Contractors working in the public sector will have suffered a reduction in their incomes due to the latest iteration of the much despised IR35 rules coming into effect. The ”off-payroll working in the public sector” rules have also provided contractors and their advisers with a few headaches as they try to reconcile the confusing mix of the corporate and personal tax regimes with accounting and company law requirements.
The Autumn Budget was unexpectedly generous as the Chancellor sought to signal the beginning of the end of austerity. Better than expected tax receipts and improved growth forecasts gave him more wriggle room and the ability to announce increased spending.
As usual, there were a few nasty surprises; much was made of the income tax savings announced in the Budget speech, but it was not until the next day that the revised National Insurance thresholds were quietly released, clawing back much of the savings.
There were widespread predictions concerning the abolition of Entrepreneurs Relief which reduces the rate of Capital Gains Tax on the disposal of qualifying business assets to 10pc. The Chancellor announced an extension of the minimum qualifying period of ownership from 12 months to two years for disposals made on or after April 6, 2019. While this in itself should not be too problematic for most business owners, the draft legislation contained in the Finance Bill has cast doubt on whether the owners of ”alphabet shares”, a popular and widespread planning tool employed by thousands of small business owners involving different classes of company shares, will now qualify for the relief.
Many businesses and their advisers have also been gearing up for Making Tax Digital (MTD), HMRC’s drive to digitalise the UK tax system. MTD for income tax purposes was supposed to have started from April 2018 but was put on hold until at least 2020. However, MTD for VAT is going ahead as planned and will apply to VAT return periods starting on or after April 1, 2019. This has involved businesses making sure that they have MTD-compliant software solutions.
Having originally said that free software would be available, HMRC backtracked on this so that businesses have to meet this cost themselves. If they have not already done so, they will need to dedicate resources to implementing new accounting systems, installing the necessary software and training staff. Added to this is the further complication of the UK’s departure from the EU on March 29, 2019 and the likely effect this will have on the VAT treatment of transactions between the UK and EU.
The uncertainty that has plagued businesses since the referendum in 2016 continues; at the time of writing, not only has the proposed deal with the EU not been voted on by Parliament, but the prime minister’s position has been challenged.
The shadow of Brexit and the resulting insecurity has been well documented but, with a sound strategy in place, we have seen that many businesses can continue to invest and expand. However, if political certainty cannot be achieved, then a stable and consistent tax regime is needed.