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Tax implications

The Autumn Budget gave us the first indications of the government response to the OTS review of the VAT regime and the Taylor review of modern working practices. Caroline Miskin gives her thoughts on the announcements.

To the relief of many there will be no immediate reduction to the VAT registration threshold although it will remain frozen at £85,000 for two years. The government will keep this issue under review, they will consult on the design of the threshold and consider how to address distortions and barriers to growth caused by the threshold. Any changes should now come after Brexit and the introduction of Making Tax Digital for VAT.

The response to the Taylor review is a further consultation on options for reforming the employment status tests for both tax and employment rights. The speech made no mention of any extension of the off-payroll working (IR35) rules introduced for the public sector in April 2017 to the private sector but there is to be a consultation.   

The detailed documents contain some small but important measures including allowing landlords to use the fixed mileage rates. Allowing claims to marriage allowance on behalf of deceased spouses is a welcome correction of an anomaly. There will be a call to evidence on changes to rent a room relief. Self-funded training currently receives very limited tax relief and the announcement of a consultation on extending the scope of this relief is welcome.

Perhaps not surprisingly, national insurance contributions did not get a mention. A delay, from April 2018 to April 2019, to the abolition of Class 2 national insurance contributions and consequent changes to Class 4 contribution had been announced in advance of the Budget.

The manifesto commitment to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 was reiterated. As steps towards this goal, the personal allowances will increase to £11,850 for 2018/19 and the higher rate threshold to £46,350. There are no significant changes to rates and allowance; notably, there are no changes to the tax treatment of dividends or to tax relief for pension contributions.

The seven-day delay which is built into claims to universal credit is to be removed and the rules for claimants to receive advances while their claim is being considered are to be relaxed. These are steps in the right direction but it is likely that further reform will be required, especially for the self-employed.

The planned reduction of the rate of corporation tax to 17% from 2020 was reconfirmed. Indexation relief in calculations of chargeable gains by companies will be frozen from 1 January 2018. The increase in the rate of the R&D expenditure credit from 11% to 12% and the doubling of the limits for Enterprise Investment Scheme will help support innovative businesses.

Property related changes include a package of measures on business rates including more frequent valuations and a change from RPI to CPI uprating. First time buyers will benefit from no stamp duty on a maximum of £300,000 purchase cost.   

After the Paradise papers, it was inevitable that the Budget would feature further measures to tackle tax evasion and avoidance. The devil will be in the detail and these measures will need careful consideration. It is proposed that withholding taxes will be deducted on royalty payments from then UK to low tax jurisdictions where the payments relate to UK sales and that the assessment time limit for non-deliberate offshore failure to comply will be extended to 12 years. 

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