Unpicking the intricacies of the Autumn Budget
AS the dust settles on the UK Government’s Autumn Budget, often the biggest date in the financial calendar, it is worth looking at some of the key points and the longer-term implications for businesses in Wales as a whole as we look ahead to next year.
The devil is often in the detail, and perhaps one of the biggest details is Brexit, which loomed large over the occasion, with the possibility of a further Budget in spring 2019 depending on the outcomes of the current discussions. The Chancellor’s holding a ‘reserve of borrowing power’ to deal with the potential short-term implications of the UK’s departure from the EU.
As ACCA said on Budget day, better than expected borrowing numbers allowed the Chancellor to announce some increases in spending in politically sensitive areas while credibly claiming to meet his fiscal rules. Further clarity for us in Wales will come when the Welsh Government final budget is finalised in December, including the potential use of variable income tax rates.
As has been commented elsewhere, specific references to Wales in the budget were relatively limited, with the Chancellor announcing that Welsh Government will receive an extra £550m over the next three years; confirmed support for the North Wales Growth Deal and consideration about whether to extend Welsh Government’s borrowing powers by up to £300m to support the M4 Relief Road.
In several cases, the result of the budget was no change. For instance, the Chancellor maintained his pledge and kept corporation tax at 19% for large and small businesses. The UK currently boasts one of the lowest corporation taxes in the world.
However, the Chancellor took the opportunity to kickstart investment with an increase in the Annual Investment Allowance (AIA), which allows businesses to deduct the full value of an item that qualifies for the allowance from their profits before tax.
There were no new announcements for Making Tax Digital (MTD). HMRC is aiming to introduce MTD for VAT in April 2019, and businesses are advised to speak to their accountants, as they are likely to need to change their current process to implement this change.
Budget changes that will impact on businesses in Wales include changes to the National Living Wage, which will have an impact on employers and employees in Wales and construction firms may benefit from councils being given more freedom to build homes by removing the borrowing cap on housing.
Businesses in the Valleys are set to benefit from the first wave of a £200m scheme to pilot innovative approaches to making high speed internet more widely available.
Structure and building allowance
The new relief for investment in properties – the structure and building allowance – of 2% will be available for expenditure on non-residential buildings, for construction contracts which are entered into after October 29. Qualifying costs relate to construction, improvement, conversion, including demolition costs and land alterations costs.
Phoenix and insolvent companies
The Budget also looked to tackle the issue of phoenixing – which the government describes as ‘the practice of carrying on the same business or trade successively through a series of companies where each becomes insolvent in turn.’ As the name suggests, the firm then rises from the ashes.
From 6 April 2020, the UK Government will change the rules when a business enters insolvency so that HMRC will be a preferential creditor. It has also announced directors and others involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities.
Research & Development
From 1 April 2020, the amount of payable Research and Development tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and national insurance contributions’ (NIC) liability for that year.
IR35
As expected, the Chancellor has gone forward with the extension of the off-payroll working rules (IR35) to the private sector. However, after some recent legal cases and issues with checking employment status for tax, it was made clear there was a need to proceed with care, the implementation date has been put back to April 2020 and the change will only affect large and mediumsized businesses.
Employment allowance reform
From April 2020, this will be limited to employers with an employer NICs bill below £100,000 in the previous tax year.
Entrepreneurs’ Relief
Legislation will be introduced in the Finance Bill 2018-19 for disposal made on or after 6 April next year to increase this minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs Relief from one year to two years.
Global dealings
Looking ahead, a challenge and an opportunity for Wales and indeed the rest of the UK is how we trade on the international stage. This was flagged as a priority in the Budget, with an additional £2bn boost for the UK Expert Finance initiative. We also welcome the Welsh Government’s ongoing initiatives to support and develop international trade after the UK leaves the EU.
I hope this has demystified some of the Budget’s intricacies; at the time of writing, what remains to be seen is whether we will have a Spring 2019 Budget.
■ Lloyd Powell is head of ACCA Cymru/Wales.