30 October 2018

Budget delivered a tale of two stories in relation to Business Tax

The resounding message for all was clear – while ‘austerity will end, discipline will remain’

This afternoon’s Autumn Statement has delivered a tale of two stories in relation to business tax. From the new Digital Services Tax, to Entrepreneurs Relief; there were echoes of Robin Hood to pave ‘the way for a brighter future’, as Mr Hammond mentioned at the start of his Budget. 

There were several areas which piqued interest during the afternoon’s announcement.  The first of these was in relation to Entrepreneurs’ Relief.  Interestingly Mr Hammond began this part of the speech by indicating that he had come under pressure to abolish this relief, but instead he had chosen to retain it but to ensure it was targeted more at genuine entrepreneurs by increasing the qualifying period from 12 months to two years.  The indication is that this will have little or no impact on most entrepreneurs, and the fact that this has not been abolished will certainly be a welcome measure to business owners both in Scotland and elsewhere in the UK.

Secondly, the Chancellor has continued to demonstrate that he is prepared to target homeowners and the tax reliefs available to them.  Up until April 2014, any gain arising in the last 36 months of ownership of a main residence was exempt from tax.  This was then cut to 18 months and is set to be reduced to just 9 months from April 2020.  This, along with a reform of Lettings Relief imposing stricter rules highlights how the Government is looking to crack down on those looking to escape Capital Gains Tax.

Another point of interest was the increase in the Annual Investment Allowance from £200,000 to £1m for a two year period in relation to purchases of qualifying plant and machinery made after 1 January 2019.   This will encourage businesses both in Scotland and beyond to invest in plant machinery to grow the business.

While businesses will benefit from other measures in the Budget, such as the freezing of the VAT registration for SMEs at the current level for the next two years, the resounding message for all was clear – while ‘austerity will end, discipline will remain’. It is this discipline that businesses must employ to continue to be successful in spite of tumultuous times ahead.  However many of the measures announced apply only in England, such as changes to stamp duty land tax for first time buyers of shared ownership properties and of course the increase in both the personal allowance and the higher rate tax threshold, and it will be interesting to see how the Scottish Government responds to these proposals in its Budget on 12 December.

Looking more broadly, the extension of funding for departments in case of a No Deal Brexit to £2bn (from £1.5bn) will surely provide a level of comfort. However, with unknowns surrounding us regarding Brexit, the additional budget available to Government departments may prove invaluable. However, it is vital that businesses large and small take this as a lead and create their own financial reserves to prepare for the future.