Autumn 2017 Budget Changes
The budget was less extreme than most were predicting thankfully. However, there are a few key pieces of information included which are likely to be relevant to our clients.
The dividend allowance reduction from £5,000 to £2,000 as planned by the government last year appears to be going ahead unfortunately. There’s nothing good here as it means an increase in personal tax for nearly all small businesses with very little that can be done to plan around or avoid it.
Research and Development Tax Credit
What sounded like good news during the Chancellor’s speech about an increase in the R&D tax credit from 11% to 12% is a non-starter. Upon inspection of the red book the change boasted about by the chancellor won’t apply to small and medium sized companies who already qualify for enhanced R&D expenditure rules. This change will only apply to companies with more than 500 staff members and a turnover of €100m or a balance sheet value of €86m.
The chancellor announced that rates will now be based on the Consumer Prices Index (CPI) rather than the Retail Price Index (RPI). The CPI increases at a lower rate than the RPI so this means a lower rate of increase to rates bills going forward into the future. For comparison, next year this is the difference between a 3.9% increase and a 3% increase in rates.
VAT Threshold cut
There were rumours the government would cut the VAT thresholds from £85,000 down to a much lower level for all UK businesses. Thankfully, while he made reference to the UK’s threshold being much higher than other EU countries, the chancellor did not make this reduction, the VAT threshold remains unchanged. The government’s plans are for this to stay at a steady level for the next two years at least.
Benefit in Kind taxes on diesel vehicles will be increased from 3% to 4%. In addition the CO2 emissions thresholds have been changed to push more vehicles into higher taxation brackets for their emissions.
Enterprise Investment Scheme
The amount of money a company can raise through an EIS scheme has been doubled from £1m to £2m for “knowledge intensive companies”. In addition, knowledge intensive companies will receive an increase to their annual investment allowance. The definition of “knowledge-intensive” doesn’t appear to be completely clear yet.
In addition, the government have announced that new rules will be brought in to test that EIS schemes are not “used as a shelter for low risk capital preservation schemes” however no date or specifics have been set in stone over when these rules will come in. They will be based on a test which requires EIS companies to take a “reasonable view” on whether there is a “risk to capital”. The amounts of potential loss to the investor should be an amount greater than the net return. HMRC will publish guidance on this at a later date.
Unfortunately none of these changes apply to the more tax efficient Seed Enterprise Investment Scheme. You can find more information on these schemes elsewhere in our blog or by contacting us.
Stamp Duty Land Tax
Stamp Duty will be abolished for first time buyers purchasing a house worth less than £300k.
Long term IR35 hints
The chancellor hinted strongly that the government have long-term plans to expand the unpopular IR35 changes to the private sector.
IR35 is a rule that came into effect from April 2017 for all public sector employers which made them liable for both deciding whether someone working as a contractor should be treated as an employee and also for any tax liabilities if they treat someone incorrectly. The net effect of this was to cause the public sector to run in terror from recognizing anyone as a legitimate contractor for fear that they would later be made liable for that person’s tax bill.
When this came into effect a number of our own clients were either forced into a PAYE scheme at huge reductions in their salaries or else forced to leave the industries they had been practicing in. There are no deadlines or current plans for this, but the fact that it was mentioned in the budget speech suggests that the treasury are starting a planning process to bring this rule into effect for all businesses in the future.