What does Budget 2018 mean for TMT businesses

The Budget contained much of interest for companies operating in the TMT sector. 

Below is a summary of the main points though, as ever, there are many points of detail that will need to be worked through as more materials become available in the forthcoming days and weeks.  

Digital Services Tax 

Perhaps the most eye-catching announcement in the whole Budget was targeted squarely at the TMT sector, with the Chancellor’s unveiling of a heavily trailed Digital Services Tax from April 2020.

The Chancellor was careful to point out that this will be a narrowly targeted regime aimed at only a handful of the very largest technology businesses (i.e. search engines, social media platforms and online marketplaces), and those targeted by this new regime presumably include many household names that people interact with daily.

There will be a consultation into the precise design of the regime, but from what has been announced so far, we understand that the Digital Services Tax will be levied at 2 per cent of revenues where businesses have turnover exceeding £500m from in scope services. 

There will be a £25m threshold, and safe harbours for both loss-making businesses and those with very low profit margins. 

However, it will be important to watch wider developments in this area. Whilst the UK has shown its willingness to be an early adopter of tax provisions, the Chancellor also indicated that the UK prefers to tackle the taxation of digital business in line with the international consensus. 

This means that developments in the international arena may still take precedence and, for example, the outcome of the meetings of the OECD in early 2019 should be carefully watched. 


Many TMT businesses are able to claim R&D credits for innovative activities, and where these result in a taxable loss arising a valuable cash refund is often available from HMRC. 

However, in the Budget the Chancellor announced that in these circumstances the amount of repayable credit will be limited to three times the company’s total PAYE and NIC liability.

The Budget announcements state that this measure is intended to tackle fraudulent activity that has taken place but acknowledge that the change may also reduce the value of legitimate claims in some cases.

It will be important for businesses that undertake R&D activities otherwise than through directly employed UK staff to review these provisions to establish their impact. For example, where R&D activity is undertaken by a company overseas, or through subcontract or externally provided worker arrangements it is possible that these provisions will be relevant.  

Intangible Fixed Assets

Following a consultation on the UK’s IFA code earlier in 2018 the Chancellor has stated that corporate tax relief for goodwill on acquisitions of trade and assets will be partially reinstated from April 2019.

There will be more details published on this shortly, but it seems that the UK is set to at least partly reverse a 2015 policy decision which has meant that in recent years corporate transactions structured as acquisitions of trade and assets (rather than shares) have been less attractive than in the past. 

There will also be a technical change made in relation the tax consequences of intra-group reorganisations prior to a disposal transaction which will correct a long-standing bear-trap in the UK tax code.

Any businesses that are considering M&A activities should consider these provisions closely in case they impact the optimal structure for planned acquisitions or disposals.    

Capital Allowances

The Budget announced a two year extension of the Annual Investment Allowance from £200k to £1m from the start of 2019 which should give welcome additional tax relief for businesses that are currently considering incurring significant capital expenditure on plant and machinery.

Also introduced was a new annual 2 per cent capital allowance deduction for qualifying expenditure on non-residential buildings called the Structures and Buildings Allowance (SBA). 

The SBA will plug a significant gap in the UK tax code that has existed following the abolition of Industrial Buildings Allowances a few years ago. Since this time the UK’s tax system has suffered in comparison to many overseas jurisdictions in allowing no tax relief for expenditure on buildings and this change should begin to address that concern.

However, the additional relief afforded by the introduction of the SBA will be somewhat offset by the reduction in the annual rate of tax relief for expenditure on long life assets from 8 per cent to 6 per cent from April 2019.

Personal Service Companies

Away from the world of corporate tax the Chancellor announced the expected extension of the IR35 legislation to the private sector, though it appears that small companies will be remain outside of the provisions.

This means that from April 2020 where TMT businesses contract with workers via their personal service companies they will have additional employment tax obligations to consider. 

Although this will undoubtedly increase the compliance obligation on business it will have been a relief to many that the introduction was delayed from April 2019, and this should mean that there is plenty of time to prepare for the change.

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Budget 2018

A Budget unlike anything we've seen before.

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