While there were some new tax reliefs introduced, the UK Government’s Autumn Budget caused ripples, not waves, for shipping.
In the UK, Chancellor of the Exchequer Philip Hammond delivered his Autumn Budget 2018 this week — the final one before the UK leaves the European Union. The Budget, Mr Hammond’s third, was laid out in a 72-minute speech to the UK Government’s House of Commons (the lower house of the UK Parliament). The annual financial package is set by Her Majesty’s Treasury for the following financial year. Mr Hammond’s speech covered a number of areas, including transport, infrastructure, Brexit, environment, energy, business and digital.
In light of the Budget, accountant and shipping consultant Moore Stephens has outlined a number of unexpected changes introduced by the Budget which could have implications for the shipping and offshore maritime industries. However, according to the accountancy and advisory network, these are relatively minor alterations which will have a limited impact on what remains a stable tax regime for the maritime sector.
In its analysis, Moore Stephens pointed up changes to the Annual Investment Allowance (AIA) — a form of tax relief for British companies designated for the purchase of business equipment. This allowance will increase from £200,000 to £1m per annum for all qualifying investments in plant and machinery made between January 1 next year and December 31, 2020. According to Moore Stephens, this means that it will be important to either delay or bring forward any large expenditure on plant and machinery accordingly. However, the accountant adds that there will be a reduction in the rate of writing-down allowances for special-rate pool assets, from 8% to 6% per annum on a reducing balance basis.
Moving on to a capital allowance introduced by the Autumn Budget, Moore Stephens Says a new allowance — of 2% — will be available for construction costs of new commercial, non-residential structures and buildings, including land alteration and improvement costs. Very broadly, the accountant explains, the building must be used for a commercial purpose. This will be applicable when a contract is entered into on or after October 29 of this year.
The UK tax regime continues to provide certainty and stability for the shipping and offshore maritime sectors
As for capital losses, the Budget has revealed that there will be a restriction on the use of these for companies. From April 1, 2020, the proportion of annual capital gains that can be relieved by brought-forward capital losses will be restricted to 50%. There is a “however” again, though: companies will have unrestricted use of up to £5m capital or income losses each year, Moore Stephens says. This rule is therefore likely to be of limited application for shipping.
Further Budget alterations
Turning to goodwill — the amount paid for a business that exceeds the fair value of its individual assets and liabilities, Moore Stephens explains that the UK Government will consult on introducing a new targeted relief for the cost of goodwill in the acquisition of a business with eligible intellectual property from April next year. Meanwhile, the Budget introduced new rules applicable to off-payroll working in the private sector, where an individual who is effectively an employee is actually employed by a private company. In this case, responsibility for operating the off-payroll working rules will apply to the organisation or other third party engaging the worker. Moore Stephens says that this change will apply from April 2020.
With regards to corporation tax, Moore Stephens says that no changes have been made to the corporation tax rate, which will drop to 17% in April 2020. Yet, it goes on to add that there are some changes to entrepreneurs’ relief (which reduces the amount of Capital Gains Tax, or CGT, paid on disposals of businesses, or shares in a personal company, by offering a reduced 10% tax rate on up to £10m worth of lifetime gains. CGT is a tax on the profit when something that’s increased in value is sold). For example, from April 6 next year, the minimum period throughout which the qualifying conditions for relief must be met will be expanded from 12 months to 24 months — i.e., from a year to two. There are also alterations to the definition of “personal company”, according to the accountant.
Moore Stephens makes the final point that the government is to consult on some changes to the principle private residence relief from Capital Gains Tax for owner-occupiers, including a reduction in the final period exemption, from 18 months to nine months. These rules, it says, will apply from April 2020.
Commenting on the Budget, Sue Bill, tax partner at the accountant, says: “There were no big surprises for the maritime sector in the UK Budget 2018, with the result that the UK tax regime continues to provide certainty and stability for the shipping and offshore maritime sectors.”
The Baltic Exchange’s next Shipping Economics & Investment course will take place on January 14 and 15 in London. More information can be found here.