By Phil Harris FCA
Principal
Harris & Co
LOOKING forward to how the economy may fare in 2018, Phil Harris reviews the first autumn Budget in 20 years, outlining the key measures and highlighting that a far from radical Budget actually disguised a number of significant tax measures
Income tax
There was an increase in the personal allowance and higher rate threshold for income tax, to £11,850 and £46,350 for the 2018/19 tax year. This will impact on business owners’ remuneration strategies.
Corporate tax
Some really significant changes here:
* The extension (from April 2019) of withholding tax obligations to royalty payments made to low or no-tax jurisdictions in connection with sales to UK customers.
* The freezing of the indexation allowance on corporate gains from 1 January 2018. This looks like a real revenue-raiser, HMRC’s impact summary suggesting an increased tax take of some £1.7bn over five years to 2023. It will particularly hit those property investors who switched to buying properties in limited companies instead of their own names.
The knowledge-intensive sector
The key announcements here included:
* increasing the R & D expenditure credit from 11 per cent to 12 per cent.
* doubling the individual investment limit for individuals under the EIS (to £2m), provided any amount over £1m is invested in knowledge-intensive companies, and doubling the annual investment limit for knowledge-intensive companies raising enterprise investment schemes (EIS) or venture capital trust (VCT) finance (to £10m).
* reinforcing this push on the knowledge-intensive front, the venture capital schemes will on the other hand exclude companies and arrangements intended to provide capital preservation, usually property-backed companies.
Smaller businesses
Smaller businesses will take some comfort from the changes to business rates, and will be relieved that the VAT registration threshold is not being reduced from its current level of £85,000.
The £85,000 threshold figure will, though, remain fixed for two years from April 2018, and the government will consult generally on the threshold.
Property taxes
In recent years business rates have been a real bone of contention. The Government said that over the next five years it would provide £2.3bn of support, and ‘improve the fairness of the system’, including:
* bringing forward to 1 April 2018 the planned switch in indexation from retail price index (RPI) to the main measure of inflation (currently consumer price index).
* legislating retrospectively to address the staircase tax.
* moving to revaluations every three years (in place of five), following the next revaluation, currently due in 2022.
Anti-avoidance
As is increasingly normal, the Budget contained a rather extensive list of anti-avoidance and evasion measures. In 1997 the Budget was 2,000 pages long. The last ten have been over 12,000 pages long, and virtually all of the additional pages are devoted to anti-avoidance. These days, if you think you can do something to save tax, you probably can’t because of the anti-avoidance legislation. One measures that stands out is, following its recent reforms to ‘off-payroll working’ in the public sector (particularly to the use of personal service companies by contractors and freelancers), the government says it will ‘carefully consult’ on how to tackle non-compliance in the private sector.
Ever more taxes in the future?
A National Statistics Office report shows that HMRC collected £569.3bn in taxes in 2016-17; a substantial increase over the ‘boom years’ before the financial crisis of 2008. In the three years up to 2007/08, HMRC tax receipts averaged some £440bn pa.
Despite these ever-increasing tax receipts, the last three governments have singularly failed to spend only what they collected. Government spending remains hopelessly out of control and the projections are that the government will still be spending more that it gets in and borrowing the difference until at least 2022/23.
More tax raising Budgets on businesses in the next few years are inevitable, it seems.
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