The Iceberg Budget: Small Impact on Exchequer but Significant Changes Lurking Beneath Surface
Posted on the 27 November 2017
Stephen Hall, office senior partner at Deloitte in the North East, said:
“The Chancellor had a difficult path to tread in putting together his first Autumn Budget. Overall, the announcements have a small impact on the Exchequer, with changes averaging less than £2 billion on tax receipts of over £725 billion. However, there are significant changes lurking beneath the surface.
“First-time buyers receive a welcome benefit in the form of an SDLT cut, worth up to £5,000 on the purchase of properties up to £500,000. Wales gets control of SDLT from April 2018 and had already announced an increased zero-rate band – up to £150,000. The Scottish Government will no doubt consider whether to respond in their draft Budget on 14 December 2017.
“There had been speculation that the Government would cut the VAT registration threshold, following a report from the Office of Tax Simplification. In the end, the Chancellor chose to freeze the threshold at £85,000 for the next two years, which is estimated to bring an additional 4,000 businesses into VAT per year – and raise £10 million. There will be a consultation on possible cuts to the threshold. It’s clear that a high threshold can incentivise business structures to avoid registration – but equally, it reduces costs and administration for the UK’s smallest businesses.
“The Chancellor has picked up two issues in the public eye. There is a position paper on digital businesses, which suggests introducing turnover tax on models that rely on the collection of information from ‘users’ as a driver of value for the business. It will be essential to ensure that any changes do not disadvantage smaller, growing businesses which often make losses initially. Acting in accordance with a global consensus would be the most effective way to levy tax; the Digital Economy Taskforce will report to the G20 in April 2018. In addition, there will be a consultation on a 20% royalty withholding tax where royalties end up in a zero tax location.
“Foreign owners of commercial property will in future be liable to UK capital gains tax on gains accruing from April 2019. The government will consult on the scope of the measure and suggests it will not apply to foreign pension funds and certain institutional investors. In the UK, real estate investment trusts and pension funds are not taxed on property investment gains. A separate measure will introduce limits on interest deductions that can reduce UK tax liabilities on rents.
“Finally, there’s a focus on supporting technology in this Budget: R&D tax credits are up from 11% to 12%, and there will be a new consultation on broader reliefs for investment in intangible assets. Moreover, the EIS investment limit for high tech and knowledge based start-ups is being doubled.”