The major Budget announcements concerned spending and it is clear that the Government is determined to spend heavily, mainly on infrastructure, in order to stimulate growth.
Understandably, short-term measures designed to alleviate the Covid-19 crisis have been introduced. These include changes to make it easier for patients and those required to self-isolate to access sick pay and benefits, and support for small employers by funding sick pay and offering soft loans and business rate reductions and holidays.
However, much of the spending is longer term and more structural. Normally, a Budget promising such spending would be balanced by equally significant tax changes designed to raise revenue.
However, relatively few tax changes were announced that had not been well trailed beforehand or even included as a manifesto commitment prior to last December’s General Election.
Expected tax changes
One of the most significant changes was the announcement to, as promised, keep the corporation tax rate at 19% (instead of reducing to 17%) for the next two years. There was also an expected announcement that the reduced rate of capital gains tax on the sale of business assets (known as entrepreneur’s relief) will now be limited to gains of up to £1 million (down from £10 million) in a taxpayer’s lifetime.
Other headline-grabbing measures included the promised introduction of a digital services tax targeted at tech giants such as Facebook, Google and Amazon, and consultation on the introduction of a plastic packaging tax.
Many of the usual “sin taxes” on alcohol and fuel are frozen, although some industrial users of “red” diesel will face significant duty rises. Of more interest to islanders may be the confirmation that short haul Air Passenger Duty, included in the price of air tickets departing UK airports, has been frozen, although long haul rates will rise.
There was also an expected announcement that companies will be restricted in their use of capital losses, so that they will pay tax on half of their future gains, even where previous losses exceed this amount. This brings capital losses in line with other loss restrictions applying to companies, but is still unwelcome news for local companies with UK capital losses and UK property that they expect to sell for a gain. (All such companies have been charged to UK tax on property gains since last year).
Those investing in such property for their own business use will benefit from the increase in the tax allowances on new buildings from 2% to 3%. However, for those non-residents looking to acquire UK property there is the unwelcome confirmation that there will be a 2% SDLT surcharge from 2021 compared with the SDLT rate payable by a UK resident.
As always, the Government is promising to find more money from tackling tax avoidance and evasion. Apart from further investment to enable HMRC to grow its compliance teams, much of the focus seems to have moved from avoidance to evasion in the domestic “hidden” economy. Having said that there is a planned consultation into how to address promoters of marketed tax avoidance schemes.
Measures for post-Brexit Britain
Finally, it is worth noting that the UK Government has introduced two separate consultations on the application of VAT to the financial services industry, and on the regulation, marketing and tax treatment of UK funds specifically. Presumably the intention is to make the City and its funds industry more competitive in a post-Brexit world, but the development of these consultations, and their implications locally, will no doubt be closely followed by the Guernsey funds industry and wider financial services sector.
If you have any questions on how the UK Budget could impact you or your business, get in touch with BDO’s local tax team to receive the latest and best advice.
email: BDO_TAX@bdo.gg
phone: +44 (0)1481 724561