting relief restricted only to periods where the homeowner is resident at the same time as the tenant.

Also with effect from 6 April 2020 the employment allowance of £3,000 per annum will be limited to businesses that have an employer’s national insurance liability of less than £100,000 in the previous tax year.
The changes that were made to the IR35 rules in the public sector are going to be extended to workers in the private sector in April 2020.  This will move responsibility for deciding if a worker is an employee or a contractor to the party that engages the worker.  There will be an exemption from these rules for small organisations, which are yet to be defined.

There were no significant changes to the rules surrounding tax relief for pension contributions, and the lifetime limit for tax relieved pension funds is to increase slightly on 6 April 2019 to £1,055,000.

In the background to the entire budget is Brexit, and in the event that the UK leaves the EU without a deal in place, the Chancellor has indicated that the spring spending review statement could be upgraded to a full budget as the economic arithmetic will then become very different.