No Change to the VAT Threshold and Support for First-Time Buyers but Major Changes to Tax Reliefs Under Venture Capital Schemes and a Possible Threat Ahead for Contractors in the Private Sector.
The Chancellor of the Exchequer used the Autumn Budget in the UK to unveil some significant tax changes.
However, for small businesses and many self-employed, the best news was that the government has listened to the vast number of representations, including those of CooperFaure, and have committed to maintain the VAT compulsory registration threshold at £85,000 for two years from April 2018 while a wider consultation is undertaking on the design and level of the threshold.
Among the key proposals in the Budget are:
- From 22nd November 2017, stamp duty land tax will be abolished for first-time buyers on properties costing up to £300,000 or on the first £300,000 of properties costing up to £500,000. There will be no relief on properties costing over £500,000.
- The National Living Wage for those aged 25 and over will increase from £7.50 per hour to £7.83 per hour from April 2018. The National Minimum Wage will also increase to:
- 21 to 24 year olds – £7.38 per hour
- 18 to 20 year olds – £5.90 per hour
- 16 and 17 year olds – £4.20 per hour
- Apprentices – £3.70 per hour
- The tax-free personal allowance will rise with inflation to £11,850 from April 2018.
- The Higher Rate Income tax threshold will rise to £46,350 from April 2018.
- A new Railcard will be introduced for those aged 26 to 30 in the spring of 2018 offering a one-third discount to rail fares.
- Business rates will switch to being linked to the Consumer Price Index from April 2018 rather than the Retail Price Index which tends to be higher than the Consumer Price Index.
- To support investment in research and development, the R&D expenditure credit will increase from 11% to 12%.
There was welcome news on the doubling the annual allowance from 6th April 2018 for people investing in knowledge-intensive companies through the Enterprise Investment Scheme (EIS) to £2m and the annual investment those companies can receive through EIS and the Venture Capital Trust schemes to £10m.
However, there is a commitment on introducing a new test to reduce the scope for investment in low-risk businesses through these schemes together with the Seed Enterprise Investment Scheme.
This will be a principles-based test to determine if, at the time of the investment, a company is a genuine entrepreneurial company.
For the tax reliefs to apply on investments from 6th April 2018, the requirement will be both that a company has objectives to grow and develop and that there is significant risk of loss of capital. In other words, where the amount of the loss could be greater than the net return to the investor.
The HMRC will cease to provide Advance Assurances on proposed investments that would appear to meet the new conditions from the date of the publication of draft guidance which is yet to be confirmed.
For contractors, there may be troubled time ahead. Despite the HMRC’s constant reassurance that this would not be the case, the Budget Report states, “The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public-sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.” The government has committed to a full consultation in 2018 on this.
Over the weekend, we will be publishing a detailed review of the Budget together with our 2017-18 UK Tax Guide.
In the meantime, if you would like to discuss how the Budget or the new measures that come into effect from April 2018 will affect you, please email us at email@example.com.