As Mr Hammond unveiled details of what has proved to be a massive give-away Budget, concerns grew that stealth taxes would be buried somewhere in the detail. But no. Major tax increases were clearly signposted.
For example, £1.77bn over five years from freezing the capital gains indexation for corporation tax. A projected £800m by 2022-23 from a new tax on royalty payments made to low-tax jurisdictions. And £2.38bn over the five-year period from HMRC using additional funding of £300m to continue its work in tackling tax avoidance, the hidden economy and tax evasion.
Interestingly, while tax avoidance is often thought to be a scourge of the UK tax system, after many years of hard work HMRC has reduced this to £1.7bn a year. By contrast, tax evasion and the hidden economy cost the UK £8.7bn a year. HMRC does not need a new law to tackle this: the extra funding will help the taxman make existing measures stick.
Key points
- For private clients, the focus is on tax rates for investment and tightening anti-avoidance rules.
- Offshore trusts remain in the spotlight.
- There will be no benefit-in-kind for employees charging their electric cars at work, and the diesel supplement will increase on certain cars.
Private clients
For private clients, the focus is on tax rates for investment and tightening anti-avoidance rules.
The chancellor continues to aim for the 2020 manifesto commitment of a £12,500 personal allowance and £50,000 starting point for higher-rate taxpayers, with increases towards this from April 2018.
He also introduced a valuable first-time buyer stamp duty land tax (SDLT) exemption. Worth £3.19bn for the period to 2022-23, it offers a £300,000 threshold to first-time buyers. Those claiming the relief will pay no SDLT on the first £300,000 of the consideration and 5 per cent on any remainder.
No relief will be available where the total purchase price exceeds £500,000. Unless those buyers are acquiring new-build property, uptake could be limited as there is no incentive for existing owners to upsize their properties.
Before Budget day there were concerns that the level of reliefs for tax-efficient investments via the enterprise investment scheme and venture capital trusts might be reduced, as they could be seen as being excessively generous. In the event, the chancellor viewed these as a good source of funding for knowledge-intensive companies. For these companies, individuals will be able to claim relief on qualifying investments up to £2m.
Offshore trusts remain in the spotlight. New anti-avoidance rules were already set to take effect from April 2018. A consultation will be published on 1 December, covering the scope of offshore arrangements on which information must be notified to HMRC in advance.
HMRC will also be extending the minimum time limit for enquiries into offshore matters, to a minimum of 12 years where there has been non-compliant behaviour.
Trusts generally will be under scrutiny again, both UK and offshore trusts, with a consultation next year on making their taxation ‘simpler, fairer and more transparent’. It’s unlikely to be good news for taxpayers with trusts.
HMRC will also be looking at rent-a-room relief, which currently allows up to £7,500 of income to be received annually, tax free, from renting a room in your main home. This seems to be a reaction to Airbnb. Rent-a-room relief was intended for lodgers. It is possible that it is now being used for short-term lets under Airbnb, while the owner is temporarily absent.
Businesses
The Budget delivered mixed proposals for businesses. A statement published alongside the Budget sets out the direction of travel for the taxation of digital businesses. It signals that the UK is keen to set the global agenda on this issue. But while it’s a bold political move, it will also cause a few raised eyebrows in the corporate world.
The international taxation system has gone through a significant upheaval in recent years, and many global businesses have already restructured their operations. There will be frustration that, with further tax changes on the horizon, they might now need to do so again.
The approach proposed by the government is to introduce a turnover-based tax, which would be applied to revenue generated from users of online advertising platforms.
More positively, the government has committed to increase the R&D tax relief to 12 per cent for large businesses (broadly those with more than 500 employees). This will have a significant impact for bigger businesses, and it shows the government’s continued support for innovation in the UK. Regrettably, the government has missed an opportunity to also increase the R&D tax relief for SMEs.
Employers
There were few surprises on employment taxes, where several new consultations are promised.
The chancellor announced a consultation on non-compliance with the intermediaries legislation in the private sector. The first step could be to extend recent public sector reforms to the private sector. This is part of the government’s wider initiatives around employment status, which include a discussion paper on Matthew Taylor’s review of employment practices.
Although many feel that the Budget should have gone much further on environmental issues, it proposes limited green initiatives on the provision of company cars. From April 2018, there will be no benefit-in-kind for employees charging their electric cars at work, and the diesel supplement will increase on certain diesel cars.
As expected, the chancellor also confirmed the intention to enact further “disguised remuneration” rules that catch arrangements involving the provision of employment income by third parties.
Missed opportunity?
The UK tax system is at a crossroads. With the tax base shrinking, the question as to who should pay how much tax on what is more important than ever. Then there’s the question of which social goods we wish to pay for through the tax system, and whether some current tax reliefs should be reined in because the cost to the exchequer is not matched by the broader benefits they provide. And, of course, the role of the tax system in the housing market, tackling social inequality and inter-generational issues.
To do justice to this requires a major public debate, followed by the framing of proposals for consultation and then a considerable expenditure of Parliamentary time in enacting new law. With Brexit dominating the Parliamentary programme, time is one thing the chancellor did not have.
So he left this to his successor.
George Bull is a senior tax partner at RSM
