I’ve spent the last few days studying the detailed Budget announcements and considering what the implications are for individuals and businesses that I advise. Budgets are, by their very nature, political and this one felt particularly so.
I’ll leave politics to the side though and focus on what the Budget means from a tax perspective for the Highlands & Islands economy and its people.
It was good to hear that on the back of the Inverness “city deal”, talks are due to start on a Moray “growth deal”. I would certainly welcome governments at all levels providing cash for local infrastructure needs and projects that will benefit us all. Governments over the years have used the tax incentive known as Capital Allowances to try and stimulate private sector investment.
Unexpectedly, there are going to be significant improvements to the Capital Allowances regime i.e. the Annual Investment Allowance will rise from £200,000 to £1m for two years and a new Structures & Buildings Allowance (SBA) is being introduced. Both of those measures will provide additional tax relief to those investing in commercial buildings and purchasing plant. Back in 2008, the UK government abolished Industrial and Agricultural Buildings Allowances.
This new SBA relief effectively replaces those old reliefs. This is good news and will help those constructing new commercial premises or improving or extending existing properties. It will aid the agricultural sector and hopefully give a boost to the local construction sector.
Looking at some of the other key local sectors;
There was a freeze on spirits duty which is welcome news for local distilleries. Scotland’s burgeoning craft ale industry also got a look in with a duty freeze on beer and a review of Small Brewers Relief. Oil and gas tax rates are to remain at their current level and help is to be provided to make Scotland a global hub for decommissioning.
The retail sector is having a tough time overall. The Chancellor announced reductions to business rates for small businesses but as business rates are devolved this does not affect us. We have the existing small business bonus scheme in place and the Barclay report recommendations being bedded in. So, we will need to wait and see whether next month’s Scottish Budget will bring any changes on that front.
For business owners contemplating their exit strategy, Entrepreneurs’ Relief was protected but the qualification period has been extended from 12 months to two years. This could create an issue for ongoing transactions, but overall it was a positive outcome considering the alternatives e.g. scrapping the relief altogether.
VAT is a big issue for both business owners and consumers. The main VAT rate will remain at 20%. There were rumours that the VAT registration threshold would reduce bringing thousands of small businesses into the VAT net. Thankfully this did not happen with the current registration threshold being fixed at £85,000 up to April 2020. This is excellent news for small businesses who already have a lot of red tape and uncertainty to deal with.
With personal income tax it was announced that the tax-free personal allowance will increase to £12,500 from next April and the higher rate threshold going up to £50,000 from the same point. This is where things get complicated as income tax is partially devolved with joint responsibility split between UK and Scottish governments. It won’t be until the Scottish budget on 12th December that we get a clearer picture of the income tax position for Scottish taxpayers for next tax year. Watch this space!