Monthly Archives: October 2018

Autumn Budget 2018

The sun was already edging behind the London skyline by the time Chancellor Philip Hammond rose to the despatch box to deliver the first Monday Budget since 1962 – pushed back to 3.30pm because of later Parliamentary sitting times on Mondays.

Officially, the traditional Wednesday slot was dispensed with this year to allow as much time as possible for debate in Parliament. The more cynical might have suspected it was actually to avert a Halloween nightmare.

Either way, Mr Hammond could be forgiven if he was feeling cautious. This should be the last Budget before Brexit, taking place a few weeks earlier than usual to allow for crucial negotiations in November. It was, therefore, his best opportunity to influence the terms of the Brexit debate before the UK’s withdrawal from the EU next March.

Mr Hammond had admitted in interviews over the weekend that some measures would be contingent on the outcome of the Brexit negotiations and a further Budget could be needed in the event of a no-deal outcome – a claim subsequently played-down by Number 10.

Mr Hammond has bitter experience of having to backtrack on a measure announced in a Budget and will have been determined to avoid a repeat of his first Budget in spring 2017, following which he was quickly forced to cancel tax rises for the self-employed.

Adding to the pressure, the Government lost its majority in the Commons at last year’s snap General Election, emboldening opposition parties to float the idea of voting down the Finance Bill.

Economic Overview

Mr Hammond began his speech on a noticeably bold note, declaring that the “age of austerity is finally coming to end”, as he set out the fiscal and economic assessments from the Office for Budget Responsibility (OBR).

The OBR now forecasts growth next year of 1.6 per cent, 1.4 per cent in 2020, 1.4 per cent in 2021, 1.5 per cent in 2022 and 1.6 per cent in 2023. Mr Hammond added that the OBR expects real wages to grow in each of the next five years.

He went on to report that the deficit is falling to 1.5 per cent this year and next year, before dropping to 0.8 per cent by 2023-24.

He said that these represent a “significant improvement” in the public finances, enabling him to set out a new path for public spending. He added that there will be a full Spending Review next year.


Business and Enterprise

To cheers from his MPs, the Chancellor said Business Rates will be cut by one third for those with rateable values of £50,000 or less following the next revaluation exercise. This is expected to benefit 90 per cent of independent firms.

He also announced a significant increase in Annual Investment Allowance from £200,000 to £1 million for the next two years.

He also said that the qualifying period for entrepreneurs’ relief will increase from 12 months to two years.

Meanwhile, in the only announcement relating to Making Tax Digital (MTD), Mr Hammond said that the VAT threshold will remain at £85,000 for the next two years, meaning additional businesses will only be subject to MTD for VAT if their turnover rises above this level.

Moving to direct support for businesses, he said that a modern industrial strategy, supporting nuclear fusion, quantum computing, artificial intelligence and more will receive £1.6 billion in new investment. He also announced a £695 million initiative to help small businesses hire apprentices.

Small businesses will see their contributions to the apprenticeship levy reduced from 10 per cent to five per cent.

Less welcome for large online firms was the announcement of a UK Digital Services tax of two per cent on money made from users in the UK from April 2020. However, this will only apply to firms with revenues of £500 million or more and only if a good global alternative is not approved. Start-ups and SMEs in the sector will be unaffected.

Mr Hammond also announced that the National Living Wage is to rise by 4.9 per cent from £7.83 to £8.21 in April 2019.

Contractors working through personal service companies for medium-sized and large businesses will be subject to the IR35 rules, but not until April 2020, instead of April 2019 as planned. This means that these businesses will need to determine whether any contractors should be treated as employees for tax purposes.

Mr Hammond also announced a consultation on a plastic tax where packaging contains less than 30 per cent recycled plastic, but ruled out a tax on cups, unless the industry fails to make sufficient progress.

Meanwhile, the Chancellor confirmed that HM Revenue & Customs (HMRC) will become a preferred creditor following insolvency.


Public Spending

Saying that some “bunnies” have already escaped the hat, Mr Hammond said that there will be £20 billion for the NHS in England, £240 million to assist with winter pressures on Social Care and £2 billion more each year for mental health by 2023-24.

As part of this, there will be mental health crisis centres providing support in every accident and emergency unit in the country.

For education, he announced what he described as a £400 million “bonus” to spend on what he described as the little extra.

Turning to transport, Mr Hammond said that there will be a £30 billion package for roads in England, including for motorways and pothole repairs.

Turning to defence, he announced £1 billion additional funding for the Ministry of Defence this year and next year. This was followed by the announcement that an additional £160 million will be provided for counter-terrorism policing.

Meanwhile, £10 million will be provided to support mental health care for military veterans, marking the centenary of the end of World War One.

There will also be £1.7 million for education programmes to mark the liberation of the Bergen-Belsen concentration camp 75 years ago.


Brexit

Mr Hammond said that an additional £500 million will be provided to Government departments to fund Brexit preparations. This follows £2.2 billion that was announced previously and £1.5 billion that he announced at the Spring Statement.

Meanwhile, one of his more eye-catching announcements was the minting of a commemorative 50 pence piece to mark the UK’s withdrawal from the EU next year.


Personal Tax, Housing and Welfare

Mr Hammond provided welcome news for individuals by bringing forward the increase in the Personal Allowance for Income Tax to £12,500 by a year to April 2019, increasing the Higher Rate threshold to £50,000 at the same time.

Motorists will benefit from fuel duty being frozen for the ninth consecutive year. Duties on beers and spirits will also be frozen for a year, but duty on wine rises.

First-time buyers purchasing shared ownership homes will no longer have to pay Stamp Duty Land Tax (SDLT) on properties valued at up to £500,000. £5.5 billion will also be provided for a Housing Infrastructure Fund.

Turning to Universal Credit, which has provoked significant political controversy in recent years, he committed to spending an additional £1.7 billion over the next five years.


Conclusion

Mr Hammond’s speech will inevitably be viewed through the ever-present prism of Brexit and dissected for any indication of the Government’s intended direction of travel.

Yet, while pundits will spend the coming days interpreting the political detail of the speech and untangling its implications for various rivalries, it is the specifics of what the Chancellor announced that will have an immediate effect on businesses and individuals across the UK.

Notably, this includes important measures for small businesses such as a cut to business rates and a two-year increase in the Annual Investment Allowance from £200,000 to £1 million.

However, how many of these measures actually come to pass will only become clear once the outcome of the Brexit negotiations is known. This may have been a Budget of some significance, or it may have been of little consequence at all.

Link: Budget Document

budget-date-2018-announced

Budget date 2018 announced, with half the usual notice

The Chancellor has announced that the 2018 Budget will take place on Monday 29 October 2018, having given just half the usual 10 weeks’ notice of the date.

The Autumn Budget, which took place for the first time last year, having been moved from the traditional spring date, was initially trailed to take place annually in November or December, as was the case for the Autumn Statement, which it replaced.

The Chancellor has said that the Budget has been moved forward to this month, owing to the final stages of the Brexit negotiations taking place in November.

Link: Budget 2018 date confirmed

employment-claims-from

Employment claims from contractors brought within IR35 expected after HMRC settlement

A freelance marketing and business development consultant has reached a settlement with HM Revenue & Customs (HMRC) after arguing that she should be entitled to holiday pay as she was considered to be a worker for tax purposes.

Susan Winchester had claimed £4,200 in holiday pay against HMRC after she was deemed to fall within the IR35 rules, which apply to freelancers working as if they are employees, but given none of the entitlements enjoyed by employees. She settled with HMRC on the morning of an Employment Tribunal.

The IR35 rules, which date back to April 2000, require that freelancers working through personal service companies for a third party and who would otherwise be employees, pay tax and national insurance as if they were employees.

Previously, individual contractors had to determine whether their work fell within IR35, but following a change to the rules in April 2017, public sector organisations were required to determine whether the freelancers they engage fall within IR35.

Susan Winchester said: “I’m a very fair person, with a strong moral compass. I would never have taken someone to court without a very good reason.

“But I just couldn’t understand why somebody could make some arbitrary decision about my tax and employment status on a brief, over-simplified questionnaire that I had no input in and seemingly no right to challenge.”

Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE) – the organisation that funded Winchester’s case, added: “[Her] case sends a very clear message to clients, that if you are going to treat contactors like workers then you’ve got to give them worker entitlements. You can’t just decide someone is inside IR35, shunt them onto an agency payroll and expect someone further down the line to pick up the tab for your obligations like holiday pay.”

A spokesperson for HMRC said: “HMRC does not discuss identifiable individuals. In general, in deciding if the off-payroll working rules in the public sector applied, HMRC would consider a number of factors, including how the engagement worked in practice, as well as examining the contract itself. HMRC was committed to ensuring that its approach to the changes as an engager was clear and transparent.”

Link: Contactor’s £4,000 holiday pay claim is the ‘tip of the iceberg’

just-eight-per-cent

Just eight per cent of business loan applications successful with one high street bank

On average, less than one in 10 SME loan applications to one nameless high street bank are successful.

The figures were released by SME funding platform, Code Investing, whose CEO, Ayan Mitra, said: “Due to regulation, due to banks having huge cost structures, due to SMEs not having standardised data, there’s quite a big funding gap.”

He added that he expected this low level of lending would lead to a boom in alternative finance, which currently accounts for just two per cent of SME lending in the UK. Alternative finance relates to funding channels other than the traditional banking institutions.

The success rate for SME alternative finance applicants is understood to be nearer 40 per cent.

Link: High street bank converts just 8% of SME loan applications

government-backed-tax-free

Government backed tax-free savings plan to help savers earn 50p on every £1

The Government has launched a new savings account that offers savers a 50 per cent tax-free bonus on the money they deposit.

The new Help to Save account will offer savers up to 50p for every £1 that they save, which could mean that people could benefit from as much as £1,200 of tax-free money if they save £2,400 over the four years of saving permitted.

Under the rules of the scheme, savers can put away between £1 and £50 every calendar month for up to four years after the date the account is set up. However, they do not have to make deposits every month to benefit from the bonus.

They can then receive a 50 per cent tax-free bonus on their savings after two years, with an additional 50 per cent tax-free bonus after four years.

The account has already been trialled for eight months amongst 45,000 customers who deposited over £3 million.

The Government describes the new account as “easy to use, flexible and secure” and believes it will “encourage savings behaviours and habits” at a time when saving is at an all-time low.

Help to Save will only be available to working people in receipt of Tax Credits or Universal Credit.

Link: Help to Save

hmrc-investigates-estate

HMRC investigates estate valuations as part of IHT campaign

The number of investigations conducted against estates thought to be avoiding Inheritance Tax (IHT) has increased, according to new data from HM Revenue & Customs (HMRC).

The tax authority has revealed that 5,400 estates were investigated during the 2017/18 tax year – a five per cent increase on the previous year’s figure (5,100 estates).

This means that nearly a quarter (24 per cent) of all estates liable for IHT were investigated by HMRC for avoidance during the last tax year.

Experts have said that the rapid rise in property prices is a key factor to these investigations, as HMRC believes that additional value should be attributed to properties that have the potential for refurbishment, or that have land attached that could be developed.

If an estate is investigated by HMRC, beneficiaries may have to pay up to 100 per cent of the tax charged on the estate if the tax authority can prove avoidance has taken place.

Data shows that HMRC is increasingly challenging the value of estates as it has become a lucrative approach for uncovering unpaid liabilities.

An HMRC spokesperson said that their investigations into IHT ensured that everyone paid the right amount of tax.

Link: HMRC annual report and accounts: 2017 to 2018

micro-businesses-bear

Micro businesses bear the brunt of late payments

Recent research has shown that micro businesses are bearing the brunt of late payments, with just 52 per cent of the invoices they issue being paid on time.

However, the research found significant regional variation, with 68 per cent of micro businesses in Peterborough encountering the scourge of late payments.

The research was based on data from 50,000 users of a prominent cloud accounting software provider.

Meanwhile, related research has found that a quarter of micro businesses are having to wait between three and six months to receive payments owed to them. A further 10 per cent report that they have clients who have never paid them.

When asked whether the Government should legislate to make it easier for micro businesses to recover funds from late payers, 70 per cent of respondents agreed.

Link: Nearly half of micro businesses plagued by late payers

hmrc-finally-launches-mtd

HMRC finally launches MTD communications plan and simplified guidance

With only six months left until the launch of Making Tax Digital for VAT, HM Revenue & Customs (HMRC) has finally begun sharing information with businesses about the new regime.

While accountants and professional advisers across the UK have been making clients aware of the new digital system for more than two years, the nation’s official tax authority has remained fairly quiet on what has been described as one of the biggest changes to taxation in the last 70 years.

However, in mid-September HMRC finally began making businesses aware of their plans, initially posting a tweet linking to a new webpage entitled Making Tax Digital: How VAT businesses and other VAT entities can get ready.

The new webpage provides simplified guidance to businesses, outlining the criteria for businesses that will be mandated to join the scheme i.e. those registered for VAT with a taxable turnover above the VAT registration threshold (£85,000).

According to AccountingWEB, HMRC has revealed that it has further plans to increase its social media and public relations activity around MTD, as well as directly contacting those businesses affected via post.

HMRC is due to publish details of all compliant VAT reporting products soon after a private pilot run by the department was made public. A list of software companies currently working with HMRC is available here.

Link: Making Tax Digital: how VAT businesses and other VAT entities can get ready.

workers-miss-out-on

Workers miss out on £15.6 million in pay through minimum wage breaches

Minimum wage breaches, including breaches of the National Living Wage, have cost workers from across the UK a combined total of £15.6 million in lost wages.

Figures released by the Government show that around 200,000 workers were affected in 2017/18, in what was the highest underpayment since the National Minimum Wage was introduced.

In total, more than 600 employers were named and shamed in 2017/18 for minimum wage breaches, the highest figure since naming and shaming was introduced in 2014.

Business Minister, Kelly Tolhurst, said: “We are dedicated to stopping underpayment of the minimum wage. Employers must recognise their responsibilities and pay their workers the money they are entitled to.”

Low Pay Commission Chairman, Bryan Sanderson, added: “All workers are entitled to be paid at least the minimum wage, so it is good to see increased focus on enforcement bearing fruit and securing more arrears for more workers.

“Awareness of the minimum wage is vital for workers and employers alike, and strong enforcement is critical to its success.”

The current rates of the National Living and Minimum Wage are:

25 and over    21 to 24           18 to 20           Under 18         Apprentice

£7.83               £7.38               £5.90               £4.20               £3.70

If anyone thinks they are not receiving at least the minimum wage, they can contact the Acas helpline on 0300 123 1100 in confidence or submit a query online via a complaints form.

Link: Record £15.6 million underpayment identified for workers on the minimum wage

ciot-reports-increase

CIOT reports increase in R40 refund errors

According to a new report by the Chartered Institute of Taxation (CIOT), there have been a growing number of R40 computation errors on refunds processed by HM Revenue & Customs (HMRC).

Individuals can use R40 forms to claim tax refunds on tax deducted from savings income. Following the CIOT report, HMRC has now confirmed that there is an issue with R40 computations.

The issue lies in the computation for the Personal Savings Allowance and the Dividend Allowance and HMRC have provided a workaround that should address the issue in most cases.

Despite this, the CIOT have said that they still may be other errors relating to R40 computations that are not connected to these allowances and have suggested claiming a refund using the correct form to check that the computations are accurate.

 (R40)Link: Claim a refund of Income Tax deducted from savings and investments (R40)