Autumn Budget 2018 · 2020. 11. 12. · — UK workday limit for participating in Special Annual...

Autumn Budget 2018

kpmg.com/uk/budget2018 — October 2018

“ ”

With you today

Melissa Geiger Head of International Tax and Tax Policy

Yael Selfin Chief Economist

Sarah Churton Partner, International Tax

Harinder Soor Partner, Claims and Incentives

Colin Ben-Nathan Director, Employment Tax

Tim Sarson Partner, Brexit International Tax

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

Document Classification: KPMG Public

2

Stephen Powell Senior Manager, Indirect Tax

Gavin Shaw Director, Private Client

What are we covering today? 1

Economic outlook

2 Business Tax

3 Employment Tax

4 Q&A

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


3

Economic outlook Yael Selfin Chief Economist

OBR’s significant upward revision to growth in 2019

2

% a

nnua

l gro

wth

1.5

0.5

2017 2018 2019 2020 2021 2022 2023

1

March Statement 2018 Budget 2018

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5


0

GDP growth projections (%)

% annual change 2017 2018 2019 2020 2021 2022 2023 Budget 2017 1.5 1.4 1.3 1.3 1.5 1.6

March Statement 2018 1.7 1.5 1.3 1.3 1.4 1.5 Budget 2018 1.7 1.3 1.6 1.4 1.4 1.5 1.6 Source: Office of Budget Responsibility

GDP growth for 2017-23

OBR now expect a positive output gap for the next 5 years Output gap forecasts

% o

f GD

P

0.4 0.3 0.2 0.1 0.0

-0.1 -0.2 -0.3 -0.4 -0.5 -0.6

Back-cast Forecast

2016 2017 2018 2019 2020 2021 2022 2023 2024

October forecast March forecast Source: Office of Budget Responsibility



6

40

Despite slower growth in 2018, public finances are better Changes to 2018-19 net borrowing forecast

37.1

35 -0.8

30 1.1 25.5 -7.4

25

-4.5 20

15

10

5

0 March forecast Classification changes Revenue revisions Spending revisions Government decisions October forecast

Source: Office of Budget Responsibility

Net

bor

row

ing

for 2

017-

18, £

bn



7

The windfall has been mostly spent Public sector net borrowing

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

% o

f GD

P

March forecast October pre-measures forecast October forecast Outturn




8

Not much increase in spending outside of the NHS Cumulative change in real RDEL per capita from 2018-19

Cum

ulat

ive

% c

hang

e

18

16

14

12

10

8

6

4

2

0

-2 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

NHS England Excluding NHS England




9

Some of the increase has come at the cost of capital spend £b

n

Changes in departments' capital and day-to-day spending since March

30 28.0

23.5 25

19.4 20

1511.0

10

50.6 0.0

0 -1.0 -1.7 -5 -2.9

-5.4 -10

2018-19 2019-20 2020-21 2021-22 2022-23

Changes in day-to-day spending Changes in capital spending




10

Fiscal mandate target will likely be met with room to spare Projected path for cyclically adjusted public sector net borrowing, % of GDP

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 March forecast 2.3 1.9 1.6 1.3 1.1 0.9 October pre-measures forecast 1.9 1.3 1.1 0.9 0.5 0.1 -0.1 October post-measures forecast 1.9 1.3 1.6 1.3 1.1 0.9 0.8

Fiscal mandate requires this to be below 2% in 2020-21



11

The Brexit (double) dividend Cyclically adjusted public sector net borrowing

2.5

2.0

% o

f GD

P Additional £15.4bn kept in reserve against a negative Brexit scenario 1.5

1.0

0.5

0.0 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24

1. Current spending plans have maintained a similar margin against meeting the Fiscal mandate of keeping the level of cyclically adjusted public sector borrowing below 2%

2. A favourable Brexit outcome could lead to faster economic growth, than currently forecast. This would lift revenues further, giving the Chancellor more spending room.



12

Public sector net debt to fall over the forecast period Public sector net debt as a % of GDP `

2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 November Budget 2017

March statement 2018 86.5 85.6

86.4 85.5

86.1 85.1

83.1 82.1

79.3 78.3

79.1 77.9

Budget 2018 85 83.7 82.8 79.7 75.7 75 74.1


Supplementary fiscal target for falling public sector net debt as % of GDP in 2020-21



13

86

Abandoning the fiscal mandate creates more room Public sector net debt

74

76

78

80

82

84

% o

f GD

P

Additional £73bn, while still keeping to the supplementary target

72

70

68 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24




14

Business tax Melissa Geiger Head of International Tax and Tax Policy

Introduction

We saw a relatively quiet Budget with lots of little bunnies rather than any big rabbits pulled out of the Chancellor’s hat as he sought to leave himself maximum “headroom” to contend with whatever form the UK’s exit from the EU takes.



What didn’t change

CT rate

VAT threshold

Pensions relief

Personal allowances and thresholds



17

Already Trailed Digital Services Tax

IR35 extensions

Contextualising the Digital Services Tax

Digital Services Tax framework 2% on revenues

Intermediation activities for UK users

Deductible expense but not creditable

Safeguards:

Double threshold Safe harbour

Review Other exemptions

Examples

Next Steps



19

Changes related to Intangibles Disposals — Corporate Capital Loss Restriction — De-grouping charge reform to align pre and post 2002 regimes

Acquisitions/onshoring — Targeted Goodwill Relief for purchase of IP-rich businesses

Disincentivising offshore IP ownership — Taxation of income from intangible property in low tax jurisdictions



20

Capital Allowances AIA Increase — Temporary increase for the annual investment allowance from £200,000 to £1m for

all qualifying investment in plant and machinery made on or after 1 January 2019 until 31 December 2020

Structures and Buildings Allowance — New non-residential structures and building will be eligible for a 2% capital

allowance where all contracts for the physical construction works are entered into on or after 29th October 2018.

Special Rate Reduction — Reduction in capital allowances special rate reduction from 8% to 6% from April

2019. Enhanced Capital Allowances (ECA) — With effect from April 2020, ECA (100% first year allowance) will be abolished for

energy and water efficient assets. This will include the first year tax credit for loss making companies.

Alteration of Land Installing Plant — HMRC appear to have responded emphatically to their recent defeat at the First Tier

Tribunal where it was determined what is meant by the word plant in respect of the alteration of land to install plant.



21

Employment Taxes Colin Ben-Nathan Director

Employment Taxes IR35 and the private sector

— Public sector reforms to extend to large and medium-sized private sector businesses from April 2020

— Responsibility for determining whether an engagement falls within ‘IR35’ will move to the end user of the services

— Responsibility for PAYE and NIC will move to the entity paying the Personal Service Company

— Consultations to be held to inform new legislation, and improve HMRC’s Check Employment Status Tool and HMRC guidance

— Draft legislation expected in Summer 2019, but much for employers to do in the meantime

Short Term Business Visitors (STBVs)

— Administrative easement for STBVs from overseas branches of UK companies

— UK workday limit for participating in Special Annual PAYE Schemes will increase from 30 days or less to 60 days or less

— More STBVs from overseas branches (or non-treaty territories) will now qualify for this easement

— Reporting and payment deadlines pushed back from 19 April to 31 May, in line with ‘Appendix 4’ STBV reporting deadline

Other matters

— Employer’s NIC on termination payments over £30,000 – deferred to April 2020

— Employment Allowance to be targeted at smaller employers from 2020

— Taylor Review consultations – Government responsestill pending

— Relief for self-funded work-related training, no changes proposed

— Apprenticeship Levy; a package of measures

— Pension tax relief; Lifetime Allowance increased by CPI from 2019/20 to £1,055,000



Q&A

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