News - Published 10th October 2018

Autumn Budget 2018: Business Tax Predictions

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Will Sweeney - Menzies Accountant
Will Sweeney – Tax Technical Specialist

This year’s budget is as tricky as ever; balancing the books, increasing tax revenues to help ensure a level of economic buoyancy to take us through Brexit, but at the same time needing to remain competitive from both a personal and business tax perspective.

The Chancellor remains determined to reduce the UK’s borrowing. Accordingly, I wouldn’t expect any naked giveaways (ie: any tax reductions will need to be paid for). On the reverse side, the Government don’t want to present another austerity budget and so any revenue raisers are likely to be balanced by other, ‘good news headlines’.

The UK Remains ‘Open for Business’

As we approach Brexit, it becomes more important than ever for the UK to adopt tax policies that show that the UK is open for business – to ensure that it attracts the skilled workers from overseas that businesses need, and that it attracts and retains High Net Worth Individuals and Entrepreneurs.

While we remain convinced that the Chancellor would advocate an overhaul of the tax system for the self-employed in time, it seems unlikely that there will be any further changes for this year as, quite simply, the UK will need their entrepreneurial spirit over the coming months.

This government’s overriding message on business tax has always been the need to promote innovation and the development of workers’ skills, with a view to driving up productivity. We are likely to see further proposals aimed at using the tax system to reward these behaviours.

  • Corporation Tax to stay at the current level (19%). No future cuts will be announced until the Brexit position is finalised.
  • Introduction of a fund structure to encourage longer term investment in ‘Knowledge Intensive Companies’ via the Enterprise Investment Scheme (EIS)
  • Reform of tax relief for Intangible Fixed Assets to ensure it better rewards Companies for being innovative.
  • Apprenticeship scheme to be reformed with increased ability to use funds across the supply chain which was announced by the Chancellor at the recent Conservative Party Conference.

But ‘green’ cars should still be encouraged.

The planned increase in benefits in kind for electric cars should be abandoned. These benefits are planned to go up massively until 6 April 2020 when they will be massively reduced for electric cars with decent battery range. As it stands, this discourages companies from buying electric cars until 2020 and so surely must change. This would be also be consistent with the draft proposals for employees to be exempt from Income Tax and National Insurance on the provision of charging facilities for electric and hybrid vehicles at the workplace.

And tax reliefs for growing businesses should be relaxed

We would like to see an extension of the application of Entrepreneur’s Relief (ER) and Business Investment Relief (BIR) to encourage investment in the UK, however as ER is already costing the government considerably more than expected, this may be too much to hope for. Indeed, the one proposal discussed so far is the relatively minor point of allowing entrepreneurs who could lose their entitlement to ER if their shareholding were to be diluted to claim ER on the gains made up to that point.

NHS Funding

One of the key areas of focus for the Chancellor is to answer where the estimated £20bn in additional funding for the NHS will come from? Improved borrowing figures over the summer have made the Chancellor’s task easier, potentially enabling him to defer any tax increases during the uncertainty of the Brexit period. However, polls indicate that the public would be prepared to pay additional tax to fund the NHS and so he may decide that he has a limited window in which to link any increases to the NHS in the public’s mind:

Encourage the sale of buy to let properties

One option would be to reduce the Capital Gains Tax (CGT) rate for residential properties to 20%. Previous tax policies have discouraged people from buying more buy to let properties but there is little incentive for those with existing portfolios to sell, especially with a CGT rate of 28%. If the govt would like people to sell off their buy to let portfolios – particularly to first time buyers – then the CGT rate should be reduced to 20% or lower, but also combined with CGT being paid 30 days after sale (rather than the following tax year). This would be politically controversial, and could have a negative impact on house prices if structured in the wrong way but could yield a large amount of tax.

Tightened tax policy for non-UK residents investing in UK properties.

The underlying sentiment is that people/businesses are struggling to afford UK property as the average property prices have been pushed up significantly by overseas buyers looking to achieve capital growth or own a ‘trophy’ asset. The extension of Non Resident’s CGT ensures that HMRC will at least get their fair share of tax receipts on the sale of the property.

In addition, to get a higher slice of tax upfront, the PM announced recently that the government will consult on introducing higher rates of SDLT for foreign buyers of UK property.

Target ‘Non-compliance’ by contractors

The Government consulted on ‘Off payroll working for the private sector’ in the summer, and despite the absence of draft legislation, there is speculation that this budget may see confirmation of whether the public sector changes will be rolled out to the private sector, together with an indication of the date that this will apply from. The likely dates being 6 April 2019 and 6 April 2020. The later date is more practical as it would allow more time for businesses to gear up, but the earlier date is still a possibility for a cash-strapped Chancellor looking to accelerate the increased tax take.

HMRC remain determined to close the tax gap and so we may see more anti-avoidance proposals

The Chancellor has indicated the UK could take unilateral action regarding multinational digital companies, potentially along the lines of the secondary royalty withholding tax that the government consulted on earlier this year, although this is likely to require further consultation.

Controversial new rules on ‘profit fragmentation’ that could impact small business or individuals that transfer value from a UK business to be taxed at a lower rate overseas.

From an offshore perspective, having seen a series of legislative changes affecting non-domiciliaries and offshore trusts, we would welcome a period of stability and no further changes. We are however likely to see measures to extend HMRC’s powers to investigate offshore tax matters, as well as a reinforcement of the punitive penalty regime brought in under the ‘Requirement to Correct’.

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Overall, the message for this budget has to be one of stable and consistent policy (as reflected in the now almost de rigour fuel duty freeze!) which aims to keep the UK competitive, driving forward business and the people behind those businesses. In a period of uncertainty, it would be unwise to have radical tax policy changes; I would therefore expect to see a number of ‘stealth changes’ (increase in tobacco duty, alcohol duty, the proposed HGV levy, u turn on abolition of class 2 NICs for self-employed etc) rather than fundamental headline changes.

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