Invigors Partner George Tonks reviews the UK Chancellor’s Budget of March 2017
In presenting his first (and only, as he has announced his intention to revert to Autumn Budgets in future) Spring Budget, the Chancellor, Philip Hammond, delivered a confident statement, appearing to be in control of a UK economy which continues to grow faster than most other major developed countries. There was a continuing commitment to reach a net surplus during the next Parliament, with PSBR reducing over the forecast period. Overall economic news was better than the November 2016 forecasts and he was able to report growing employment levels and continuing increases in real wages, even though inflation will rise above the 2% target in the short term.
There is substantial economic uncertainty as we move towards exiting the EU, so a cautious fiscal approach was expected. Whilst there were no large tax or spending surprises, the post-speech announcement of the Government’s decision on the future corporation tax treatment of equipment leasing will be a major talking point for the asset finance industry.
Various options for taxing equipment leases were set out by HMRC in a discussion paper issued in August 2016. Having considered responses, the Government has decided to maintain the current system, rather than to make substantive changes. A formal consultation on the legislative changes required to achieve that will be launched in the Summer, so that new legislation can be in place ahead of the January 2019 effective date for IFRS 16. We will need to look at the detail of the consultation to see whether any additional changes are to be included. The earlier discussion drew mixed responses, with no clear preferred option, so some in the industry will be pleased with this outcome, whilst others will be disappointed.
Many involved in car finance will also be disappointed with the absence of any relaxation in the VED changes for cars registered from 1 April 2017, which will bring some significant increases. Meanwhile VED rates for pre April cars will increase by inflation and will be frozen for HGVs.
Forthcoming Government consultations that will need to be studied by the industry include a green paper on consumer protection and air quality plans.
As usual, the Budget included announcements about increases in selected areas of Government spending. This year the main headline was on healthcare, with an extra £1.2bn in 2017-18 and a further £0.8bn in 2018-19 and£0.4bn in 2019-20 focusing on social care and A&E admission assessment processes. Other spending priorities were education and skills training, the devolved assemblies/ NI Executive and a number of infrastructure projects.
Further measures (in addition to those previously announced), costing a total of more than £400m, will be put in place to ease the forthcoming business rates transition. However, part of this is a discretionary fund for local authorities to protect their local businesses selectively, so that precise details are not yet available.
In total the Budget tables show an increase of nearly £5bn in Government spending over the next 5 years. This is largely offset by net tax raising measures, leaving a net fiscal loosening of £175m over 5 years. The largest tax raising measures are reducing the dividend tax allowance from £5k to £2k from April 2018 (raising £2.6bn over 5 years) and increasing class 4 NI for self-employed from 9% to 10% from April 2018 and to 11% from April 2019 (raising £2.1bn over 5 years).
The reduction in corporation tax to 19% from 1 April 2017 was confirmed, along with the further reduction to 17% in April 2020. However, there were no announcements about either the restriction on tax relief for net interest costs (where these exceed £2m) or on the changes to the use of brought forward tax losses, both of which take effect from April.
There will be a one year delay in the “Making Tax Digital” timetable for a limited number of businesses. This project will require businesses to make digital submissions to HMRC instead of the current system of VAT and corporation / income tax returns. The revised timetable requires income tax profit submissions from 6 April 2018 for businesses with turnover above the VAT registration threshold (which will increase to £85k) and from April 2019 for businesses with turnover of £10k – 85k; VAT submissions will be included from April 2019 and corporation tax from April 2020. The compulsion for digital linking and for quarterly downloads of profit calculations remain controversial.
Philip Hammond was generally seen as a safe appointment when he was made Chancellor last Summer and able to steer the UK economy through the turbulence of Brexit. That view will be endorsed by this Budget statement and the limited number of significant changes will be welcomed. Meanwhile the UK economy remains as well as can be expected and on track to reach the targets set by this Government, although those of different political persuasions will remain sceptical on whether it really is “an economy that works for everyone”.
Invigors EMEA LLP
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