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Spring Statement 2018 and changes for the new tax year 2018/19

Choice 2Mr Hammond made it clear some while ago that he wanted his Spring Statement to be a short financial briefing rather than a mini-budget, complete with rabbit-out-of-hat announcements.

Although his speech ran to 25 minutes, rather than the 15-20 that had been promised, the Chancellor stuck to a no-frills script.

2018 will see a major consultation on the taxation of trusts. The aim will be to make the tax regime 'simpler, fairer and more transparent'. We shall see!

There are rumours in advance of the 2017 Autumn Budget about the possibility of reducing the VAT threshold nearer to German levels - which are much lower than the UK's £85,000 registration limit.

In the event the Chancellor just froze the threshold for the next two years. But he has said that he will consult on the ‘design’ of this threshold.

There were no new tax measures and no spending changes. The Office for Budget Responsibility (OBR) trimmed its projections for government borrowing, but Mr Hammond simply banked the savings for his Autumn Budget. Spending will be subject to a detailed review in 2019.

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Spring Statement 2018: key highlights

  • No new tax or spending initiatives were announced.
  • Borrowing numbers turned out to be better than expected – which allowed the Chancellor to see ‘light at the end of the tunnel’. Public sector net debt (projected to be £1,783 billion at the end of 2017/18) is now predicted to fall as a percentage of the economy, although in absolute terms it will continue the march towards debt of £2 trillion.
  • The next revaluation of business property in England will be brought forward one year to 2021; but ‘at this stage’ the government will not introduce self-assessment. A summary of responses to an earlier consultation document on three-yearly revaluations was published alongside the Spring Statement.
  • A ‘position paper’ on corporate tax and the digital economy represented the latest government thinking on how to address the taxation of the internet economy’s elusive profits.
  • A consultation paper was issued on allowing entrepreneurs’ relief in circumstances where it would otherwise be lost because of a new share issue.
  • There was a call for evidence on the design of the VAT registration threshold and whether a revised structure could offer more incentives for small businesses to grow.
  • There was a consultation on the extension of tax relief for self-funded work-related training by employees and the self-employed.
  • There was a consultation on the extension from April 2019 of the existing security deposit regime to include Corporation Tax and Construction Industry Scheme deductions.

The raft of consultations will potentially mean that, after the content-light Spring Statement, the Autumn Budget will be a full-fat fiscal event.

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Consultations and other papers

Corporate tax and the digital economy

The government will explore ways to raise revenue from digital businesses such as introducing a tax on revenues that they derive from the UK market.

The government is ready to take unilateral action in the absence of sufficient progress on multilateral solutions.

There will also be immediate action against multinational groups, primarily in the digital sector, who achieve low-tax outcomes by holding their valuable intangible assets such as intellectual property in low-tax countries where they have limited economic substance.

Future of digital paymentsCloud technology

The government is supporting delivery of a revamped payments architecture, which will increase the efficiency of the UK’s payments infrastructure and is consulting on this.

The Bank of England is also renewing its settlement system, which will be more adaptable to new technologies and offer greater functionality for all users. The consultation also covers the future of cash.

Online platforms

The government is consulting on how online platforms could help their users understand and comply with their obligation to pay tax on their earnings.

VAT split collection

The government is launching a consultation on VAT split payments, with an emphasis on overseas sales into the UK. It is seeking views on options for using payments industry technology to collect VAT on online sales and transfer the tax directly to HMRC.

VAT threshold

The Chancellor has said he would consult on whether the design of the VAT threshold could incentivise growth more effectively.

In the meantime, the threshold will remain at £85,000 for two years from April 2018.

The EU is also proposing reform and key parts include:

  • National thresholds will be capped at €85,000 (about £75,000).
  • There will be an EU-wide threshold of €100,000 (about £89,000). So that if a business’s total supplies in the EU reaches this threshold, they will no longer be able to benefit from any national thresholds.
  • Small businesses up to a turnover of €2 million (about £1.77 million) will benefit from simplification schemes such as removing interim payments and increasing return periods to a year.

Entrepreneurs’ relief

The government proposes that individuals who have ceased to hold a 5% interest in a company should be able to claim entrepreneurs’ relief, where the reduction in their percentage shareholding is because of the company issuing shares to raise capital for its trade.

New rules in the Finance Bill 2018-19 will apply to latent gains in shares and securities held at the time of fundraising events on or after 6 April 2019.

Financing growth in innovative firms

Many knowledge-intensive companies struggle to receive the capital they need to grow and scale up. The government is consulting on the introduction of a new approved fund structure within the enterprise investment scheme (EIS), and possible extra incentives to attract investment. Such a fund structure would be focused on mainly investing in knowledge-intensive companies.

Business rates

The government sought views on how to deliver more frequent revaluations for business properties in England.pencil calculator

A summary of responses was published alongside the Spring Statement with an announcement that the first of the new three-yearly revaluations will be in 2021, a year earlier than previously proposed.

Taxation of self-funded work-related training

The government is consulting on extending the existing tax relief available for self-funded work-related training by employees and the self-employed. The focus will be on lessons from previous initiatives, and ways to extend the existing tax relief, preventing its misuse, and making it sustainable for the public finances, as well as simple to understand and administer.

Extending the tax security deposit scheme

HMRC has the power to require high-risk businesses to provide an upfront security deposit, where it believes that there is a serious risk to the revenue. The scope of this security deposit legislation will be extended to include corporation tax and Construction Industry Scheme deductions with effect from April 2019. The consultation concerns how this change can be introduced most effectively.

Tax and insolvency

HMRC will seek views in Tax Abuse and Insolvency: A Discussion Document on how to tackle taxpayers who abuse the insolvency regime to avoid or evade their tax liabilities through the use of companies or other limited liability entities.

Single-use plastic waste

The government is consulting on how changes to the tax system or initiatives like deposit return schemes could be used to encourage more sustainable behaviour.

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Changes for the new tax year 2018/19 already announced

April will still see a raft of tax and other changes, some of which date back to the pre-election 2017 Spring Budget.

Income tax: UK

The income tax allowances and bands were increased in line with statutory indexation in the November 2017 Budget.

For 2018/19, the personal allowance rises by 3% to £11,850 and the basic rate band increases by the same percentage to £34,500 (outside Scotland), making the higher rate threshold (the sum of the two) £46,350.

The one tax allowance that will fall in 2018/19 is the dividend tax allowance. This has been £5,000, but will reduce to £2,000 for the coming tax year and could mean extra tax of up to £1,143 on dividend income in 2018/19.

Income tax: Scotland

The same income tax allowances will apply throughout the UK, but there will be differences in some of the tax bands and rates. In Scotland, a different set of rates and bands will apply to non-savings, non-dividend income – primarily earnings.

For 2018/19, Scotland will have five tax bands with rates ranging from 19% to 46%. The higher rate of income tax will be 41%, not 40%, and the threshold at which it starts will be £43,430 –£2,920 below the rest of the UK. For someone with earnings of £50,000 a year, that means an extra tax charge of £824 a year for being resident north of the border.

HMRC has confirmed that Scottish taxpayers will still be able to transfer 10% of their tax-free personal allowance to their spouse or civil partner. Similarly, those who receive relief on their pension contributions at source will continue to receive relief of 20%, with no adjustment required for those taxed at a rate below 20%, and there will still be scope for those taxed at a higher rate to claim additional relief. Finance cost relief for landlords will also continue to apply at 20% as is the case in the rest of the UK.

See our Tax Rate Card 2018/19 for the full list of rates, allowances and reliefs.

National insurance contributionscalculator hm revenue

The national insurance contributions (NICs) thresholds will also be increased by 3%.

The upper earnings limit (for employees) and upper profits limit (for the self-employed) will rise to £46,350, matching the UK higher rate income tax threshold.

Class 2 NICs, which were originally intended to end in April, will survive for 2018/19 (at £2.95 a week) before disappearing for 2019/20.

Company cars

Company car tax will rise for all but the highest emission vehicles from 6 April. The taxable cash equivalents will increase as follows:

  • Cars with CO2 emissions of up to 50 g/km will see a 4% increase (from 9% to 13%). Cars with emissions between 51 and 75 g/km will increase by 3% (from 13% to 16%).
  • Charges for cars with CO2 emissions above 75 g/km will rise by 2%, subject to the current ceiling of 37% of list price for all vehicles.
  • The diesel surcharge will increase by 1% to 4% for diesel cars that do not meet the RDE2 emission standard (which in 2018/19 means almost every diesel car on the road).

While the increases look small, the cumulative effect can be substantial. For example, in 2017/18 the taxable benefit for a Mercedes C300h SE Auto (P11D value £36,595, CO2 94 g/km) is £7,319. In 2018/19 the taxable benefit rises to £8,417.

Inheritance tax (IHT)

The residence nil rate band, which was introduced in the current tax year, will rise by £25,000 to £125,000 in 2018/19. The main nil rate band will remain at £325,000 at the level set in 2009.

In the longer term, changes may be coming to IHT.

In January 2018, Mr Hammond asked the Office of Tax Simplification (OTS) to, ‘carry out a review of the IHT regime’. The OTS will focus on simplification of the ‘particularly complex’ system and will issue its report in time for the Autumn Budget.

Auto-enrolment contributions increase

As of 6 April 2018, employees and employers are required to increase the amount of contributions into their automatic enrolment pension. New rates from 6 April 2018 >more

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Pensions, savings and investments

Pensions – the lifetime allowance

The lifetime allowance, which sets the effective maximum tax-efficient value of pension benefits, will rise in line with inflation from £1 million to £1.03 million for 2018/19.Assurance

The lifetime allowance has been on a downward path since 2012, when it was cut from £1.8 million to £1.5 million. Two further cuts followed in 2014 and 2016.

There is no corresponding increase to the annual allowance, which remains at a maximum of £40,000.

Payments in lieu of notice

All payments in lieu of notice (PILONs), whether or not contractual, will subject to income tax and NICs in 2018/19.

These will include payments made in circumstances where employees do not work their notice for any reason. Tax and NICs will be charged on any payment that corresponds to the earnings they would have received if they had worked their notice.

The £30,000 exemption will continue to apply to tribunal awards for unfair dismissal, redundancy payments and contractual payments in lieu of redundancy.

The first £30,000 of a non-contractual termination payment will be tax-free. Any balance over £30,000 will be subject to income tax. From 2019/20, a year later than originally planned, employer NICs, but not employee NICs, will also be applied to taxable payments in excess of £30,000.

Venture capital trusts and enterprise investment schemes

Last year the government undertook a ‘patient capital’ review, which was followed by a raft of revisions to venture capital schemes announced in November’s Budget. The changes are intended to increase the emphasis on investment for growth and reduce the scope for structuring schemes to target capital preservation.

From 6 April 2018, the maximum EIS subscription that can qualify for 30% income tax relief will double to £2 million, subject to at least £1 million being invested in knowledge-intensive companies.

Future of digital payments

The government is supporting delivery of a revamped payments architecture, which will increase the efficiency of the UK’s payments infrastructure and is consulting on this. The Bank of England is also renewing its settlement system, which will be more adaptable to new technologies and offer greater functionality for all users. The consultation also covers the future of cash.

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If you have any questions about the summary's contents or how any aspect of your tax and financial planning may be affected by the changes for the new tax year 2018/19 please get in touch with your usual Martin Aitken & Co or Martin Aitken Financial Services Ltd contact to discuss. We will be pleased to hear from you.

This summary has been prepared very rapidly and is for general information only. All statements within this document are based on our understanding of the changes within the 13 March Spring Statement.

You are recommended to seek professional advice before taking any action on the basis of the contents of this summary. Publication date: 16 March 2018

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