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Tax implications

Anita Monteith, technical lead and senior policy advisor in ICAEW's Tax Faculty, outlines the raft of tax-related announcements in Philip Hammond's Budget, including changes to capital gains tax and lettings reliefs which will affect individuals, frozen VAT and fuel duties, increased reliefs for businesses, extension of changes to off-payroll working and new anti-avoidance measures.

TaxTalk Budget Special

Watch the video broadcast from the Tax Faculty's Frank Haskew and Anita Monteith and ICAEW's director of public sector, Ross Campbell, as they discuss the key announcements in the 2018 Budget.

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Individuals will benefit from an increase in the personal allowance to £12,500 for 2019/20 and 2020/21, while the basic rate limit for income tax will be increased to £37,500. This achieves the government’s manifesto pledge of a higher rate tax threshold of £50,000 one year earlier than previously planned.

The other big changes to personal tax were to capital gains tax. In an attempt to refocus Entrepreneurs Relief on genuine entrepreneurs, in order to qualify for the 10% rate of capital gains tax, there will be a new minimum two-year period of ownership required for sales made on or after 6 April 2019. The definition of a personal company will also be tightened up.

The cash flow of those selling second homes will be impacted by a new rule requiring a payment on account of any capital gains tax following completion. The tax rules for gains made by non-residents will also be tightened up and will apply equally to non-resident companies.

There is also a new restriction to lettings relief which is sometimes used by people who rent out their home for a period, perhaps because they have had difficulty finding a buyer. A maximum of £40,000 of capital gain per owner is exempt, but from April 2020, lettings relief will only be available where the owner and tenants are in shared occupation.

Budget 2018 certainly brings a lot of change for business, although one which didn’t happen was a reduction in the VAT registration threshold. This will remain at £85,000 until 31 March 2022.

Fuel duty rates will also remain frozen for the tax year 2019/20. The government has responded to calls for financial help from the high street by introducing a cut on one-third off business rates for retail premises with a rateable value of up to £51,000 in 2019/20 and 2020/21.

As part of the government’s plan to encourage growth, there will be a new Structures and Buildings Allowance for expenditure on or after 29 October 2018; as ever, the cost of land will not be eligible for relief.

The Annual Investment Allowance will be increased temporarily from £200,000 to £1m for expenditure incurred between 1 January 2019 to 31 December 2020, which will once again create complications for larger businesses with non-calendar year ends and groups.

There is welcome news for drivers of electric cars as the 100% first year allowance for electric charge-points will be extended for four more years, so encouraging more charging points to be made available.

As ever, a raft of anti-avoidance measures were announced, including the new VAT reverse charge in the construction industry, starting on 1 October 2019. 

The 2017 changes to off-payroll working in the public sector will be extended to medium and large businesses in the private sector from April 2020. Although this will be subject to consultation, it will move responsibility for determining whether the off-payroll rules apply from the worker's personal service company (PSC) to the entity engaging the worker through a PSC. 

From April 2020, the £3,000 employment allowance, which until now has been available to all employers to reduce their employers’ National Insurance contributions liability, will only be available to employers with a liability below £100,000 in their previous tax year. 

And finally, pending global reform, a new Digital Services Tax will target digital businesses to reflect the value they derive from UK users. It is expected to raise £1.5bn over four years.

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