With the Brexit talks at a critical point during Budget week, it might come as a surprise that the words Brexit and EU/Europe only featured a handful of times in Chancellor Hammond’s second Budget speech. Despite allocating an additional £3 billion over the next two years for Brexit preparations, there were no specific Brexit measures or plans announced. Once again, the Chancellor’s approach seems to be not to rock the boat too much given the slower GDP growth predictions announced by the OBR.

There were arguably two tax headline items – the reintroduction of a Stamp Duty Land Tax relief for first time buyers and tax measures aimed at digital taxation which the media are calling the “Google tax”. Wasn’t that the name given to the diverted profits tax (“DPT”) introduced in 2015? It’ll be interesting to see how the proposed new measures differ to the DPT.

The Budget documents published on Budget day include details of changes previously announced; this analysis focuses mainly on new announcements. And whilst the Budget documents were much shorter than usual, tax anoraks like us in the Institute’s tax department still found plenty of items worthy of note.

Northern Ireland corporation tax on hold

With a Budget only recently set for Northern Ireland by Westminster, there has already been much fallout from the ongoing absence of an Executive in NI. Until now, the UK government had been silent on the Northern Ireland Corporation Tax regime which was due to commence in just under four months’ time on 1 April 2018.

The Autumn Budget makes very clear that the impetus remains with NI’s politicians to reach agreement. The regime is very much in a state of limbo but the UK government was careful to reiterate that it remains committed to the regime on the same terms as before, “once a restored Executive has demonstrated that its finances are on a sustainable footing”. Subject to this, in 2018–19, the government will consider an announcement on implementing the regime.

In the meantime, Northern Ireland’s Budget is to increase by £660 million through to 2020–2021.

Making Tax Digital timetable unchanged

The Autumn Budget confirms that the timetable for Making Tax Digital (“MTD”) is unchanged from the revised timetable announced in July 2017. Under the current timetable, from April 2019, only businesses with turnover above the VAT registration threshold will have to keep digital records, and only for VAT purposes.

The scope of MTD will not be widened before the system has been shown “to work well”, and not before April 2020 at the earliest. HMRC are due to start piloting MTD for Business for VAT by the end of this year, starting with small-scale, private testing, followed by a wider, live pilot starting in spring 2018. This should allow around a year of testing before any businesses are mandated to use the system. The MTD legislation is included in the Finance (No. 2) Act 2017 which has just received Royal Assent.

There may be one catch though – the MTD turnover exemption limit is linked to the VAT registration threshold. In the past this has increased every 1 April. In the Autumn Budget, the Chancellor announced that this will be fixed at £85,000 for two years from 1 April 2018. No further increases in the threshold or a fall in the threshold in future could mean more businesses move into MTD earlier as a result.

According to the Chancellor, the fixing of the threshold is a direct response to the Office of Tax Simplification’s report Value Added Tax: Routes to Simplification? which pointed out that the UK’s threshold is currently the highest in the EU and the OECD. In response to that report, the government plans to consult on the design of the threshold. The knock on impact of this on MTD timing for smaller businesses will need to be carefully considered.

Focus on digital taxation

Spread throughout the Chancellor’s Budget speech and the accompanying publications were several measures that the press are calling a “Google tax”. Broadly the measures are targeted at, in the Chancellor’s own words, “multinational digital businesses”.

The “digi-pack” of measures announced include the following:-

From April 2019, income tax will be applied to royalties where they relate to UK sales, when those royalties are paid to “a low-tax jurisdiction”.

Finance Bill 2017–18 will require online marketplaces to ensure that VAT numbers displayed for businesses operating on their website are valid. They will also be required to display a valid VAT number when they are provided with one by a business operating on their platform. This will come into force on Royal Assent in the spring.

The government expects digital platforms to play a wider role in ensuring their users are compliant with the tax rules and will therefore publish a call for evidence in spring 2018 to explore what more digital platforms can do to prevent non-compliance among their users

Mirroring the current focus at both EU and OECD level, the government also published a position paper setting out the challenges posed by the digital economy for the international corporate tax framework and its proposed approach for addressing those challenges.

That paper discussing the issues involved in ensuring that profits of multinational groups operating in the digital economy should be taxed in the countries in which they generate value.

While recognising that the issues presented by the digital economy should be addressed on a multilateral basis and wishing to inform international debate (specifically the interim report of the OECD Task Force on the Digital Economy due to be presented to the G20 leaders next year), the UK government has said that it is ready to take interim action in the absence of sufficient progress.

The option favoured by the UK government, should it consider that interim action be needed, is a tax on the revenues that businesses generate from the provision of digital services to the UK market.

The position paper refers to targeting businesses that generate revenues through “intermediation” and the provision of online advertising rather than those which sell goods online or charge customers for the provision of digital content, software or services. The paper seems to favour direct collection from businesses instead of a withholding tax regime.

This favoured option looks similar to one of the EU’s recent proposals on digital taxation one of which is an ‘equalisation tax’ or levy on the turnover of digital economy businesses in the EU.

This tax would ‘equalise’ what digital companies pay in the EU, had they been conventional businesses with a ‘taxable presence’. Customers would pay the levy at the point of purchase and this would effectively shift the burden of taxation to the individual customer with the supplier effectively acting in a fiduciary capacity.

On first analysis, it would appear that such a levy would be allowed under EU rules without unanimity needed to introduce the proposal.

Personal tax promises

Last month’s Budget included an announcement towards achieving the government’s election manifesto promise of increasing the higher rate tax threshold to £50,000 by the end of the current parliament. The government also proposes to increase the personal allowance to £12,500 in that timescale. A prediction we made, back in March this year, after the Chancellor’s first Budget.

And there was no backtracking in this Budget on the decision not to proceed with the increases to class 4 NIC for the self-employed which proved so controversial in the aftermath of the Spring Budget.

The higher rate threshold

The personal allowance for 2018/19 will be £11,850, an increase of £350 from the £11,500 2017/18 level. The higher rate threshold for 2018/19 will be £46,350. With a personal allowance of £11,850 this means that the higher rate band will be increased to £34,500 in 2018/19 (from £33,500).

However, Scottish taxpayers will already know that the Scottish budget is the one to watch for them as income tax is devolved to the Scottish parliament. Currently, Scots pay 40 percent tax on earnings in excess of £43,000 (up to £150,000) compared to the 2017/18 higher rate threshold of £45,000 enjoyed in the rest of the UK.

After the UK Autumn Budget, that differential may grow – unless the Scottish government chooses to close the gap as part of its own budget announcement planned for 14 December

The marriage allowance

The marriage allowance allows taxpayers to transfer up to 10 percent of their unused personal allowance to their partner, if claimed. The government will now allow claims in cases where a partner has died before the claim was made. These claims will be able to be backdated by up to four years.

Off-payroll working in the private sector

The government recently reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017.

A possible next step being considered is to extend the reforms to the private sector, targeted at individuals who effectively work as employees being taxed as employees even if they choose to structure their work through a company.

As a result, the government will consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms.

Employment status discussion paper

A discussion paper will be published as part of the response to the Taylor review of employment practices in the modern economy exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer.

Taxation of trusts

The government will publish a consultation in 2018 on how to make the taxation of trusts “simpler, fairer, and more transparent”. As yet, it’s not clear if this review will solely focus on income tax or if a wider ranging review will be conducted to include all taxes to which a trust structure is exposed to.

Rent-a-room relief

The government will publish a call for evidence to establish how rent-a-room relief is used to ensure it is “better targeted at longer-term lettings”.

Mileage rates for landlords

The option to use mileage rates is to be extended to individuals operating property businesses, on a voluntary basis, aimed at reducing the administrative burden for these businesses.

Benefits in kind: electric vehicles

From April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees’ electric vehicles.

Taxation of employee business expenses

Following the call for evidence published in March 2017, the government will make several changes to the taxation of employee expenses:

• Self-funded training – the government will consult in 2018 on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs.
• Subsistence benchmark scale rates – from April 2019, employers will no longer be required to check receipts when reimbursing employees for subsistence using benchmark scale rates. The existing concessionary accommodation and subsistence overseas scale rates will be placed on a statutory basis.
• HMRC will work with external stakeholders to “improve the guidance on employee expenses”, particularly on travel and subsistence and the process for claiming tax relief on non-reimbursed employment expenses.

Capital taxes stand still

Inheritance tax (“IHT”) did not feature anywhere in the Budget speech or supporting documents with capital gains tax (“CGT”) relatively untouched.

However the introduction of the 30-day payment window between a capital gain arising on a residential property and payment of the CGT arising is being deferred until April 2020.

In addition, all gains on non-resident disposals of UK property will be brought within the scope of UK tax. This will apply to gains accrued on or after April 2019 and will include targeted exemptions for institutional investors such as pension funds.

Readers are reminded that Finance (No. 2) Act 2017 contains some major changes to both IHT and CGT under the guise of the new concept of deemed UK domicile which broadly applies if an individual has been UK resident 15 out of the previous 20 years. This legislation applies retrospectively from 6 April 2017.

This means that the remittance basis for income tax and CGT will not be available to anyone with a deemed UK domicile under this concept. The legislation in this area is complex and contains several transitional measures for those becoming deemed UK domiciled from 6 April 2017.

Business as usual

No significant new tax changes which affect UK business were announced in this Budget.

The corporation tax rate changes enacted in previous Finance Acts are unchanged. As a reminder, the main rate of corporation tax fell to 19 percent for three consecutive financial years from 1 April 2017. From 1 April 2020, the rate is enacted to fall a further two percentage points to 17 percent.

However significant changes to the rules for corporation tax losses and restrictions on the deduction of corporate interest were contained in the Finance (No. 2) Act 2017 and took retrospective effect from 1 April 2017.

The R&D expenditure credit (“RDEC”)

From 1 January 2018, the RDEC for companies claiming under the large company scheme is to be increased from 11 percent to 12 percent. A new Advanced Clearance Service for R&D expenditure credit claims is also to be introduced.

Corporate indexation allowance

To bring the UK in line with other major economies, the corporate indexation allowance available to reduce disposals of chargeable assets will be frozen from 1 January 2018. Accordingly, no relief will be available for inflation accruing after this date in calculating chargeable gains made by companies.

UK income and gains of non-resident companies’

From April 2020, income that non-resident companies receive from UK property will be chargeable to corporation tax rather than income tax. Also from that date, gains that arise to non-resident companies on the disposal of UK property will be charged to corporation tax rather than CGT.

Corporate capital gains

The government will amend the Substantial Shareholding Exemption legislation and the Share Reconstruction rules to avoid “unintended chargeable gains” being triggered where a UK company incorporates foreign branch assets in exchange for shares in an overseas company.

Corporate intangibles regime

The UK’s corporate intangibles will be celebrating its sweet sixteenth birthday in April 2018. As it comes of age, the government is planning to consult on the tax treatment of intellectual property. Part of this will consider whether there is an economic case for targeted changes to this regime aimed at better supporting UK companies investing in intellectual property.

Property taxes

The main announcement in this area was the introduction of a new stamp duty land tax (“SDLT”) relief targeted at first time buyers.

From 22 November 2017 first time buyers paying £300,000 or less for a residential property will pay no SDLT. First time buyers paying between £300,000 and £500,000 will pay SDLT at 5 percent on the amount of the purchase price in excess of £300,000. First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will thus pay SDLT at the normal rates.

A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intend to occupy the property as their main residence. This relief must be claimed in an SDLT return.

A measure granting relief, in very specific cases, from the additional 3 percent SDLT due for acquisitions of additional residential properties also featured.

Evasion and avoidance et al

The usual suspects of evasion and avoidance measures also featured in the Autumn Budget announcements. The further steps announced in the Budget are forecast to raise £4.8 billion between now and 2022–23.

Requirement to notify HMRC of offshore structures

The government will publish a consultation response on the proposed requirement for designers of certain offshore structures, that could be misused to evade taxes, to notify HMRC of these structures and the clients using them. This work will be taken forward in conjunction with the OECD and EU.

Extending offshore time limits

Following a consultation in spring 2018, the assessment time limits for non-deliberate offshore tax non-compliance will be extended so that HMRC can always assess at least 12 years of back taxes without needing to establish deliberate non-compliance.

VAT fraud – construction sector labour provision

Following a consultation into this area, a VAT domestic reverse charge will be introduced to prevent VAT losses. This will shift responsibility for paying VAT along the supply chain to remove the opportunity for it to be stolen. These changes will take effect from 1 October 2019 to give businesses time to prepare for the change.

Hidden economy: conditionality

The government will consult further on how to make the provision of some public sector licences conditional on being properly registered for tax.

Employment Allowance

The government believes it has found evidence of some employers availing of the NIC employment allowance by using offshore arrangements. To crack down on this, HMRC will require upfront security from employers with a history of avoiding paying NICs in this way. This will take effect from 2018 and could raise up to £15 million a year.

Disguised remuneration

The government will continue to tackle disguised remuneration avoidance schemes used by close companies by introducing a close companies’ gateway and measures to ensure liabilities from the new loan charge are collected from the appropriate person.

Profit fragmentation

The government will consult in 2018 on the best way to prevent UK traders or professionals from avoiding UK tax by fragmenting their UK income between unrelated entities.

Intangible fixed assets: related party step-up schemes

The intangible fixed asset rules were amended, with immediate effect, so that a licence between a company and a related party in respect of intellectual property is subject to the market value rule, and to ensure that the tax value of any disposal of a company’s intangible assets is correct, even if the consideration is in something other than cash.

Depreciatory transactions

The 6-year time limit within which companies must adjust for transactions that have reduced the value of shares being disposed of in a group company has been removed. This is aimed at ensuring any losses claimed are in line with the actual economic loss to the group.

This change took effect for disposals of shares or securities in a company made on or after 22 November 2017.

Carried interest

To prevent the avoidance of legislation designed to ensure that asset managers receiving carried interest pay CGT on their full economic gain, the government removed the transitional commencement provisions with immediate effect.

Double tax relief

From 22 November 2017 a restriction was introduced to the relief for foreign tax incurred by an overseas branch of a company, where the company has already received relief overseas for the losses of the branch against profits other than those of the branch.

This is aimed at ensuring the company does not get tax relief twice for the same loss. The Double Taxation Relief targeted anti-avoidance rule will also be amended to remove the requirement for HMRC to issue a counteraction notice, and extend the scope to ensure it is effective.

Miscellanea and tidbits

Some of the usual suspects were hit with duty increases on Budget day though fuel duty remains frozen for its eighth year in 2018–19 and duty rates on beer, (most) ciders, wine and spirits are to be frozen. And the soft drinks levy (better known as the sugar tax) kicks in from 1 April 2018. The legislation for this was contained in the Finance Act 2017.

We finish off our coverage of Autumn Budget 2017 with a round-up of various other measures announced.

• Following the review of the gift aid donor benefit rules, the current three monetary thresholds will be reduced to two, while all existing extra-statutory concessions will be legislated. Changes will come into effect from April 2019.
• The lifetime allowance for pension savings will increase to £1,030,000 for 2018–19
• The fuel benefit and van benefit charges will both increase by RPI from 6 April 2018.
• The list of designated energy-saving technologies qualifying for an ECA, which support investment in energy-saving plant or machinery, will be updated via Finance Bill 2017–18.
• The government will extend the ECA first year tax credit scheme until the end of this Parliament and the credit rate will be set at two-thirds the rate of corporation tax.
• Businesses currently benefit from postponed accounting for VAT when importing goods from the EU. The government will take this into account when considering potential changes following EU exit and will look at options to mitigate any cash flow impacts.
• The government will consult on plans to legislate in Finance Bill 2018–19 to ensure that when customers pay with vouchers, businesses account for the same amount of VAT as when other means of payment are used.
• The government will legislate in Finance Bill 2017–18 to extend HMRC’s powers to hold online marketplaces jointly and severally liable for any VAT that a non-UK business selling goods on their platforms fails to account for, where the business was not registered for VAT in the UK and that online marketplace knew or should have known that the business should be registered for VAT in the UK. This will come into force on Royal Assent
• The government will reform the penalty system for late or missing tax returns, adopting a new points-based approach. It will also consult on whether to simplify and harmonise penalties and interest due on late payments and repayments. Final decisions on both measures will be taken following this latter consultation.
• HMRC will “use new technology” to recover additional Self-Assessment debts in closer to real-time by adjusting the tax codes of individuals with Pay As You Earn income. These changes will take effect from 6 April 2019.
• The government will expand existing security deposit legislation to corporation tax and construction industry scheme deductions. These changes will be legislated for in Finance Bill 2018–19 and take effect from 6 April 2019. The government will consult on the most effective means of introducing this change.

The government announced it is also investing a further £155 million in additional resources and new technology for HMRC. This investment is forecast to bring in £2.3 billion of additional tax revenues by allowing HMRC to:

• transform the approach to tackling the hidden economy through new technology;
• further tackle those who are engaging in marketed tax avoidance schemes;
• enhance efforts to tackle the enablers of tax fraud and hold intermediaries accountable for the services they provide using the Corporate Criminal Offence;
• increase the ability to tackle non-compliance among mid-size businesses and wealthy individuals; and
• recover greater amounts of tax debt including through a new taskforce to specifically tackle tax debts more than 9 months old

Interestingly this investment makes no mention of the additional resources HMRC will no doubt need in the area of customs duties when the UK leaves the EU in just under 16 months.

Useful publications

The Autumn Budget 2017 announcements and publications can be found on GOV.UK on the main Autumn Budget 2017 webpage. One page also links to all the HMRC Autumn Budget 2017 tax-related documents and announcements.

As usual, the main Budget documents are the Red Book, and the Overview of Tax Legislation and Rates (OOTLAR). OOTLAR contains detailed tax information including Tax Information and Impact Notes on all the Budget and Finance Bill measures, and has informed much of our coverage of this year’s Autumn Budget.

Readers are reminded that Finance (No. 2) Act 2017 recently received Royal Assent and contains many new measures announced during previous Autumn Statements and Budgets which retrospectively apply 6 April 2017.

As always, the devil is often in the detail, the Finance Bill 2017–18 was published at the beginning of December. The 2017 Autumn Budget coverage should therefore be read in that context.

Make sure to check back in the coming months to tax.point for further coverage of measures in the Autumn Budget and the forthcoming Finance Bill, the third of 2017.

As the Autumn Budget 2017 is the first in the new annual tax policy making cycle, the government will publish a document before the end of the year providing further detail on the new timetable for tax policy development. This should provide more certainty around the parliamentary process and timings for this and future bills now that the Budget cycle has changed.

Conclusion

Against the challenging backdrop of Brexit and forecasts of lower economic growth, the Chancellor had a difficult job and managed to deliver a fairly balanced budget with few surprises. Some might say the Chancellor played it too safe. But in these sluggish, challenging and uncertain times, maybe this is the Budget the country needed.

With the Brexit talks at a critical point, it’s becoming very clear that Northern Ireland may be small in size but it’s certainly making up for that in stature.

Leontia Doran is UK Taxation Specialist for Chartered Accountants Ireland.

Tel: +44 353 1 6377200

E: leontia.doran@charteredaccountants.ie