Well there we have it, another ‘#Budget’ has come and gone! Here at our office in Waterlooville the whole team pause every Budget Day to listen to the Chancellor’s speech with bated breath.
In recent years these speeches have been somewhat painful for small businesses. This year, the chancellor brought a smile back to our faces as he announced several very positive measures!
Here is our summary on the key points that will affect business and personal tax (we’ve left out technical details not relevant to the majority).
Personal Allowances and Tax rates
(From April 2019)
The Personal Allowance (the amount you can earn tax free each year) is increasing to £12,500.
The basic rate limit (the point at which you pay the higher rates of tax) increased to £37,500.
This means you can earn up to £50,000 (combined with the Personal Allowance) before paying the higher rates.
This is a massive bonus for many of our clients. The saving if you earn £50,000 is in the region of £860-£960 when compared to this year.
This increase comes a year earlier than previously announced which is a welcome boost.
At the previous budget there was a lot of talk around the VAT ‘threshold’ (which is one of the highest in the world at £85,000). The Chancellor announced no changes to the thresholds until at least April 2022, once Brexit is agreed.
Off-payroll working & ‘IR35’ (If you are a limited company ‘contractor’ this is the bit you need to read)
If you are in the contracting industry, we are sure you are well aware of the devastating effect of ‘off payroll working’ rules, brought into effect in April 2017 for the public sector. These changes effectively forced limited company contractors into ‘umbrella’ companies.
A recent consultation looked into these being brought into the private sector. The Budget announced that these will come in from 2020, They will only apply to contractors working for medium or large companies (although what constitutes ‘medium or large’ has not be defined yet…).
This still appears (in our opinion) to be a pretty narrow view and ‘solution’ to the contracting issue in modern day working practices, but that is probably for another article!
The detail from HMRC is here:
National Living Wage
From April 2019 the National Living Wage (payable to those over 25) will increase from £7.83 an hour to £8.21. This is a £690 annual pay rise for a ‘full-time’ worker.
Employment Allowance (EA)
This relief currently gives a £3000 reduction to Employer’s NI liabilities, which is a fantastic support to smaller businesses. From April 2020 the government will restrict access to this for the larger employers (an employer National Insurance contributions (NICs) bill above £100,000 in their previous tax year).
From 6 April 2019, the flat-rate van benefit charge will increase to £3,430, the multiplier for the car fuel benefit charge will increase to £24,100, and the flat-rate van fuel benefit charge will increase to £655.
Simply put, if you are a limited company providing a company car, yet again you will have a higher personal tax/company NI bill.
A note on ‘Self Funded’ work-related training
There was a consultation to address the disparity between the rules for tax relief on training. In that, they were not generous with the employed or self employed when self funding. It appears there were no changes however, as it was deemed there was not enough evidence to suggest giving tax relief would help. There are a couple of schemes the government are looking to launch to help people looking to up-skill or retrain.
Good news for shops, pubs, restaurants and cafes with a ‘rateable value of under £51,000), as their Business Rates cut by ⅓ for two years from April 2019. This is fantastic news for many of our clients.
The Local newspaper discount will continue the £1,500 business rates discount for office space occupied by local newspapers in 2019-20.
Capital Gains Tax (CGT)
CGT Annual exempt amounts
Good news to start, from April 2019 the annual exempt amount increases to £12,000 for individuals and personal representatives and £6,000 for trustees of settlements. This is the amount ‘tax free’ on your gains before you pay capital gains tax.
CGT Private Residence Relief
The last few years have not been great on the landlord tax relief front, and this year has continued to squeeze some more, this time affecting landlords looking to cash in on their properties.
From April 2020, The government will reform ‘lettings relief’ so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. This is a relief where you may have owned a property as your primary residence and then have let it out at some point.
When you sell your property, the ‘final period exemption’ has been reduced from 18 months to 9 months. This is a very useful piece of tax law that allowed you to relieve the last 18 months of ownership against your taxable profits, now 9 months. For many circumstances this will increase the Capital Gains tax payable. No changes to the 36 months final period exemption available to disabled people or those in a care home.
CGT Entrepreneurs’ Relief
This is a fantastic relief that is used where you dispose (often ‘sell’) one your assets that fit the list of qualifying conditions. Its most often seen by our clients when they sell their company or shares in it.
From 29 Oct 2018 there are two changes the qualifying conditions for relief (technical tweaks).
From April 2019 the minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs Relief from one year to two years. This is quite an important change if you are looking to make a swift exit from a business.
A quick mention for Crypto as its been a pretty hot topic this year. It’s actually been fairly difficult for authorities and tax people to be 100% certain on how to tax Cryptoassets (such as Bitcoin).
HMRC are updating their guidance on this in 2019.
Research & Development Relief
This is a great relief for innovative companies that reduces their corporation tax bill. It has been abused by fraudsters, so HMRC are introducing a ‘cap’ on loss making businesses who effectively don’t employ a quantity of people (also then seems to affect those without a ‘real’ UK presence).
From April 2020 the amount of R & D relief that a loss making business may claim is to be capped at three times its PAYE and NICs liability for the year.
Capital allowances are tax reliefs for when you buy large equipment for your business. Examples such as machinery, vans, computers, etc.
Annual Investment Allowance (AIA)
Expenditure on all qualifying plant and machinery from 1 January 2019 until 31 December 2020 up to £1 million. You can now spend up to a £1 million and gain relief, up from £200,000. A welcome relief for businesses looking to invest in themselves.
Capital allowances special rate reduction
This is the rate you get relief on certain assets, such as higher emission cars. This change means less relief each year against your tax.
The special rate for qualifying plant and machinery assets has been reduced from 8% to 6%.
Pensions & ISAs
From April 2019:
- The pensions’ lifetime allowance for savings will increase in line with CPI to £1,055,000.
- The adult ISA annual subscription limit for 2019-20 will remain unchanged at £20,000.
- Annual subscription limit for Junior ISAs for 2019-20 has been updated in line with CPI to £4,368
- Annual subscription limit for Child Trust Funds increased in line with CPI to £4,368.
Tax Abuse and Insolvency
From April 2020, new rules will give HMRC priority over other unsecured creditors where a company goes into insolvency. Unpaid taxes to be collected from customers and employees such as VAT, PAYE, CIS deductions and Employee NIC.
HMRC are currently treated no differently than any other business that may be owed money, when a company goes into liquidation. The new rule means they will get preferential treatment during the process. This used to be the case years ago.
Royal Assent of Finance Bill 2019-20, new rules will also allow HMRC to make directors and other persons involved in tax avoidance, evasion or ‘phoenixism’ liable for company tax liabilities. This is to cover where there may be a risk that the company may deliberately enter insolvency.
These are all good anti abuse rules to target this area.
A note on ‘Digital Services Tax: large digital platforms’
This got the biggest laugh, as the Chancellor made a joke about expecting a call from recently appointed new Facebook employee, Nick Clegg.
From April 2020, ‘large social media platforms’, search engines & online marketplaces will pay a 2% tax on the revenues they earn which are linked to UK users.
That about wraps up the important highlights. If you have any further questions on the budget, or how you might be affected, contact us.