On 29 October 2018, Philip Hammond, the Chancellor of the UK Exchequer, delivered his 2018 Budget speech that was largely free of major surprises for taxpayers, with the proposal for a new digital services tax arguably the most significant development. This and other notable announcements are summarised here.
Digital Services Tax
In response to growing international pressure for governments to ensure that income from the supply of digital services is taxed appropriately, the UK will introduce a 2% on the revenues of certain digital businesses that derive value from their UK users.
This tax will apply to revenues generated by search engines, social media platforms, and online marketplaces that are linked to the participation of UK users, subject to a £25m-per-year allowance.
Only groups that generate global revenues in excess of £500m per year from such business activities will be liable for tax. The regime will also include a safe harbour provision that will exempt loss-making businesses and reduce the effective rate of tax on businesses with very low profit margins.
Legislation for the tax will be introduced in Finance Bill 2019 after a consultation on the levy's design.
The corporate tax rate, currently 19%, is due to fall to 17% effective 1 April 2020 under previously enacted legislation, and the Chancellor made no further rate changes.
While no substantial reforms to the corporate tax regime were proposed, the Budget does introduce new corporate tax reliefs and amended existing ones. These include:
- The introduction of a new Structures and Buildings Allowance, which will provide relief for qualifying capital expenditure on new non-residential structures and buildings;
- The extension of the first-year allowance for electric charge-points for vehicles for four years, until 31 March 2023;
- A change to the special rate of writing down allowances for qualifying plant and machinery from 8% to 6% for businesses claiming capital allowances from April 2019; and
- A temporary increase to the Annual Investment Allowance from £200,000 to £1m, with effect from 1 January 2019, to 31 December 2020.
- UK Finance Bill
- The New UK Corporate Governance Code
- Future Digital Financial Reporting In The UK
- UK Tax Incentives For Research & Development
Following an announcement in the 2017 Budget, the Chancellor confirmed that the Government is proceeding with plans to broaden the UK's tax base to include disposals of all forms of UK land made by non-residents. This will include both direct disposals of UK land, and indirect disposals of entities that predominantly derive their value from UK land. Non-resident companies will be chargeable to corporation tax on their gains.
In addition, UK residents will be required to make a payment on account of capital gains tax following the completion of a residential property disposal.
On a more positive note, the Government will extend first-time buyers' stamp duty relief to include qualifying shared ownership property purchases, whether or not the purchaser elects to pay stamp duty on the market value of the property. As such, the first £300,000 of an initial share purchased will not be liable to SDLT.
As expected, the Chancellor left rates of personal income tax on hold for another year. However, extra tax relief will be provided to low-income taxpayers by raising the personal income tax exempt threshold to £12,500 (the personal allowance).
From the 2019-20 fiscal year, the basic rate limit will rise to £37,500, above which income is subject to the 40% income tax rate, rather than 20%. These thresholds are to be retained in 2020-21, after which both the personal allowance and the basic rate limit will be indexed with the Consumer Price Index. Income over £150,000 per year will continue to be taxed at 45%.