UK Chancellor of the Exchequer Philip Hammond unveiled his Budget statement on November 22, under the new arrangement for the main annual tax changes to be announced in the autumn for the following year. Some predicted tax increases did not materialise, which will be welcomed by the wider business community.
Tax treatment of leasing
For equipment leasing, the most important Budget day announcement was one of longer term importance than the immediate changes. This concerns the future UK tax implications of the new IFRS 16 international accounting standard for leasing. A consultation document to be issued by HM Revenue & Customs (HMRC) on December 1 will address “the legislative changes required by the new accounting standard to ensure that the ... rules for leased plant and machinery continue to work as they do currently, and on the wider impact of the accounting change for income and corporation tax.”
Subject to what may be said in the consultation document, this could be good news for UK leasing business. It would appear that a more radical departure of basing the tax treatment on future accounting rules, so that no lessors could claim capital allowances on leased assets, as raised in an HMRC discussion document issued last year, may have been abandoned.
The temporary schemes for 100% first year allowances (FYAs) for purchases of zero emission goods vehicles, and for gas refuelling equipment, which were due to end for expenditure incurred after March 31 2018, will now be extended for a further three years.
With immediate effect, there are some minor changes to the list of energy-saving technologies eligible for 100% first year allowances (FYAs). Lessors are not eligible to claim FYAs, but the use of hire purchase type facilities will allow customers to claim them.
The temporary scheme of first year tax credits (FYTCs) for environmentally beneficial capital expenditure, involving projects within a designated list of energy and water technologies, which were due to expire in April 2018, will now be extended for a further five years. FYTCs can be claimed by companies in a tax loss position, at two thirds of the corporation tax rate. The use of leasing facilities becomes a relatively less attractive option for potential lessees who could claim FYTCs while purchasing assets outright.
Various income tax and vehicle excise duty (VED) changes are designed to promote environmental objectives. The diesel supplement for the income tax benefit in kind (BIK) charge for diesel cars not certified to the RDE2 standard will rise from 3% to 4% with effect from April 6 2018.
The first year rate of vehicle excise duty (VED) for new diesel non-RDE cars will be increased by one band from April 2018. Other VED rates will rise in line with the retail price index from next April.
Electricity provided by employers for the workplace charging of employees’ electric and hybrid cars will be exempted from BIK charges with effect from April 2018.
However, there will be no changes in motor fuel duty rates next year.
Some tax increases
There are some significant tax increases. In the taxation of capital gains by companies, indexation relief for inflation is to end in respect of changes in the retail price index after the end of this year. This will match the capital gains tax (CGT) rules for individuals, where indexation relief was removed in 2008. The ultimate impact of this change will obviously depend on future inflation rates.
A new move against cross-border corporation tax avoidance will target the use of favourable tax jurisdictions to hold intellectual property rights such as core product brands. The Chancellor proposes a new withholding-type tax at the income tax basic rate on royalty payments to associated entities based in low tax jurisdictions, by international groups trading in the UK. The change will take effect from April 2019, and a consultation paper on the details is to be issued at the beginning of next month.
Other steps against tax avoidance and evasion include:
- a move against VAT evasion in online sales, making the marketplaces jointly liable with suppliers for unpaid VAT, from the enactment of the next Finance Bill;
- a further strengthening of legislation in the 2016 Finance Act designed to tackle “disguised remuneration” of employees or quasi-employees for income tax purposes;
For micro-businesses, the Chancellor announced that the VAT registration threshold will remain at annual turnover of £85,000 at least until April 2020. It remains under review for the longer term, and the UK threshold is low by comparison with other EU countries.
The rate of the tax credit for research and development expenditure is to be increased from 11% to 12% from January 1 2018.
The Chancellor acknowledged that the UK’s recent economic performance has not been as good as previously expected, due to a generally stagnant trend in productivity. The latest official forecast is that the UK economy will grow by around 1.5% in each of years up to 2022, compared with earlier forecasts of 2% annual growth.
However, he still predicts a continuing gradual improvement in the budgetary position, having avoided major new tax increases or expenditure cuts in this Budget. Annual public borrowing, which rose to nearly 10% of gross domestic product (GDP) in the aftermath of the financial crash in 2008, is projected to fall steadily from 2.4% of GDP in the current financial year to 1.1% by 2022/23. Overall national debt is projected to peak at 86.5% of GDP this year (having more than doubled since 2008), then falling to 79.1% by 2022/23.