There was wide-ranging speculation in the run up to this year’s Budget, with experts predicting that, whilst Brexit and ending austerity would be the most prominent features, Chancellor Phillip Hammond would also take the opportunity to make changes in other areas such as pension contributions tax relief and the tax regime for digital-only businesses. As is usually the case, some of the predictions (in particular those relating to austerity, Brexit and digital-only businesses) proved to be correct, but it will be of great relief to many individuals that the Budget did not include proposals to change the current rules for pensions tax relief.
The Chancellor said that this Budget – the first Budget to take place on a Monday since 1962 – would be a ‘Budget for hard-working families….for strivers, grafters and carers’. He said that the last eight years had been ‘driven by necessity’, but public finances have now reached a defining moment where ‘austerity is coming to an end’. The economy has grown every year since 2010, and is projected to continue growing in each year of the current forecast. The unemployment rate is at its lowest for over 40 years, and the Office for Budget Responsibility (OBR) forecasts 800,000 more jobs by 2022.
Around 2.4 million people are expected to benefit from an increase in the National Living Wage from April 2019, when the rate for those aged 25 and over will rise from £7.83 per hour to £8.21 per hour. For a full-time worker, this increase represents a pay increase of £690 a year.
The Chancellor confirmed that the Government would meet its manifesto pledge of raising the personal tax allowance to £12,500 and the basic rate threshold to £50,000 within the current parliamentary term. These increases will take effect from April 2019 – a year earlier than originally planned – and will be maintained in 2020.
The Government is to allocate £1.7 billion to increase existing work allowances in Universal Credit (UC), which should mean that working parents and people with disabilities claiming UC will be £630 a year better off. People will also receive extra help as they move from their existing benefits to UC and there will be targeted support for people repaying debts.
Announcements affecting businesses include an increase in the Annual Investment Allowance (AIA) from £200,000 to £1 million for two years from January 2019. Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings from their profits before they pay tax.
For digital-only businesses, in line with the pre-Budget speculation, it was announced that from April 2020, large social media platforms, search engines and online marketplaces will pay a 2% tax on the revenues they earn which are linked to UK users. Full details of this new tax are to be unveiled in due course.
Following strong lobbying against a possible abolition of entrepreneurs’ relief, the Chancellor committed to retaining it for the present time. However, in a bid to support longer-term business investments, from 6 April 2019, the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months.
Many experts expected the Budget to include proposals for changes to the existing IR35 rules. The Chancellor announced that IR35 off-payroll working rules, which have already been introduced for the public sector, will be extended to the private sector. However, in response to representations made during the consultation earlier this year, implementation will be delayed until April 2020 and will only apply to large and medium sized businesses. Under the reforms, responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker. According to HMRC, small organisations will be exempt, minimising administrative burdens for the vast majority of engagers, and HMRC will provide support and guidance to medium and large organisations ahead of implementation.
The following paragraphs summarise the key tax points arising from the 2018 Autumn Budget based on the documents released on 29 October 2018. Please remember that these proposals are subject to amendment during the passage of the Finance Bill through Parliament. We will, of course, keep you informed of any significant developments.
