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Budget 2018: Fiscal Phil Says Austerity Ends When I Say So, OK?
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Where Taxpayers and Advisers Meet
Budget 2018: Fiscal Phil Says Austerity Ends When I Say So, OK?
01/11/2018, by Lee Sharpe, Tax Articles - Budgets and Autumn Statements
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Lee Sharpe rounds up the headline 2018 Budget News, for TaxationWeb readers

All tax-related documents are here:


Few will have failed to spot that the Chancellor’s declaration that “austerity is coming to an end” was not quite as definite as his boss’ earlier assurance that “austerity is over”.

Even so, the 2018 Red Book forecasts that, overall, the measures announced will result in some huge variances against previous projections, costing the Exchequer £15Billion next fiscal year, and more than £30Billion by 2023/24.

Aside from one obvious Income Tax measure, the big-ticket items in this Budget were not tax-oriented, but instead covered:

  • The NHS and Social care (by far the greater parts of the “giveaway”)
  • Defence
  • Transport (pot-holes!)
  • Universal Credit
  • Local Health Authority house-building (removing the borrowing cap)

And there were a lot of measures in this Budget: when I finally found the Budget costings at 2.1 of the Red Book, I thought for a second that I’d slipped into Excel by accident: a 4-page long table of policies and adjustments. I could not find Tax Information and Impact Notes (TIINs) for all of them.

From a tax perspective, this was actually quite a busy Budget with a few things of interest to individuals, small businesses, etc. (and, of course, their advisers).  At the time of writing, FB 2018/19 draft legislation has NOT been updated in the public domain. Of course this information is hot off the press and may be subject to amendment, etc.

Bringing Forward Scheduled Personal Allowance and Higher Rate Threshold

By far the most expensive and widely-applicable of tax changes announced is that the targets of -

  • £12,500 tax-free Personal Allowance, and
  • £50,000 Higher-Rate Threshold

- will be brought forwards from 6 April 2020, to 6 April 2019.

What’s it Worth?

By my calculations, the uplift will save employed taxpayers earning £30,000 per annum a little over £150, once the indexed NI savings are taken into account.

A self-employed taxpayer earning £30,000, however, will basically stand still despite the tax reduction, because Class II NICs have also been revived, putting £130 back onto the overall cost and effectively cancelling out the tax saving.

An employed taxpayer earning £50,000 will save around £430 – which may be less than some were expecting, but reflects a substantial increase in primary NI contributions partly offsetting the tax benefit (as the Upper Earnings Limit has risen significantly, leaving more headroom for the initial 12% rate to continue to apply to salary).

Meanwhile, a self-employed taxpayer earning £50,000 should save a little over £460, since the main self-employed NIC rate is a little lower.

The overall Exchequer cost of this measure up to 2023/24 is projected to be almost £9.6Billion – roughly £3Billion in 2019/20 alone.

Raising the Personal Allowance, and the Higher Rate Threshold, was announced as a firm target for 2020/21 some years ago, with the intention to link them with rises in CPI-based inflation from 2021/22 onwards (one can only guess if further manual intervention will be required before long to accommodate the real cost of price inflation, including housing). The current position is that the figures for 2020/21 will remain static, at £12,500/£50,000.

And despite having been announced as a target for 2020/21 several years ago, it seems that this was not already factored into HMT’s fiscal projections, hence the long and significant tail to the adjustments in years after 2019/20 and 2020/21. This does, however, seem to be consistent with the approach of previous Budgets, in that they consider only the effect of the impending year-on-year increase.

Nevertheless, it does leave me reflecting on the figure for the effect of “Total tax policy decisions” at the foot of Table 2.1 in the Red Book. Ostensibly, this is a “giveaway” of a little over £5Billion over 2018/19 through to 2023/24. But of the £10Billion cost of raising the Personal Allowance, etc., over this period, almost £7Billion was committed years ago – only the £3Billion cost of bringing it forwards by a year to 2019/20 is really “new” money. It seems to me that, in tax terms, this Budget may not actually be quite so generous as might first appear. (Of course, it’s all to do with tax, really, but the distinction is made in the Budget paperwork). In relation to years after 2020/21, when uprating for CPI kicks in, it may also be that something that is effectively adjusting for inflation, is being passed off as Treasury generosity; time may tell.

HMRC should also now more readily be able to identify those taxpayers who are most at risk of the High Income Child Benefit Clawback (not that it couldn’t have been derived earlier, with a little gumption). Will the HICBC limits now also be indexed..?

The CGT Annual Exempt Amount will also be increased, this time to £12,000, for 2019/20. The corresponding TIIN says that this is expected to have no Exchequer impact.

 Off-Payroll Working in the Private Sector – IR35 v3.0

By way of background, the IR35 rules were reformed for Public-Sector Bodies under a new ITEPA 2003 Chapter 10 Part 2 – introduced and implemented only a year ago. The new rules basically made it the engaging PSB’s responsibility to determine if the individual they are contracting with is really an employee, even though his or her services are being hired through their own company. And, if they so determine, to apply PAYE accordingly.

It must be said that there is a vast gulf between how HMRC thinks IR35 rules apply, and how the tribunals have determined that they actually work. HMRC has dodged the burden of applying the rules properly by making PSBs responsible for operating them, and then allowing those understandably risk-averse PSBs to apply the IR35 regime across the board, even when they should not. (In applying the regime, the PSB ensures it cannot then be held directly liable for the tax that should have been collected; if it turns out the PSB should not have applied IR35, this is still not the PSB’s problem as it falls to the contractor to claim directly against HMRC).

To summarise, there is basically no downside for a PSB if it applies the IR35 regime when it should not, but only if it does not apply IR35 and it should have. Of course, this strongly encourages PSBs to apply IR35 even when they shouldn’t, and of course PAYE receipts from PSBs have risen as a result, and of course HMRC views this as a great success, even though there is ample evidence that this approach has encouraged PSBs not to comply with the law.

What is worse, even if PSBs do try to apply the regime properly, and check a contractor’s IR35 status using HRMC’s online tool, they often get the wrong answer.  

I cannot but think of some medieval quack using a combination of leeches and beetroot poultices to treat a patient who has influenza, and proclaiming they must have found the cure because the poor unfortunate didn’t die.

Anyhew, without risking the chance that more serious consideration of such claims might derail the happy juggernath of tough love for those in business on their own account, the regime will be rolled out to the private sector, per 3.8 of the Red Book:

  • To apply from April 2020
  • Which will give plenty of time for consultation (but hopefully not the pointless kind of consultation exemplified by the Corporate Intangibles regime, as noted below)
  • And small businesses will not have to deal with the regime: it will fall only to large and medium-sized businesses.
  • And HMRC will provide support and guidance to affected organisations ahead of implementation (but hopefully not so that we end up in the same situation as when the NHS executive advised all its hospitals, etc., that IR35 should be applied automatically to all NHS contractors)
  • And the IR35 Status-Checker tool will be worked on so that it will cater for private sector engagements as well as for PSBs (but hopefully better than the current CEST, and its predecessor, the ESI).

There is something really quite wrong with addressing perceived non-compliance with “off-payroll working”, by encouraging systemic non-compliance with the legislation. And I have no doubt that is what has already happened, and will happen to a much greater extent, if this is permitted to proceed unchecked. But the Red Book is projecting net tax revenues of just under £3Billions if the changes do go ahead so, there is that.

Employment Allowance Restriction to Smaller Businesses

Section 3.11 of the Red Book says that, from April 2020, EA will be restricted so that it is available only to businesses whose Secondary (Employers’) NICs bill in the prior year was below £100,000. It is probably fair to say that the EA would have done little to influence ‘large’ businesses in their hiring decisions, so its loss is unlikely to be felt that keenly. It is nevertheless projected to save a little over £1Billion by 2023/24.

VAT Registration Threshold

Yet again, Cunning Phil has managed to make keeping the VAT Registration Threshold at £85,000 for another 2 years (now until April 2022) sound like he was doing everyone a favour, probably by emphasising yet again that the “lead option” in the alternative is to lower the threshold. A further c£500 million boost to the Exchequer, courtesy of fiscal drag.

There were several further VAT measures, such as changing the VAT treatment of vouchers from 1 January 2019.

However, this does rather feel to me like someone is keeping busy re-arranging deck-chairs, given the changes afoot thanks to Brexit.

Digital Services Tax

This is an interesting development. While the Chancellor was keen to emphasise that he saw a comprehensive globally-agreed approach to the taxation of digital businesses as the ultimate goal, he has decided that the UK must “go it alone”, at least for now. From April 2020, according to 3.26 of the Red Book, there will be a 2% tax on UK-oriented revenue generated from:

  • Search engines
  • Social media platforms
  • Online marketplaces

It is clearly aimed only at very large businesses: it will apply only to groups whose global revenues from those activities exceeds £500Million annually, and there will be a £25Million annual allowance. There will also be protections for loss-making entities and those with very low profit margins.

The intention is that the tax will reflect the value derived from UK users of the service, which seems likely to be a challenge to ascertain. The Chancellor also seemed quite keen to ditch the measure as soon as a decent excuse presented itself global consensus could be reached.

The Chancellor was keen to emphasise that it was not a “sales tax” (at least, not on goods ordered over the Internet), because he realised that this would simply be passed on to consumers. But I am struggling to see how a revenue-based tax will not in effect be a sales tax with a consequent risk of its being passed on to consumers (albeit more likely the business customers paying to advertise or gain insights into their own customer base, etc).

The DST is expected to raise something like £500Million a year. Some commentators complained that this was not enough, given the scale of UK-based revenue generated by some of the larger companies. But that is to fail to grasp that there is no point in the exercise if all it achieves is to transfer yet more wealth from UK-based digital services customers to the Exchequer; the goal is for this to be a contribution from global digital services’ UK-derived profits, and not to be another VAT ultimately paid by private UK consumers (I wonder if those tech giants realise).

R & D Tax Credits Restriction

As per 3.80 of the Red Book, from 1 April 2020, the amount of payable R&D tax credit that a company can receive in a tax year cannot exceed three times the company’s total PAYE/NICs liability for the year. Readers will recall that, prior to 2012, companies could not recover in tax credits more than they had paid in PAYE and NICS in the first place, and that cap was removed supposedly to incentivise SMEs to undertake R&D. But clearly this new measure is different. Somehow.

Apparently, the measures are being introduced to prevent abuse and fraud in relation to the payable credit. My own perception is that there has been a significant proliferation in R&D claim companies’ marketing aggressively to small businesses, and some of the claims I have come across recently have been …adventurous. I suspect that the measure will prevent or restrict spurious claims by very small businesses and particularly those with low salary costs, but it will also potentially hurt genuine attempts at real innovation by larger, R&D-intensive companies. Which would be a shame. The ideal response would be for HMRC to have R&D teams that have the resources to engage more fully with claimants, thereby to sort the wheat from the chaff.

Corporate Intangibles – Again!

Vying with Entrepreneurs’ Relief, EIS and R&D for pride of place in the pantheon of areas-of-tax-we-just-can’t-stop-tinkering-with-until-nobody-knows-what-is-going-on, further changes are on the way for Corporate Intangibles. According to the Red Book at 3.30, “In early 2018, the government reviewed how the tax treatment of acquired intangible assets could be made more competitive and administrable.” Here’s a thought: LEAVE IT ALONE. This really is a case of too many cooks spoiling what used to be decent legislation.

To recap:

A radically new Corporate Intangibles regime was introduced in 2002, which was more flexible and generous than its predecessor, so as to prevent tax consequences distorting commercial decisions. In 2015, the government consulted on reforming this regime, then completely ignored the advice and warnings it received, in spades, and pressed ahead with reversing much of the old (new) regime – while saying that it really had to do so because the previous regime – which was introduced to remove tax distortions to commercial practices – “can distort commercial practices”. We have covered this previously*.

With near-metronomic inevitability, we now find the government having to walk back on its recent changes, only this time it will be a targeted relief for the cost of eligible purchased goodwill from April 2019. The de-grouping charge rules (for when a group sells a company that holds intangible assets) will also be reformed, but this time from 7 November 2018.

(*This is a summary. There have been other measures over the last few years, particularly to restrict tax relief for goodwill. In my opinion, HMRC has never understood goodwill really is a thing, and actively dislikes it; everybody else suffers as a result. For anyone who thinks this an unduly harsh assessment, please read para 2.14 of HMRC’s Summary of Responses to its initial Consultation and then consider what HMRC is actually saying at 2.26.)

Corporate Capital Losses Reform

Corporate capital losses will soon get essentially the same treatment as has started to apply to trading losses, etc., from April 2017. Basically, where a company wants to claim relief against capital gains by virtue of significant capital losses brought forwards, it will get 100% relief for the first £5Million of losses claimed in the year, and then only 50% for any losses claimed above that. This will apply from April 2020, and is expected to yield over £100Million a year to the Exchequer. Any companies that might want to trigger capital gains before April 2020 to mop up extant capital losses should bear in mind that anti-forestalling measures were apparently introduced with immediate effect, alhtough I must admit I am curious as to how they might work to prevent someone from making a disposal.

Separately, the government is going to re-work parts of the April 2017 corporate loss reform measures to ensure they work as intended (i.e., they don’t give more relief than the government previously understood). Some of the changes apply from April 2019, while others are backdated to 1 April 2017.

Annual Investment Allowance: Temporary Increase from £200,000 pa to £1Million pa

The Chancellor announced that Annual Investment Allowance, which gives immediate 100% tax relief on the cost of qualifying plant and machinery fixed assets, will be temporarily increased to £1Million per year, for expenditure incurred between 1 January 2019 and 31 December 2020. For some businesses, this will be great news, and a significant filip to capital investment plans. But based on information provided by previous chancellors, the number of businesses affected will be tiny.

This from the then-Chancellor’s 2012 Autumn Statement:

"This capital allowance [set to rise to £250,000 a year at the time of the announcement] will cover the total annual investment undertaken by 99% of all the business in Britain."

So there won’t be that many businesses left, to benefit from a temporary rate increase to £1Million (and of course a good proportion of the businesses in that tiny remainder will already be spending very much more than £1Million a year on eligible assets).  That conclusion is borne out by the fact that the TIIN forecasts a cost to the Exchequer of £1.2Billion over the 2 years. This looks like a lot, but the 2012 Autumn Statement TIIN forecast a cost of £2.2Billion just for increasing Capital Allowances from £25,000 pa to £250,000 for a similar period.

And, because the Annual Investment Allowance merely accelerates tax relief that businesses would otherwise have been able to claim later on anyway, the TIIN suggests that almost half of the forecast £1.2Billion cost will have been clawed back by 2023/24.

We have previously warned that those businesses that think they will be able to spend £1,000,000 on eligible plant and machinery in their next financial year, and get a complete tax write-off, may well be in for a nasty surprise if their accounts straddle 1 January 2019 (and by implication 31 December 2020, 2 years later when the measure is reversed).

The transitional rules when the AIA rate changes effectively split the period beforehand and afterwards into two separate periods for AIA purposes, each with its own maximum expenditure – and the maximum AIA in the sub-period where the annual rate is the lower, is almost always very small; many businesses will have to wait until they have a chargeable period which is wholly covered by the temporary increase, and/or may choose to adjust their “year-end” in order to bring that forwards. I suspect that this is why these temporary measures always last for 2 years: so that companies should be able to manage at least one accounting period where they don’t require a slide rule, a shaman and some old chicken bones to divine what their AIA will actually be.

New Structures and Buildings Allowance: Son of IBA

The new Structures and Buildings Allowance (SBA) is a simplified version of the old Industrial Buildings Allowance, that was withdrawn in 2011. The old IBA regime was notoriously complex and difficult both to enforce and to observe. Much of that complexity has been cut away in this new regime, but it is not always straight forward.

It has been announced as part of a package of measures to stimulate business investment (and if it should prove successful, the question must surely follow: why were IBAs abolished in the first place, rather than being overhauled?)

Unlike with the temporary hike in AIA annual rate, this is not merely an acceleration of tax relief that businesses would have been able to claim later on anyway, but tax relief where there wasn’t any beforehand. The Exchequer cost seems to run at around £5/600Million a year by 2023/24, according to the Red Book so the inference to draw seems to be that it should prove quite a beneficial tax break.

Almost concisely:

The new SBA is a 2% pa straight-line relief over 50 – yes, 50 – years. The SBA is increased or reduced if the chargeable period is greater or shorter than 12 months. The allowance is restricted if the asset is in use for a qualifying activity for only part of the chargeable period (but see below)

It is available to trades, professions, vocations and (most) property businesses, and mines, transport undertakings, etc.

On assets anywhere in the world, so long as (and to the extent that) the relevant entity is within the charge to UK tax on the activity in question.

Those assets include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses used in the chargeable activity.

In all cases, (including capital expenditure on renovations or conversions of pre-existing commercial structures or buildings), only expenditure following contracts entered into on or after 29 October 2018 will qualify (where built in-house, work must commence on or after 29 October 2018)

The clock starts when first brought into use and basically doesn’t stop for 50 years. The most recent incarnation of IBAs ran at 4% for 25 years, so presumably building standards and durability have improved significantly, since 2011.

There are no balancing allowances or charges on change of ownership, or otherwise. If the asset ceases to be used for a qualifying activity, SBAs can be claimed for up to 2 more years; (which may be extended if the asset has been substantially damaged); a claim may be revived if the asset is brought back into qualifying use but there is no catch-up allowance. If the asset is demolished and not replaced, then the claim continues unabated for the remainder of the 50-year term of the former asset (so perhaps commercial buildings’ durability is moot).

Further qualifying capital expenditure, or conversion costs to turn something into an SBA-qualifying asset, simply start a fresh 50-year clock on the new expenditure

The relief is on the capital construction cost (including site preparation – clearance, demolition, etc., but not the cost of the land – although the claimant must have some interest therein)

There is no relief for dwellings. Where a building contains dwellings and other qualifying parts, then a reasonable apportionment may be made, so long as the SBA-eligible portion accounts for more than 10% of the costs. Hotels and care homes are not dwellings; the government intends to consult on the precise definition of a dwelling for SBAs purposes.

Assets qualifying for SBA will not qualify for AIA (they are not plant/machinery). Fixtures, integral features etc., in the structure will nevertheless be able to qualify for PMAs independently, and may therefore access AIAs in the usual fashion.

The scope of the new SBA is wider than for IBAs – readers familiar with the old regime will no doubt recall tying themselves up in knots in case law, over whether or not goods or materials were being “subjected to a process”; there is none of that here, nor of the adjustments required on a change of ownership.

I may need Phil to sit me down and explain to me how ceasing to use an asset for a qualifying purpose means a residual claim may persist for up to 2 years (or maybe 5) while elsewhere the new guidance says a change in use forces an in-period restriction; also how this all ties up with trying to encourage the re-tasking of commercial property to residential use; but these are mere trifles.

This measure will basically take immediate effect; anyone who has recently built a commercial property, etc., is going to have to offer it for sale at a huge discount, since only new-build contracts on or after 29 October 2018 will be eligible.

As an aside, there is a separate measure to ‘clarify’ when preparatory (etc.) works on altering land, to install qualifying plant and machinery, will themselves qualify for Capital Allowances, also effective from 29 October 2018.

Special Rate Writing Down Allowance to Fall from 8% to 6%

The rate of effective relief will be slashed by a quarter, from 8% per annum to 6% per annum, from 1/6 April 2019, with a time-apportioned hybrid rate applying for chargeable periods that bracket the effective date. According to the TIIN, this will claw back between £300Million and £400Million a year for the Exchequer from 2020/21 onwards.

Of course, the government has abolished the route to claim the renewals basis as an alternative, leaving businesses with no choice but to accept the slow attrition of the special rate for relevant expenditure. This was always going to happen, because HMRC (and therefore government) has conveniently forgotten that, on basic principles, relief for capital expenditure is disallowed only because a genuinely capital asset is not consumed in the course of the business; plant and machinery is so consumed, and the Capital Allowances regime was not some sweeping act of munificence on the part of HMG, but a regime introduced as a progressive alternative to the renewals basis. Now, Capital Allowances represent the only ‘alternative’, and the government can squeeze the relief ostensibly because all commercial assets, not just buildings, (see SBAs above), now last a lot longer than they used to, so the relief should take longer as well.

Withdrawal of Special Relief for Green Technologies

Strangely, despite the length of the Budget Speech, I think the Chancellor omitted to mention that there are also measures to withdraw the 100% Enhanced Capital Allowances, and the associated tax credit, for energy-efficient and water-efficient technologies, from 1/6 April 2020. Apparently, the saving will be put towards the Industrial Energy Transformation Fund. But there is no mention of that in the Budget costings, which treat the measure as a simple saving.

All in all, and despite the headline savings in the temporary increase to AIA and the new SBA, the 4 Capital Allowances changes above will actually cost only £700Million over all 6 years from the balance of 2018/19 up to and including 2023/24; the last 2 measures combined claw back just short of £2Billion in favour of the Exchequer, over the same interval.

It is quite strange to see the special tax reliefs for energy- and water-efficient technologies get abolished because they “have been beneficial to only a small number of businesses, that have fully used their Annual Investment Allowance”, only then to see a temporary increase to the Annual Investment Allowance itself: “delivering on a long-standing ask of the British Chambers of Commerce”. I am not sure that the British Chambers of Commerce will be that pleased to see almost two thirds of the increased AIA getting clawed back by 2023/24, looking at the overall effect of these two measures over that cycle (and, yes, the savings from abolishing efficiency reliefs are supposedly going to support an Industrial Energy Transformation Fund, but the Budget tables themselves say that the abolition will save money for the Exchequer, so who am I to argue?)

SDLT Extension for Shared Ownership Homes

SDLT First-Time Buyers’ Relief is to be extended to purchasers of qualifying shared ownership properties – using essentially the same criteria as now. The measure will also be applied retrospectively, to cover purchases since 22 November 2017, so that some who have already bought their home (or an interest therein) will be able to claim refunds – the amendment window will be extended to 28 October 2019. The measure will be most welcome to those involved in the FTB scheme who are affected, but its overall effects are limited – it will cost the government only £10Million, up to 2023/24.

Separately, there are further SDLT measures taking effect from 29 October 2018 to make the 3% Additional Dwellings Rate work more smoothly

  • Increasing the time limit so that the 3% can be reclaimed as much as 12 months after selling the old home (up from just 3 months), and
  • Clarifying that a “major interest” in land (subject to the Additional Rate) includes an undivided share in land

CGT PPR / Only or Main Residence Relief:  Restriction of Lettings Relief and Reduction in Final Period of Ownership Protection

The adjustments here are broadly two-fold. From April 2020:

1.       The “final period of ownership” adjustment in TCGA 1992 s 223 that automatically deems the last x months of ownership to have been in eligible occupation will be further reduced, this time from 18 months to just 9 months (people with disabilities or who are in a care home will, however, remain protected for up to 36 months). To make it less than a year is nonsensical.

 2.       Lettings relief under s 223 (4) will be available only if the owner remains in occupation of the property. This fundamentally changes the nature of the relief, whose approach to protecting the main residence from CGT has stood for the 50+ years since CGT was ‘invented’.

There is a reason why one’s main home is protected from the inflationary gains implicit in CGT (now running rampant, thanks to determined indifference following the abolition of Indexation Allowance and then Taper Relief). One pays SDLT to acquire a new home; it would be ridiculous to have to pay CGT as well on the property just sold to acquire the new home.

Depending on how the proposed restriction interacts with the rules governing permitted periods of absence, the new measure could have quite serious consequences right now, for anyone contemplating working overseas or elsewhere in the UK – and it is implicit that it could adversely affect gains already accruing to a property.  To introduce such a strong disincentive to let, when the UK has a massive shortage of suitable housing beggars belief. The government says it will consult on the changes, but meanwhile has factored in almost £500Million in tax savings to the Exchequer, by 2023/24.

Entrepreneurs’ Relief and Capital Gains Tax – Doubling Minimum Holding Period to 2 Years

The minimum period for which the qualifying business interest must be held will be increased from 1 year to 2 years, effective for all disposals on or after 6 April 2019 (including for ‘associated disposals’ of assets owned personally, but used in the qualifying partnership / company), except if the trade had already ceased before 29 October 2018, in which case the original 12 month holding period will continue to apply. 

The TIIN forecasts that this will save the Exchequer around £80 - £90million a year by 2023/24, so it is a meaningful adjustment.

It has always struck me as quite bizarre that such a generous relief supposedly for long-term, capital investment, should be available after holding a qualifying interest for only 12 months – even its predecessor, the wonderfully simple Business Asset Taper Relief, maxed out only after the asset had been held for at least 2 years. ER has basically cocked a snook at income, and while extending the minimum holding period may disadvantage a few ‘genuinely’ brief business endeavours, it does seem rather more likely to prevent short-term, opportunistic scenarios.

Anyone inclined to complain about the minimum holding period being extended to 2 years should bear in mind that the comparable ‘sibling’ investor relief introduced by FA 2016 requires shares to have been held for a minimum of 3 years, and I should not like to bet against the holding period for standard ER likewise being further extended to 3 years at some point in future, in the name of “simplification”.

Separately, there are measures with immediate effect for disposals on or after 29 October 2018 to require that, in order to qualify for Entrepreneurs’ Relief as the claimant’s “personal company”, the individual must also hold at least 5% of the company’s distributable profits and assets on a winding-up. This is on top of the existing requirements in relation to share capital and voting rights, and will likewise apply to ER on ‘associated disposals’. Here again, I do not yet see that it will adversely affect the majority of companies, although companies having differing share classes are not all that uncommon.

Protecting Your Taxes in Insolvency

So far, we have seen:

  • Qualifying period for tax relief on ER shares being brought back up to 2 years (a la BATR)
  • IBAs (SBAs) being given over 50 years, as dim and distant memory tells me they were when first introduced
  • Relief for purchased goodwill being revived (for companies, at least)

It seems the only thing we haven’t reheated in this Budget is giving the Crown back its preferential status as creditor in a company’s insolvency. So, from April 2020, HMRC will get first dibs (i.e., preferential creditor status) when a company enters insolvency. (3.87 of the Red Book)

This will apply only to those taxes that a business has been forced to assess and collect on behalf of an ever-more demanding revenue authority (so, basically, almost all of them, and definitely PAYE, NICs, VAT and Construction Industry Scheme retentions). It could be useful in that it may remind businesses how much unpaid and arguably unnecessary work they do for HMRC.

However, I fear it will prove disastrous for many businesses as their credit facilities are promptly withdrawn by banks and other lenders who are not keen to risk seeing their investment carted off by the Crown – that is precisely the reason why EA 2002 s 251 was introduced in the first place: Crown preferential status was seen as anachronistic and unfair but, most importantly, inimical to business rescue and recovery.

Having said that, the argument that a business should not be allowed to live off the taxes paid out of other people’s pockets, has an awful lot going for it. For what it is worth, I might suggest:

1.       A preference for somehow downgrading the status of business owners instead, to remove any opportunity for personal gain from or despite non-viable activity (and see below), and

2.       That HMRC raises its game about 1Million per cent, so to speak, in relation to repaying the money that does NOT belong to it. Such as repaying CIS tax, for example, where HMRC’s performance is truly and perennially awful.

As to (1) above, the government also intends (3.88) that, following Royal Assent of Finance Bill 2019/20, directors and other persons involved in tax avoidance, evasion or phoenixism will be made jointly and severally liable for company tax liabilities, where there is a risk that the company might deliberately enter insolvency. If that does happen, and works properly, it is difficult to see that also giving preferential status back to the Crown, can be justified.

These proposals are forecast to recoup around £200Million a year, when fully bedded in.

Voluntarily-Submitted Tax Returns on an Even Footing

Legislation will be introduced with retrospective effect to allow HMRC to treat returns submitted voluntarily as if submitted in response to a notice to file.

Tax Relief for Self-Funded Work-Related Training

Having acknowledged that the current tax regime for incentivising training is inadequate – and particularly so as regards situations where the individual wants to develop entirely new skills in response (say) to a rapidly-evolving job market, the government has concluded that it will nevertheless leave the current regime unchanged. There will instead be a National Retraining Scheme. (Red Book 3.9). Colour me unreservedly underwhelmed.

Rent-a-Room / Shared Occupancy

The proposed requirement that, if a taxpayer wanted to benefit from the Rent-a-Room relief, a hostage – sorry – member of the household – would have to remain in occupation while letting out one’s main residence, has been withdrawn (3.10) The government has finally, kind of acknowledged that the existing rules work perfectly well, so long as they are actually observed / checked. Has anyone else spotted the irony of admitting that a “shared occupancy” definition is more trouble that it’s worth for Rent-a-Room relief, and then insisting on it for PPR lettings relief? 


3.15 Finally, the long-threatened consultation on making the taxation of Trusts “simpler, fairer and more transparent” looks set to land some time soon. When government wheels out that Cerberus in all its glory, you know it will be absolutely none of those things – but it will be more expensive. If HMRC dislikes tax relief for goodwill, it really dislikes Trusts. I fear there is a real dearth of expertise in Trusts, where it matters. For old hands, the last time I spoke to what I perceived to be a genuine Trust expert at HMRC, he confided in me that his entire department had just been given the choice of either upping sticks to Ferrers House, or staying local and manning the ‘phones on the PAYE helpdesk. If memory serves, like most of the more experienced of his colleagues, he chose early retirement instead. I begrudge them nothing as individuals but rue that theirs was a luxury HMRC – and by implication, everyone else – could ill afford.


On reflection, there really is a lot in this budget. And there are a number of changes that may prove significant only once the legislation has been scrutinised. One further issue notable by its absence is any acknowledgement of the problems with the impending Disguised Remuneration Loan Charge. Perhaps people really will have to die, to prove their point**. Certainly, by reacquiring preferential creditor status, HMRC seems to be signalling that it is girding its loins for battle. If HMRC thinks it has done enough by occasionally publicising its readiness to help those in crisis/financial difficulty (but not to stop putting them in that position in the first place), then that would, I fear, be a serious error of judgment.

For my two pennies, it could well be either the Loan Charge or IR35 v3.0 that substantively breaks the public confidence in HMRC’s carefully-curated image as a benevolent custodian of civic duties. Which is ironic, because it is the information powers that HMRC has just as carefully amassed over the last few years, that keep me awake at night – and they are about to enjoy a quantum shift, thanks to Making Tax Digital, particularly if it is allowed the unfettered access currently permitted by the draft Income Tax regulations. (More precisely, it is not so much what the regulations require now, but what they herald for years to come). I think I might need a bigger calculator to measure the irony of the government’s much-vaunted concerns over the potential for misuse of citizens’ personal information by global corporations, given the terrific amount of data it seeks for its own purposes.



**How this will affect ordinary workers – nurses, teachers, engineers and construction workers – is largely unknown. The publicity surrounding this issue has predominantly focused on headlines about television presenters and highly-paid personalities with access to sophisticated advice and meaningful bargaining power, rather than on the many, many others who were given no choice in how they were engaged, and who now face financial ruin, and may contemplate worse. It would be wrong to assume that the point was made simply in jest. individually, tax advisers have no idea how bad this issue may prove to be. But it could be really bad.

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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