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Austerity coming to an end . . . but discipline remains

By Paul Brown, of Whittingham Riddell chartered accountants

In the lead up to the Autumn Budget there was much speculation that the Chancellor would be forced to raise taxes to cover his expected spending commitments and deliver the end of Austerity.  He was however handed a lifeline by the Office of budget Responsibility in the form of a significant improvement in tax receipts leaving him with a lot more cash to play with.  That being said the OBR’s growth forecasts are still hardly stellar – between 1.3% and 1.6% per year across the forecast period.

Even then there was the suggestion that the whole of today’s Budget may need to be revisited in the event of a no-deal Brexit, although this suggestion appeared to be squashed by Number 10 almost as soon as it was made.

The Chancellor’s wording though was interesting and subtly different from the Prime Minister’s conference speech – Austerity is not actually over but it is coming to an end.  However, Mr Hammond sounded a note of caution in his concluding remarks – government departments will not be off the leash just yet – discipline will remain! 

From a tax point of view there were a number of interesting changes.  The Chancellor has delivered on his manifesto commitment to raise personal allowance to £12,500 one year earlier than planned – there were less than subtle hints about this over the course of the speech – the hard work of the British people is paying off (although that hard work still does not appear to be reflected in overall productivity…)

There are also detailed changes to the rules around private residence relief.  Contrary to popular opinion if you sell your main residence it is not necessarily entirely tax free.  There were though a number of generous reliefs to soften the blow – where for example you let the property or live away from it for a time.  Some of these are now to be reduced from April 2020 – in particular “letting relief” which did apply if you lived away and let out your home will now only apply in the case of shared occupancy.  Although not aimed squarely at the buy to let market it is another hit for private landlords, albeit only one they will feel when they eventually sell the property.

The annual round of speculation that Entrepreneur’s Relief would be abolished was, as it has been since time immemorial, somewhat off the mark.  There are important changes to the relief though – in particular the qualifying period through which the conditions must be met will extend from 12 months to 2 years – presumably if you sell your business after 12 months you are not a “real” entrepreneur?   This change kicks in from 6 April 2019.

Again the R&D tax credit system is another area where speculation is usually rife but again reports of its demise are greatly exaggerated.  There is however a reintroduction of the cap on the amount of repayable tax credits an SME can claim by reference to three times its total PAYE and NIC limit for the year.  This comes in from April 2020 to tackle a perceived abuse of the system – though not one I have come across.

More welcome is the increase in annual investment allowance for business incurring capital expenditure.  This allowance will increase to £1 million for two years from 1 January 2019, meaning companies will be able to obtain a 100% tax deduction for the cost of qualifying plant and machinery up to the threshold in each of those two years. 

There is also a new tax write down for newly constructed commercial buildings of 2% per year where all of the contracts are entered into after Budget day.  This is paid for by a 2% reduction in the rate of capital allowances for certain assets (mainly certain items which form part of a building and also high emitting cars).  The Chancellor giveth, and the Chancellor taketh away – it will be interesting to see how this skews the market between older and new build commercial properties – my guess is not a lot.

The reduction in business rates for small retailers is also a welcome change although hardly a surprise, and the Chancellor is also attempting to level the playing field by imposing a new (and again very well trailed) digital services tax on global tech giants selling into the UK.  This is subject to consultation and will come in from April 2020, expecting to raise £400 million. 

In 2017 the government introduced changes to the way personal services companies were taxed when providing services to the public sector.  This affects companies where the services provided are those of an individual and the relationship is akin to that of an employer/employee.  These changes have anecdotally led to chaos and confusion so what better way to deal with that than to extend the rules to the private sector as well – though fortunately only from April 2020.

Although there are detailed changes on VAT the registration threshold stays the same, while duties on fuel, beer, cider and spirits are frozen (although the same curtesy is not extended to smokers).

The devil will be in the detail of course and we will be giving a more considered view in our Budget seminars on 31 October and 1 November.  Overall though it felt like a Budget where the purse strings are slowly being loosened but fiscal responsibility remains the watchword.  There was virtually no mention of the “B” word throughout the speech which itself was curious given the context, but Mr Hammond was very clear that the Spring statement may need to become something rather more significant depending on how negotiations go.  A Spring Budget?  Just like the good (not so) old days.

* Paul Brown a tax partner, based at the Shrewsbury office of Whittingham Riddell

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