The UK Budget which was delivered on Monday 29 October differed from many recent budgets in that, prior to the event, very little was expected from the Chancellor. It was the view of many that with the impending March 2019 Brexit deadline looming close, now would not be the time to make significant announcements and very little leaked out in the days prior to his speech. The Chancellor’s speech turned out to be full of substance with many new tax provisions announced on the day. It is important to pay particular attention to the timing of the various announcements as the measures may come into effect immediately, in April 2019, in April 2020, at another date or even later.

I have set out below some of the more relevant matters:

Personal tax

The tax free personal allowance will be increased from £11,850 to £12,500 and the higher rate threshold from £46,350 to £50,000 – all taking place from 6 April 2019, a year earlier than promised in the government’s manifesto.

Capital allowances

There is a temporary increase in the Annual Investment Allowance (AIA) from £200,000 to £1,000,000 in respect of qualifying expenditure from January 2019. This will be a significant boost for businesses which have plans to incur qualifying capital expenditure over the next two years.

There will be a reduction in the special rate of writing down allowances (largely applies to building-related features) from 8% to 6% from April 2019.

A new flat rate structures and buildings allowance has been announced which will provide tax relief @2% on a straight line basis for expenditure on new non-residential structures and buildings contracted for on or after 29 October 2018. This will benefit businesses which are incurring capital expenditure on buildings and is reminiscent of the Industrial Buildings Allowances (IBA) regime which was phased out from 2007.

There is an extension of 100% FYA for electrical charging points (first introduced in 2016) until 2023.

Digital Services Tax (DST)

From April 2020 there will be a new 2% tax on the revenue of certain digital businesses which derive value from their UK users. The tax will apply to revenue generated from the provision of search engines, social media platforms and online marketplaces. The tax will only apply to businesses whose revenue from UK users exceeds £25m and whose global revenue exceeds £500m and there will be exemptions for loss-making or very low margin businesses.

There was some surprise that the announcement on this measure went further than just a consultation at this stage. It is clear the type of businesses that the Chancellor is seeking to target with this new tax and he is perhaps frustrated with the rate of progress by the G20/OECD on an international solution to a digital tax. If the G20/OECD do manage to secure an international agreement by April 2020, the DST may never be implemented.

Intangible fixed assets

From 6 April 2019 there will be an extension of UK withholding tax to payments in respect of intangible property held in low tax jurisdictions, where the intangible property is referable to the sale of goods or services in the UK. There will be a number of exemptions (including a £10m UK sales threshold) but also a specific anti-forestalling provision for arrangements entered into on or after 29 October 2018.

There was an announcement about a partial reinstatement of corporation tax relief for goodwill acquisitions post 1 April 2019. This will apply to eligible intellectual property only and we need to wait and see what the detailed provisions will be.

A welcome change is being made to the de-grouping rules for intangibles which will make it easier to undertake a corporate restructuring where there are valuable intangible assets. A de-grouping charge will not arise where de-grouping is the result of a share disposal that qualifies for the Substantial Shareholdings Exemption.

Corporate capital loss restriction

In line with how corporate income losses brought forward have been restricted, from 1 April 2020 capital losses brought forward will also be restricted so that they will only cover 50% of any capital gains in an accounting period. The same £5m deductions allowance that is available for corporate income losses brought forward will now be shared with capital losses brought forward – there will not be a separate £5m allowance for capital losses. A consultation has been launched on how this mechanism is to work.

Off payroll working in the private sector

In a bid to finally deal with workers who provide their services using their own company and who do not comply with the IR35 rules, from 6 April 2020 HMRC will require medium and large businesses (definition unclear) to operate off-payroll working rules similar to those introduced for the public sector in April 2017. The main impact of this will be to require affected businesses to assess whether the worker being engaged should be considered as an employee. This is going to involve a significant compliance effort on the part of such businesses.

There will be a further consultation on this and HMRC will continue to refine its online Check Employment Status for Tax evaluation tool to make it more accurate.

Entrepreneurs’ Relief for capital gains tax

For a gain on a sale of shares on or after 29^th October 2018 the definition of “personal company” now includes a requirement for the individual to be entitled to 5% of profits available for distribution and 5% of the assets on a winding up throughout the qualifying period.

Also, for disposals on or after 6 April 2019 the qualifying period for Entrepreneurs’ Relief has been increased from 12 months to 24 months. This could create issues for those who obtained shares (greater than 5% holding) in a company or were granted options under the Enterprise Management Incentive scheme between 7 April 2017 and 29 October 2017. When the rules change on 6 April 2019, they will not have held the shares/options for 24 months. This may cause some transactions to be accelerated.

Stamp Duty Land Tax (SDLT)

There have been some welcome amendments to the rules for SDLT in England and Northern Ireland. The relief for first time buyers will be extended to include qualifying shared ownership purchases. Interestingly this extension will apply retrospectively to transactions from 22 November 2017 and some purchasers will be entitled to claim a refund of SDLT previously paid.

There has been a welcome increase to the time limit for reclaiming the higher 3% rate of SDLT paid when a purchaser acquired a new main residence prior to disposing of their previous main residence. From 29^th October 2018 the time limit has been increased from a minimum of 3 months from the date of selling the old home to a minimum of 12 months from selling the old home.

Principal Private Residence (PPR) exemption from capital gains tax

There have been a couple of changes to tighten the availability of PPR. From April 2020 the final period exemption will be reduced from 18 months to 9 months. Also from April 2020, lettings relief will only to apply where owner of property is in shared occupancy with a tenant. This is likely to significantly reduce the relevance of lettings relief.

Other points

Some other measures announced include:

• Confirmation that both the VAT registration and de-registration thresholds will remain unchanged at £85,000 and £83,000 respectively until at least 31 March 2022. There are a number of other provisions relating to VAT which are primarily of a technical nature.
• Provisions to make directors and other persons involved in tax avoidance, evasion or phoenixism jointly and severally liable for company tax liabilities in the event of deliberate insolvency. These provisions will be effective from the date of royal assent of Finance Bill 2019.
• A reinstatement from April 2020 of the preferred creditor status in insolvency for certain taxes including VAT, income tax and employee national insurance contributions. The principle being that these amounts are collected by business on behalf of others.
• A new tax from April 2022 on the production and import of plastic packaging which does not contain at least 30% recycled plastic.
• A limit on the payable tax credit that a loss-making company can claim under the R&D tax reliefs for SMEs. The limit will be three times a company’s total PAYE and National Insurance liability for the year and will apply to accounting periods beginning on or after 1 April 2020.

Summary

The Budget was one of the most substantive in recent years and outlined the trajectory of a number of important tax initiatives over the next few years, with a lot of detail still to come. The Chancellor did however make it clear that in the event of a “no deal” Brexit he would reserve the right to upgrade the Spring Statement to a full budget. For the sake of tax practitioners everywhere, let’s hope that does not happen.