Here are our immediate thoughts and comments in the first Autumn Budget for 20 years, in which we enjoyed some farce, some cringeworthy Top Gear jokes and the traditional baiting and noise all in the context of a mixed bag of economic results and forecasts.
Despite some trialled headlines, all in all this was a fairly standard and risk-averse budget.
As an immediate reaction to the budget, we should advise caution as further government documents and explanations that may result in different interpretations emerge. If any of the measures concern or impact you, please contact us for further information.
Economic Growth and Forecasts
- The Office of Budget Responsibility (OBR) forecasts another 600,000 people in employment by 2022. This is the context of current unemployment figures of 1.4m.
- Broadly we are expecting a reduction in economic growth with numerous key measures including GDP, Productivity and Investment growth all falling. The OBR has accepted a reduction in the assumptions regarding productivity growth, something it has stubbornly avoided for a long time.
- Inflation will peak at around 3% this quarter, but then is expected to fall back towards target.
- Comments: A mixed bag of results which provide a mixed macroeconomic context for small businesses and freelancers. Of course, uncertainty continues to abound with Brexit, and the real test will come as we approach the date for leaving the EU.
Individual Taxation, Pay and Housing
- The tax-free annual Personal Allowance will increase to £11,850 effective 6 April 2018. The higher rate threshold will increase to £46,350.
- The main Individual Savings Account (ISA) limit remains unchanged at £20,000 for 2018-19. It increases to £4,260 for Child Trust Funds and Junior ISAs.
- The National Living Wage will increase from £7.50 / hour to £7.83 / hour, a 4.4% increase. The National Living Wage applies to those aged 25 and over. The National Minimum Wage will also increase across all age bands.
- A Council Tax premium of up to 100% will be permitted for empty properties. It appears that the choice of whether to charge the premium, and how much, will be a local decision.
- Stamp Duty Land Tax (SDLT) will be abolished for first-time buyers on properties up to £300,000. For those buying properties worth £300,001 to £500,000, they will pay no SDLT on the first £300,000. Will Scotland and Wales (from April 2018) follow suit?
- The Government will consult in 2018 on overhauling the taxation of Trusts.
- As previously announced, reforms to National Insurance on termination payments, such as redundancy payments, will be delayed by a year.
- An obscure one: from April 2018 employees will not be subject to a benefit in kind charge on electricity provided by their employers to charge their electric vehicles.
- Comments: Whilst welcome for low-earners, the increase in statutory wages will push employment costs higher, especially where staffing and payroll constitute a high proportion of your costs. For larger employers with complexities, such as making redundancies, the delays in National Insurance reform will be welcome, albeit only in the short-term.Landlords sitting on empty properties will need to take care with the Council Tax premium.The increases in Personal Allowance and higher rate threshold are unremarkable, and within expectations.The electricity for electric cars made us chuckle – we not aware of any clients or taxpayers caught by a supposed charge, but it is nice for the Government to provide clarity.
- No apparent changes to Corporation Tax rates and the ongoing reductions.
- As previously announced, the abolition of Class 2 National Insurance Contributions (paid by self-employed persons above a set threshold) will be delayed. In addition, anticipated rises in Class 4 to 11% by April 2019 will not happen.
- The Government will consult on extending reforms to self-employment in the public sector to the private sector. Conclusions are expected at some stage in 2018. In addition, a discussion paper will be published on more longer term reform to employment statuses and rights.
- The Government will consult on amending the Intangible Fixed Asset Regime in 2018. This scheme provides tax deductions and allowances for companies who own intangible assets, such as intellectual property.
- Additional taxes for diesel cars, with those not meeting the most modern standards facing an additional 1% surcharge for Benefit-In-Kind purposes, and an increase in Vehicle Excise Duty.
- The Indexation Allowance is frozen, providing relief up to January 2018 but not thereafter. Indexation Allowance is a form of tax approved ‘depreciation’ on chargeable gains made by limited companies.
- The threshold for registering for VAT will not be amended, despite being trialled heavily. It will remain at £85,000 for the next two years but the Government will consult on the design of the threshold. To put this into context, Germany’s threshold is €17,500.
- The R&D Expenditure Credit will rise from 11% to 12%.
- Business Rate Relief: RPI will switch to CPI in April 2018, resulting in lower costs at the upcoming revaluation. Revaluations will now change to every 3 years, instead of 5, in theory reducing the impact of these events.
- A wide range of anti-avoidance measures will be consulted on during 2018.
- The timetable for Making Tax Digital remains as previously announced, with no business mandated until April 2019. At that point, only businesses above the VAT threshold will be mandated, and only for VAT purposes only.
- Comments: The Indexation Allowance is a significant change for limited companies and whilst it brings the ‘capital gains’ regime for companies into line with the individual and sole-trader regime, one might argue that an Indexation Allowance for individuals and sole-trades would be the fairer reform. With the allowance frozen from January 2018, the impact will be minimal in the short-term but may impact medium or long term investment calculations.Whilst the decision not to change the VAT threshold will be well received by some, it is possible that consultations will result in proposals to capture more businesses and tackle the ‘cliff-edge’ effect of the threshold.We continue to watch proposed reforms and gossip surrounding employment status carefully, as any changes are likely to have an impact on freelancers and service companies operating with a single director. What is clear is that in a world of Uber and Deliveroo, change is likely.