Those expecting an uneventful Budget were disappointed as the Chancellor announced some interesting changes to the taxation of businesses, writes Tim Shaw, partner at Ensors Chartered Accountants.

The principal changes announced are as follows though, as always, there are likely to be many changes announced in the small print which will need to be digested over the next few days. 

A temporary increase, for the two years ended 31 December 2020 in the level of the annual investment allowance to £1 million per annum has been announced.

Businesses will be able to spend up to this much each year on qualifying fixed asset additions and receive full tax relief in the year of acquisition. This is partly paid for by a reduction in the rate that capital allowances may be claimed on the special rate pool of six per cent per annum. 

Thankfully, the Chancellor put the immediate future of entrepreneur’s relief beyond question though he did double the qualifying investment period to 24 months. 

In addition, for disposals made on or after 29 October 2018, two new tests are added to the definition of a ‘personal company’. These require the claimant to have a minimum five per cent interest in both the distributable profits and the net assets of the company at issue in order for relief to be due. 

These changes are unexpected and could impact on ongoing transactions. With effect from April 2020, off-payroll working rules will be extended to the private sector, though the changes will not impact upon smaller businesses. 

The changes are likely to require companies to assess the relationship with contractors who provide services to them through personal service companies and operate payroll withholdings on payments made to the companies if the relationship is considered to represent that of employment. 

This could add a considerable compliance burden to businesses. Turning to R & D tax relief, whilst the repayable credit system is retained for small and medium sized companies, under the guise of an anti-avoidance measure, the Chancellor has announced that with effect from April 2020 the amount that a loss-making company can receive in R & D  tax credits in any one year will be capped at three times its total PAYE and National Insurance contributions liability for that year. 

As previously hinted, the Chancellor announced plans to introduce a UK Digital Services Tax. This will not be an online sales tax on goods bought online and will only be paid by profitable companies that have at least £500 million a year in global revenues.

The actual legislation will be subject to consultation first before the tax comes into effect in April 2020. It is expected to raise more than £400m a year, however it remains to be seen whether the companies will look to recover the tax from consumers.

The VAT registration and deregistration thresholds will not change for two years from 1 April 2020 and the registration threshold will remain at £85,000. In addition, motor fuel duties are frozen for the ninth year in a row.

Oxford2Cambridge Arc

The measures announced in support of the Cambridge-Milton Keynes-Oxford Growth Corridor are a further step towards making the region the UK’s next economic powerhouse, according to  property consultancy Bidwells. 

Recent Bidwells research found the Corridor’s economy would grow to £400 billion by 2050 if it continues expanding at four per cent – which Bidwells calculated is the average for the Corridor region since 1998 – as long as major investment is made in all types of infrastructure.

Today’s announcement of £20m of funding for the central section of East West Rail between Cambridge and Oxford via Milton Keynes is another step towards supporting this high level of growth. 

Patrick McMahon, Bidwells senior partner, said: “These measures are another step towards making the Growth Corridor the UK’s next Economic Powerhouse.

“The Government’s further support for its science and technology-focussed Industrial Strategy – coupled with this new infrastructure investment – puts this region at the heart of the UK economy. We called for clear government leadership on the Corridor project ahead of this year’s Budget and these announcements begin to provide it.”  

Bidwells recent research also found that an estimated 15-20m sq ft of further office and lab space, across approximately 540 hectares of land, will be needed to accommodate this £400bllion projected growth.