The Budget and business taxes
The Chancellor, possibly buoyed by an unexpected improvement in the public finances, delivered a Budget that was broadly favourable to business – writes Tim Shaw, Associate partner, Ensors Chartered Accountants.
The principal changes announced are as follows.
To considerable relief, entrepreneur’s relief has been retained though there has been a doubling in the qualifying period of ownership to two years with effect from 6 April 2019.
The definition of a “personal company” has been tightened and shareholders must now, in addition to the existing requirements (5 per cent interest in the ordinary share capital and voting rights), have both a 5 per cent interest in the distributable profits and net assets of the company for the relief to be available.
As feared, the off-payroll working rules are to be extended to the private sector, albeit not until 6 April 2020. The changes, which potentially impose a payroll reporting obligation, along with an employer’s NIC cost, when payments are made to contractor’s companies, will only be introduced for large or medium sized businesses, though no definition of these is yet available. This change potentially imposes significant compliance burdens and costs on business.
Unexpectedly, a substantial increase in the annual investment allowance to £1,000,000 per annum from 1 January 2019 to 31 December 2020 was announced.
As a result, businesses will be able to spend up to this amount per annum during this period on qualifying fixed assets and obtain a full tax deduction in the year of acquisition.
This change is partly offset by a reduction in the writing down allowance for special rate pool items to six per cent per annum and the abolition by April 2020 of 100 per cent first year allowances for energy/water saving plant and machinery.
I will not complain about a couple of welcome changes, even if they both have a sense of déjà vu. Capital allowances are to be made available on new non-residential structures and buildings at two per cent per annum.
This brings back memories of the industrial buildings allowance legislation which was withdrawn less than a decade ago on the grounds that it was no longer relevant.
In addition, targeted relief will be available from April 2019 in respect of goodwill forming part of business acquisitions. This is a little unexpected as tax relief for purchased goodwill was broadly abolished in 2015!
The Chancellor’s desire to impose a digital services tax was clear pre-Budget. This tax is now being introduced from April 2020 and will apply to digital service providers with more than £500 million in global revenues. The tax will be charged at two per cent of revenues from UK customers with the first £25 million of UK revenues not being taxed.
The US Chamber of Commerce has already criticised the new UK tax and it remains to be seen whether this could spark any US retaliatory measures.
An amendment has been made to the R & D tax credit scheme for SMEs from April 2020 so that cash repayments will be capped at three times that company’s total PAYE and NICs liability for that year. This could impact adversely on smaller companies who rely on subcontractors, in lieu of employees, for their R & D efforts.
For companies, rules will be introduced from April 2020 to tighten the use of capital losses brought forward and align this with the existing corporation tax rules for income losses. The restriction will limit the use of brought forward capital losses to 50 per cent of chargeable gains over and above £5m.
Despite my previous fears, no changes were made to the annual dividend allowance and the introduction of making tax digital for VAT registered businesses has not been revoked!