Autumn Budget 2018

Autumn Budget 2018

The sun was already edging behind the London skyline by the time Chancellor Philip Hammond rose to the despatch box to deliver the first Monday Budget since 1962 – pushed back to 3.30pm because of later Parliamentary sitting times on Mondays.

Officially, the traditional Wednesday slot was dispensed with this year to allow as much time as possible for debate in Parliament. The more cynical might have suspected it was actually to avert a Halloween nightmare.

Either way, Mr Hammond could be forgiven if he was feeling cautious. This should be the last Budget before Brexit, taking place a few weeks earlier than usual to allow for crucial negotiations in November. It was, therefore, his best opportunity to influence the terms of the Brexit debate before the UK’s withdrawal from the EU next March.

Mr Hammond had admitted in interviews over the weekend that some measures would be contingent on the outcome of the Brexit negotiations and a further Budget could be needed in the event of a no-deal outcome – a claim subsequently played-down by Number 10.

Mr Hammond has bitter experience of having to backtrack on a measure announced in a Budget and will have been determined to avoid a repeat of his first Budget in spring 2017, following which he was quickly forced to cancel tax rises for the self-employed.

Adding to the pressure, the Government lost its majority in the Commons at last year’s snap General Election, emboldening opposition parties to float the idea of voting down the Finance Bill.

Economic Overview

Mr Hammond began his speech on a noticeably bold note, declaring that the “age of austerity is finally coming to end”, as he set out the fiscal and economic assessments from the Office for Budget Responsibility (OBR).

The OBR now forecasts growth next year of 1.6 per cent, 1.4 per cent in 2020, 1.4 per cent in 2021, 1.5 per cent in 2022 and 1.6 per cent in 2023. Mr Hammond added that the OBR expects real wages to grow in each of the next five years.

He went on to report that the deficit is falling to 1.5 per cent this year and next year, before dropping to 0.8 per cent by 2023-24.

He said that these represent a “significant improvement” in the public finances, enabling him to set out a new path for public spending. He added that there will be a full Spending Review next year.


Business and Enterprise

To cheers from his MPs, the Chancellor said Business Rates will be cut by one third for those with rateable values of £50,000 or less following the next revaluation exercise. This is expected to benefit 90 per cent of independent firms.

He also announced a significant increase in Annual Investment Allowance from £200,000 to £1 million for the next two years.

He also said that the qualifying period for entrepreneurs’ relief will increase from 12 months to two years.

Meanwhile, in the only announcement relating to Making Tax Digital (MTD), Mr Hammond said that the VAT threshold will remain at £85,000 for the next two years, meaning additional businesses will only be subject to MTD for VAT if their turnover rises above this level.

Moving to direct support for businesses, he said that a modern industrial strategy, supporting nuclear fusion, quantum computing, artificial intelligence and more will receive £1.6 billion in new investment. He also announced a £695 million initiative to help small businesses hire apprentices.

Small businesses will see their contributions to the apprenticeship levy reduced from 10 per cent to five per cent.

Less welcome for large online firms was the announcement of a UK Digital Services tax of two per cent on money made from users in the UK from April 2020. However, this will only apply to firms with revenues of £500 million or more and only if a good global alternative is not approved. Start-ups and SMEs in the sector will be unaffected.

Mr Hammond also announced that the National Living Wage is to rise by 4.9 per cent from £7.83 to £8.21 in April 2019.

Contractors working through personal service companies for medium-sized and large businesses will be subject to the IR35 rules, but not until April 2020, instead of April 2019 as planned. This means that these businesses will need to determine whether any contractors should be treated as employees for tax purposes.

Mr Hammond also announced a consultation on a plastic tax where packaging contains less than 30 per cent recycled plastic, but ruled out a tax on cups, unless the industry fails to make sufficient progress.

Meanwhile, the Chancellor confirmed that HM Revenue & Customs (HMRC) will become a preferred creditor following insolvency.


Public Spending

Saying that some “bunnies” have already escaped the hat, Mr Hammond said that there will be £20 billion for the NHS in England, £240 million to assist with winter pressures on Social Care and £2 billion more each year for mental health by 2023-24.

As part of this, there will be mental health crisis centres providing support in every accident and emergency unit in the country.

For education, he announced what he described as a £400 million “bonus” to spend on what he described as the little extra.

Turning to transport, Mr Hammond said that there will be a £30 billion package for roads in England, including for motorways and pothole repairs.

Turning to defence, he announced £1 billion additional funding for the Ministry of Defence this year and next year. This was followed by the announcement that an additional £160 million will be provided for counter-terrorism policing.

Meanwhile, £10 million will be provided to support mental health care for military veterans, marking the centenary of the end of World War One.

There will also be £1.7 million for education programmes to mark the liberation of the Bergen-Belsen concentration camp 75 years ago.


Brexit

Mr Hammond said that an additional £500 million will be provided to Government departments to fund Brexit preparations. This follows £2.2 billion that was announced previously and £1.5 billion that he announced at the Spring Statement.

Meanwhile, one of his more eye-catching announcements was the minting of a commemorative 50 pence piece to mark the UK’s withdrawal from the EU next year.


Personal Tax, Housing and Welfare

Mr Hammond provided welcome news for individuals by bringing forward the increase in the Personal Allowance for Income Tax to £12,500 by a year to April 2019, increasing the Higher Rate threshold to £50,000 at the same time.

Motorists will benefit from fuel duty being frozen for the ninth consecutive year. Duties on beers and spirits will also be frozen for a year, but duty on wine rises.

First-time buyers purchasing shared ownership homes will no longer have to pay Stamp Duty Land Tax (SDLT) on properties valued at up to £500,000. £5.5 billion will also be provided for a Housing Infrastructure Fund.

Turning to Universal Credit, which has provoked significant political controversy in recent years, he committed to spending an additional £1.7 billion over the next five years.


Conclusion

Mr Hammond’s speech will inevitably be viewed through the ever-present prism of Brexit and dissected for any indication of the Government’s intended direction of travel.

Yet, while pundits will spend the coming days interpreting the political detail of the speech and untangling its implications for various rivalries, it is the specifics of what the Chancellor announced that will have an immediate effect on businesses and individuals across the UK.

Notably, this includes important measures for small businesses such as a cut to business rates and a two-year increase in the Annual Investment Allowance from £200,000 to £1 million.

However, how many of these measures actually come to pass will only become clear once the outcome of the Brexit negotiations is known. This may have been a Budget of some significance, or it may have been of little consequence at all.

Link: Budget Document

What is the 24-month rule and how does it apply to me?

The most common expenses claimed by contractors are for travel and subsistence.

The 24-month rule allows contractors to claim travel expenses from home to a qualifying workplace, together with subsistence, for up to 24 months. A qualifying workplace assumes the workplace passes a basic “temporary workplace” test. For example:

  • The contract will last less than 24 months.
  • The length of the contract is uncertain.
  • The length of the contract is less than 24 months, however, if the contract gets extended past 24 months, travel expenses cannot be claimed from the date of change.

The 24-month rule is calculated from when you first start travelling to your client’s premises from either your home or office until the end of the contract, if it is less than 24 months, or until you have reason to believe your contract may last over 24 months.

For example, if you were to start a new contract with a different department but your end client remained the same, the 24-month rule does not restart with the new department you are working in, but continues to run from when the first contract was started with the client.

Equally, if you start a new contract with a different end client but the commute remains the same, the 24-month rule does not restart with a new contract.

If the original contract was for 12 months and you were then offered another contract for 14 months to run consecutively, and you accepted the new contract, you would no longer be able to claim travel expenses or subsistence from the point you knew your time at your client‘s site would exceed 24 months.

The above are some of the basic conditions relating to the 24-month rule and contractors should always take these into account when claiming travel or subsistence expenses.

Please click here for a more detailed explanation of the 24-month rule.

HMRC warns against dubious umbrella schemes

In recent days, HM Revenue & Customs (HMRC) has issued a warning to contractors that signing up to umbrella schemes which appear to be ‘too good to be true’ could lead to problems later down the line.

In a new guidance document entitled Umbrella companies offering to increase your take home pay (Spotlight 45), the Revenue warns contractors to watch out for dubious schemes which claim that contractors can increase their take home pay by anywhere between 80 and 95 per cent.

Specifically, it has warned that many such schemes are making ‘misleading’ claims with regards to the financial benefits offered under such schemes being ‘legitimate’ or ‘tax-efficient’ when, in actuality, contractors that use these schemes are likely to end up paying much more in tax later down the line. This is because HMRC will always move to challenge perceived tax avoidance schemes.

How do these dubious schemes work?

Umbrella schemes offering high pay retention will vary, but these schemes tend to have a number of things in common – most notably that they will promise that contractors will be able to retain a greater slice of their income while simultaneously reducing their paperwork burden.

In most case, a large part of the remuneration received by contractors using these schemes will be transferred as a loan, or via credit. Promoters of the schemes will often claim that these means are ‘non-taxable’, but in reality, HMRC is likely to treat such payments in a very similar way to normal income – meaning that tax and National Insurance Contributions (NIC) will most likely be payable.

What’s more, such payments will often be transferred through a chain of several companies before the freelancer themselves actually receives the money.

Contractors have been warned that umbrella schemes will often require them to sign up for these potentially troublesome arrangements from the outset. In instances where this is the case, freelancers should never accept this at face value and should always seek specialist advice at the earliest possible opportunity before getting themselves into something which might prove costly and problematic later down the line, as has been the case with many people who have been duped into using such schemes.

Freelancers warned to watch out for cybercrime as gig economy grows

A prominent IT security firm has issued a warning to UK contractors and freelancers to watch out for cybercrime at a time when the size of the gig economy is rapidly increasing and more and more people are becoming self-employed.

According to recent figures from the Association of Independent Professionals and the Self-Employed (IPSE), the growth of freelancers in the UK has now surpassed the growth of overall employment – a trend also recently seen in the Netherlands and in France.

Businesses far and wide are increasingly seeing the benefits of outsourcing tasks and responsibilities to specialist freelance workers, but cyber security group Surfshark has warned that the growth of the gig economy could wind up directly linked to an increase in cybercrime if contractors and businesses alike do not enhance their cyber security.

“Internally, companies develop strict security procedures for their employees and invest in expensive security systems. However, when it comes to outsourcing, companies lose control of any data they share with the outsiders,” said Naomi Hodges, Cybersecurity Adviser at the firm.

She warned that while businesses who outsource work tend to rely solely on confidentiality agreements, contractors themselves have a tendency to work remotely – in cafes, co-working spaces and other public environments – and might not always be protecting themselves from hackers.

“Almost anyone with some basic technical knowledge can crack the connection of public Wi-Fi after watching a step-by-step tutorial on YouTube,” she warned, urging contractors that not taking the appropriate steps to curb cybercrime was akin to “leaving the backdoors unlocked in a fort.”

“If a freelancer does not encrypt it’s traffic, all their documents and files are put on public display,” Ms Hodges warned.

“The hackers can see anything that is being sent to or coming from the computer using the network.”

Ms Hodges suggested that both businesses who provide work to freelancers and contractors themselves had a huge responsibility to protect themselves and their data.

“It does not matter if a freelancer is a business consultant, an engineer, or a photographer. They all work with information which can be classified as sensitive to their clients,” she said.

“Usually, it’s not too difficult to indicate their clients simply by looking at their portfolios. They all count on luck that nobody is interested in his or her files, but that is why data breaches happen,” she warned.

Contractors who are concerned about cyber security are being advised to encrypt their web traffic and use a reliable VPN service in a bid to ensure digital privacy when using Wi-Fi on the move.

HMRC trying to crack down on IHT avoidance

New figures published in the press of late reveal that HM Revenue & Customs (HMRC) is increasingly cracking down on perceived Inheritance Tax (IHT) avoidance by targeting estates it believes have undervalued residential properties.

According to data cited in Moneywise Magazine in recent weeks, HMRC investigated approximately 5,400 estates for underpayment of IHT last year – a five per cent rise on the number of estates that were targeted in 2016/17.

The figures also reveal that almost a quarter (24 per cent) of all estates liable for IHT were investigated in 2017/18.

Commentators have pointed out that HMRC’s key area of interest will usually be querying whether residential properties due to be passed on to heirs have been accurately valued.

According to reports, HMRC has been known to argue that ‘additional value’ should be added to properties – particularly in instances where such homes have ‘refurbishment potential’ or are set in large areas of land which could benefit from further development.

In instances where the tax authority finds that IHT has ultimately been underpaid, estates are typically required to pay back all of the tax owed, as well as a penalty.

In some cases, this penalty could be up to 100 per cent of the tax at stake, it has been warned.

Commentators have said that families who are “not necessarily cash-rich” but own one or more high-value properties could be hit with hefty fines if they do not tread carefully.

In response to the concerns raised, an HMRC spokesperson simply said: “Our investigations ensure that everyone pays the right tax.”

In England and Wales, IHT is charged at a rate of 40 per cent on all estates valued above the IHT threshold or ‘nil rate band’, which has remained frozen at £325,000 for many years.

However, there are numerous ways families and individuals can mitigate their eventual IHT liability.

And finally…

Police and Government officials in the US city of Savannah, Georgia, are on the lookout for a criminal known in some circles as ‘the googly eye bandit’.

The news comes after an unknown man or woman glued a pair of googly eyes onto a historic relief sculpture of a Revolutionary War general located in the city’s famous Johnson Square.

In a frustrated post on Facebook, a local Government organisation wrote: “Who did this?! Someone placed googly eyes on our historic Nathanael Greene statue in Johnson Square.”

They added: “It may look funny but harming our historic monuments and public property is no laughing matter, in fact, it’s a crime.”

The post, which has been shared more than 23,000 times across social media, has attracted a wide and diverse range of reactions from members of the public.

One social media user simply said: “Maybe you could entertain the revolutionary idea of simply removing them? It’s really not that difficult.”

In response to some of the sarcastic comments received, Police spokesperson Bianca Johnson has reiterated that the matter is being treated very seriously.

The famous statue is located behind a fence, meaning that the person responsible is at risk of being prosecuted for trespassing if he or she is caught.

CAPTCHA image