Shashi Prashad, Enterprise Tax Director KPMG in the UK, gives his views on a budget that had some helpful changes.
The good news from the Budget was that whilst we need to prepare for Brexit, the UK is very much still open for business and the Government is taking measures to ensure we remain as competitive as possible. The Budget introduced various measures to help mid-market privately-owned businesses, which is good to see and is something KPMG has been calling for, most recently in our open letter to the Chancellor. The UK has one of the most competitive tax regimes for businesses, with the lowest corporate tax rate in the G20.The Budget made clear the Government’s commitment to low, stable taxes for both working people and businesses.
The Budget has announced further incentives for businesses and individuals, some of which are outlined below. Our recent backing business growth report showed that most respondents recognised that the tax system was designed to help the SME market, but understand that the effective management of their tax affairs are an opportunity for growth. Now is a great time for your business to review its overall tax profile to ensure it is claiming all the reliefs it is entitled to and is robust for the journey it is on.
The Government has said they are committed to helping businesses where they can, especially as we prepare for Brexit. They have highlighted how important they see investment in new technologies in the future growth of the UK economy. One measure that has been brought in is the increase in the main rate of Research and Development (R&D) tax credit from 11 percent to 12 percent from 1 January 2018 for certain sized businesses. We often see businesses missing out on maximising their R&D claims and given this increase, it is a great time to make sure your business is claiming the full relief it is entitled to. If in doubt you should seek the advice of an R&D specialist who can help you maximise your claim within the two year claim period.
There had been some speculation that the VAT registration threshold would be reduced as the UK has one of the highest in the EU. However, the Government announced that it is going to freeze the registration threshold for two years from April 2018 at £85,000 which is welcomed. This is a change from recent Budgets which have seen small incremental increases, but does show that the Government understands the administrative burden reducing it would bring to small businesses. They will be consulting on the design of the threshold in future years so this should be something that small businesses should keep an eye on.
The Government also announced reductions in business rates and is bringing forward the change in the inflation measure from RPI to CPI to April 2018. There was also some concern around the length of time between valuations, and therefore the Government has announced that they will be increasing the frequency of revaluations to every three years. Business rates are a significant burden on businesses and these measures will be welcomed by many businesses.
The Enterprise Investment Scheme allowance has been doubled which is a positive step in helping some businesses attract investment and raise finance. The Government is also introducing a 20% withholding tax on digital sales royalties’ payable to low tax jurisdictions from 2019, and has announced a review of corporation tax for the digital economy.
The Chancellor announced that the personal allowance for individuals would be raised to £11,850 in April 2018, rising further to £12,500 by 2020. As well as increases in the personal allowance it was also announced that the higher rate threshold would rise to £46,350 in April 2018, rising to £50,000 by 2020.
The national living wage will be increased from £7.50 to £7.83 from April 2018.
As previously announced, the Government will no longer proceed with an increase to the main rate of Class 4 NICs from 9 percent to 10 percent in April 2018, and to 11 percent in April 2019. The Government announced that they are delaying the implementation of any NIC changes in order to ensure there is enough time to work with Parliament and stakeholders on the details of the reforms. It appears whilst these measures have been delayed the Government are still aiming to introduce a simplified NICs system in the coming years.
The Government has announced a consultation on the extension of the recent IR35 reforms from the public sector, into the private sector. On balance this appears to be a measured approach from the Chancellor, though we will know more once the consultation paper has been published. If your business currently uses subcontractors this may be the ideal time to reflect on how your business does this and the controls it has in place.
This was a fairly balanced Budget without too many drastic changes, however there are ongoing compliance changes that businesses still need to keep on top off, and make sure that reliefs are being claimed where available.
This page was written by Shashi Prashad, Enterprise Tax Director KPMG in the UK, and Lucy Dempsey, Corporate Tax Manager, KPMG in the UK.