2018 Budget: three key measures for business
Following the 2018 Budget, Jay Boyce, tax partner at MHA MacIntyre Hudson goes beneath the headlines to look at the detail of three key measures.
Digital Services Tax
The proposal that from April 2020 a new Digital Services Tax (“DST”) will be introduced will be seen as a popular move by many to address the clear imbalance between business taxes paid by those predominantly global companies operating in the social media and online marketplace space (the likes of Google, Facebook and Amazon immediately spring to mind) and more traditional business.
The proposal is an attempt by the Government to secure a greater tax contribution from the relevant companies whose contribution to the UK tax coffers has been highlighted in the press and, although progress has been made, it clearly is not fast enough for the current government.
The idea of seeking to take as tax 2% of revenues generated by UK users is novel but is an interim measure designed to secure some revenue whilst the discussions via G20 and the OECD to find a long term solution continue.
The precise design detail has yet to be seen (there are some thresholds and protections that have already been announced) and the government has said that it will consult with the relevant parties before legislating in the Finance Bill of 2019-20. That is not long and clearly signals the government’s intent to address this issue sooner rather than later.
Capital allowances AIA
The initial view of the increase in the Annual Investment Allowances was that it was good news for business and that feeling remains but it must be borne in mind that this is again a temporary increase only. in the maximum amount. In Budget 2014 the limit was temporarily increased to £500,000 before being set at £200,000 in Budget 2015. It was used then to stimulate business investment in what was then a fragile recovery and to wean the economy off its reliance on consumer spending.
This time the limit has been increased to an astonishing £1m with effect from 1 January 2019 but only for two years. It could be said that this is timed to stimulate and encourage business to invest in what many fear will be a turbulent time post Brexit and it remains to be seen how effective this particular carrot will be.
Entrepreneurs’ tax relief
The changes to the capital gains tax entrepreneurs relief rules take two forms. One is a clear anti avoidance measure aimed at attempting to ensure that the relief is secured by those the government intended to receive the relief.
The second measure has effect for disposals taking place after 6 April 2019 (there are special provisions dealing with business that ceased on or before 29 October 2018 which effectively ensure the old rules apply). The new rule increases the minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs Relief from one year to two years.
This is unfortunate for those senior executives or employees who have recently or are about to secure shares or qualifying enterprise management incentive (EMI) options as their holding period has just been extended by twelve months. We may see steps being taken by businesses between now and 5 April 2019 to address matters, but with the rate of capital gains tax on the disposal of most non qualifying assets being 20%, as opposed to the favoured 10%, it might be considered precipitous to rush anything through in the next few months.
However time will tell. For the vast majority of business owners, the changes have very little impact and therefore to that extent the change maybe much ado about nothing. This is evidenced by the Treasury’s own estimate of the impact on the exchequer of £15m over the next three fiscal years.