Autumn Budget 2017 - Business issues

Here we look at how the Chancellor’s announcements in this year’s Autumn Budget affects businesses.

Freezing of the Corporate Capital Gains Indexation Allowance

The government have decided to freeze indexation allowance on capital gains disposals made by companies from the 1^st January 2018 onwards. There will be little or no immediate effect, especially since average prices consistently drop at the start of the year, but over time as the allowable cost continues to slip away in real terms this is forecast to be one of the largest contributors to public revenues from this Budget.

Freezing of the VAT registration threshold for two years

The VAT threshold has consistently been increased broadly in line with inflation for over 25 years. However, the UK has the highest VAT registration threshold in the world (unless you provide admission to sporting events in Norway), and the government intends to consider whether this should be reduced. A recent report by the Office of Tax Simplification has highlighted some of the issues around the VAT registration threshold, including the “cliff-edge” nature of registration and the effect it has particularly on businesses that sell mainly to consumers (which a large proportion of smaller businesses with income below the threshold are), and consultation will also cover whether the “design” of the threshold can be improved. Whilst this is under discussion the rate will be held at its current level of £85,000.

Withholding tax on royalties paid to low tax jurisdictions

The government is cracking down on tax avoidance by large multi-nationals and are taking steps to increase the tax it collects from these companies. From April 2019 a new withholding tax will be applied on royalty payments made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located. A consultation on this will be published on 1 December 2017 outlining the design of the rules with the legislation being introduced in the Finance Bill 2018-19 and the changes having effect from April 2019.

Increase in personal allowances and basic rate tax band

The personal allowance and higher rate tax threshold will both increase in line with inflation for 2018/19. All income tax rates remain unchanged, so tax efficient policies for extraction of profits from companies are likely to remain unchanged. The tax-free dividend allowance has previously been announced to drop from £5,000 to £2,000 for 2018/19.

Energy efficiency reliefs

Enhanced capital allowances continue to be available for expenditure on energy efficient equipment, giving full tax relief in the year of expenditure. The lists of qualifying equipment have been updated, and it is always worth considering in advance the specifications of heating & lighting systems (as well as more specialised energy and water saving equipment) to see what would qualify. Loss making businesses will be able to surrender such allowances for payment of a tax credit at two thirds of the Corporation Tax rate for a further 5 years.

Low emission cars also continue to attract 100% allowances, and since the last budget full relief is also available for installation of electric vehicle (EV) charging points. This budget introduces, from April 2018, exemption from a benefit in kind charge for provision of electricity for employees to charge an EV at work.

Business rates

Indexation of business rates will be linked to CPI, the current measure of inflation, instead of RPI. CPI excludes housing related costs, so is lower than RPI.

A recent Court ruling decided that the law as currently worded meant that where offices were on different floors connected by a shared staircase they must be treated as separate premises for rating purposes. This has been dubbed the “staircase tax”, and meant that small businesses would lose their small business rate relief. The legislation is to be amended to reverse this anomaly.

Business rate revaluations will be carried out more regularly, every three years instead of every five, after the next revaluations in 2022.

Digital economy positioning paper

Businesses that operate largely online have structures and issues that existing national and international tax principles do not fully address. The government have published a paper outlining their position, including the suggestion that income should be apportioned between countries according to user participation. This area will require international consensus, and a number of practicalities will need to be addressed with whatever solutions are settled on, so at this stage this is a matter of interest rather than one that will have any impact in the short term.

To discuss in more detail how the Autumn Budget will affect you, please do not hesitate to contact us.