Budget 2018: Brexit looms large

With announcements expected shortly on Brexit negotiation progress and, as yet, no clear indication how these negotiations will play out, there are many uncertainties in the run up to this year’s Budget scheduled for Monday 29 October 2018.

Some guidance on changes to be introduced is available from draft legislation released in July, from other announcements and from recent consultations.  We cover below a few points on budget timing, measures we know about and measures likely to be discussed. 

What do we already know?

There have been a number of recent consultations likely to be mentioned in this budget, and on 6 July 2018 draft legislation for Finance Bill 2018/19 was published.  The following matters were amongst those covered in the release of draft legislation.

Property measures

  • The introduction from 6 April 2019 of capital gains tax (and corporation tax on gains) on all UK property interests owned by non-residents, including advanced payment and filing dates.  This should place non-UK investors in UK property on a similar footing to UK investors with respect to capital gains.
  • The introduction from 6 April 2020 of corporation tax on UK property profits for non-UK resident corporate landlords, as well as advanced payment/filing dates for everyone for gains on UK residential property.  The majority of the draft legislation to implement the corporation tax rules has been published, but some of the transitional rules remain outstanding.  Those non-resident corporate landlords with highly geared businesses should be considering the implications of exposure to corporate interest restrictions if they have not already done so.
  • From 1 March 2019 the time limit for filing an SDLT return and paying any SDLT due, will be shortened from 30 days to 14 days.  It is not yet known whether the 30 day filing and payment time limit for Scottish land & buildings transaction tax (LBTT) and Welsh land transaction tax (LTT) will be similarly shortened, though more information on this may be available from future budget announcements for these respective regions. Each of these devolved jurisdictions are expected to prepare draft Budgets which are subject to debate prior to the UK Budget.  

Corporate measures

  • Refinements to corporate interest restriction and loss rules for companies are being introduced to ensure the measures operate as intended, though we are still awaiting legislation on amendments to the corporate interest restriction rules for lease accounting developments.  
  • For transfers from 1 November 2018, refinements will be made to the taxation of oil & gas activities in the UK and UK continental shelf so that a transferee can obtain relief for decommissioning expenditure undertaken by a transferor.  This removes a disincentive for such transfers that currently exists.
  • Refinements are being made to the UK’s tax regime to take account of the EU ATAD (anti-tax avoidance directive), including removal of some opportunities for permanent deferral of UK tax charges from April 2020, and removal of the CFC Finance exemption and a widening of the definition of control for CFC purposes from 1 Jan 2019.

Business and employment

  • For periods of account beginning on or after 1 January 2019, the legislative provisions that rely on the distinction between different kinds of leases are revised for lessees adopting accounting standard IFRS 16 on leasing.  ‘Right of use’ leases under that standard, which are broadly long funding operating leases for tax currently, are to be classed as long funding finance leases.  In addition, FA 2011 s53 (which disregards accounting changes for the purposes of tax in relation to leases entered into on or after 1 January 2011) is repealed.  The tax implications of both the accounting and tax changes will need to be considered by those affected.  
  • Anti-avoidance measures around profit fragmentation, aimed at targeting arrangements to remove business profits from the charge to UK tax, will apply from 1 or 6 April 2019.  We will need to see the final form of the legislation in this area to see how widely it applies.  There may be onerous reporting obligations, and the wide scope of application of these rules may need reconsideration in the light of EU law principles.  
  • From 6 April 2019 there will be a relaxation for administration around reimbursed employee travel expenses. 


  • From 1 January 2019 there will be new rules concerning the VAT treatment of vouchers, widening the scope of a single purpose voucher (where VAT is due on the issue of the voucher rather than at redemption) and changing the way intermediaries in a voucher supply chain account for VAT.  This will be of interest to retailers, intermediaries and all businesses using vouchers in the UK.
  • From a date to be announced by the Treasury, it will be possible for a non-corporate entity (e.g. partnership or individual) to join a VAT group with its body corporate subsidiaries if it controls all of the members in a VAT group. 


  • For share issues on or after 6 April 2019 it will be possible to trigger entrepreneurs’ relief in situations where companies are issuing additional share capital where this new share issue would otherwise cause existing shareholders to lose entitlement to relief by taking their shareholdings below the 5% ownership threshold.  This removes a possible disincentive to the raising of capital for companies for whose shareholders entrepreneurs’ relief is relevant.  
  • From 6 April 2019 there will be an exclusion from claiming rent-a-room relief for rentals where the property is let out without the owner being in residence (there is currently no such restriction and the relief available is up to £7,500).
  • From 6 April 2019 simplifications to thresholds and benefits for donors will be introduced so that the gift remains qualifying for gift aid.

What else is likely feature this year?

A number of areas have been subject to consultation for which we are still awaiting a response from the Government. There may be an indication of how the Government will respond to those consultations in the Budget.  Some of the issues raised and some other points that could be discussed include:

Business and employment

  • The Treasury has announced there will be no abolition of class 2 NIC in this Parliament (abolition was previously planned to happen on 6 April 2019).
  • Mazars has responded to the consultation on extending IR35 assessment responsibilities to employers in the private sector (employers in the public sector are currently required to make such assessments).  We commented that if the measure was introduced:
  1. the accuracy of the first time results from HMRC’s CEST (check employment status for tax) tool would need to be improved to provide greater guidance to employers as to whether their workers fall within the IR35 provisions;
  2. there would need to be a longer lead time in implementing this measure for the private sector than was available for the introduction of the measure to the public sector;
  3. the rules for the public sector would need to be adapted for the private sector, and possibly use of thresholds below which private sector businesses would be outside the scope. 
  •  Business visitors to the UK head office from an overseas branch of that UK company have potentially more onerous UK PAYE/NIC and self-assessment obligations than similar visitors to the UK parent of an overseas subsidiary of that UK company.  We responded to a consultation on options for reform in this area.  Aligning the treatment of non-UK branch visitors with those from non-UK subsidiaries was our preferred option and we did not see that this reform would create significant exchequer cost.  There may well be double tax treaty issues to resolve with any such reform, but it will be interesting to see what the Government’s response to this will be. 


  • From a date to be specified, intermediary and agency financial service transactions will be excluded from the scope of supplies to non-EU jurisdictions which generate an entitlement to input VAT recovery in the UK. Depending on the Brexit negotiations there may be further reforms in this area to limit the Treasury’s exposure to reduced VAT revenues. 
  • The Government issued a VAT technical note on preparing for a ‘no-deal’ Brexit. The changes envisaged included changing the system for accounting for import VAT so that it is accounted for on the VAT return rather than at the point of entry.  The note also indicated a number of other possible changes.  Whether these feature in the Budget will depend on the Brexit negotiations.
  • The EU has an initiative to simplify the VAT regime for SMEs, which  includes a €100,000 threshold below which VAT may not need to be accounted for.  While the UK is in the process of exiting the EU, this may influence the UK Government response to its recent call for evidence on VAT registration thresholds and how to reduce the distortive effect of that threshold on growing businesses.  Although resulting in increased complexity, the Office of Tax Simplification’s proposal for staged introduction of VAT as the threshold is breached does seem to offer a possible solution. 


  • The UK has already announced its intention to remove the finance exemption from its controlled foreign company (CFC) rules from 1 January 2019.  By the time of the Budget the EC may have concluded on its state aid investigation into the UK CFC finance exemption and there may be further clarity of the consequences of that decision.  
  • Following a December 2017 consultation we have yet to see any draft legislation on a royalty withholding tax in respect of payments to connected parties not resident in the UK.  At the September 7/8 meeting of ECOFIN, there was broad support for preparing further measures in this area where payments for digital services are routed through no-tax and low-tax systems.  It seems likely that this will feature in the upcoming UK budget.  As recently as 11 September , Financial Secretary to the Treasury indicated that the OECD will be advancing the date of its report into digital tax to 2019, and that the UK is prepared to take unilateral action on taxing the digital economy if that is appropriate.
  • The tax treatment of intangible fixed assets for companies is complicated by the fact that some assets may be dealt with through the capital gains (CG) regime, while others may be dealt with through the intangible fixed asset regime (IFA).  The IFA regime has seen a number of changes over recent years, and could be described as out of line with similar measures in other jurisdictions.  It will be interesting to see if the CG and IFA treatment of intangibles assets and goodwill will be aligned, whether amortisation of newly acquired goodwill and customer intangibles is restored and the IFA tax depreciation rate is modernise

Plastics tax

  • The Government’s call for evidence on the introduction of a plastic tax produced over 162,000 responses, the highest ever to a consultation.  The 18 August 2018 response document indicates Budget 2018 will announce policy to take the response ideas forward.  These may include: using tax to shift demand to recycled plastic inputs; using taxes to encourage design of plastic products that are easier to recycle; taxes or charges on commonly littered plastic products; and taxes to encourage greater waste recycling.  There is clearly a lot of interest in this area, so it should be prominent in the Budget measures announced.

What else could the Chancellor consider?

There have been additional areas of speculation in the press, including:

  • Possible measures to finance care for the elderly.  This is clearly a demographic issue for a population such as the UKs where individuals’ life expectancy continues to increase (and there is a proposal to consider a social care levy in Wales).
  • Possible increases in income taxes to raise funds for NHS (again, there is a suggestion that Wales may introduce a hypothecated income tax charge to fund the NHS in Wales)
  • Whether the liability for SDLT should switch from the purchaser to the vendor in property transactions.  This could be a complex change to manage in our view (particularly as some existing owners will have been subject to SDLT twice if this change were to implemented), without any certainty that pricing, willingness to sell or ability to buy in the property sector would change significantly.
  • Consideration of the system for taxing capital and wealth and the method of determining the threshold before which IHT is due.  We do not foresee significant change in this area during this parliament.
  • Comprehensive review of the UK’s dividend regime, although the recent response to corporate governance in which this was issued did not specifically mention tax.
  • Notwithstanding the recent consultation on its relaxation in the case of company share issues, restriction  of entrepreneurs’ relief or even its total abolition has also been as a possible way of creating extra funds for the NHS.  The Government has not indicated at this stage it will radically alter any of the existing or planned tax reliefs and tax rates, but what actually happens may depend on the form of Brexit deal agreed.

The extent to which the Government can introduce change in any of these areas may well depend on what fiscal response is required as a result of the outcome of Brexit negotiations.  

We will be providing regular updates during and after the Chancellor's Budget on October 29th. Please follow us on Twitter , LinkedIn and on our blog, Let's Talk Tax

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