In his Budget speech in October, the Chancellor argued the UK has turned a corner and that ‘austerity is coming to an end’. He made it clear that the Budget put the Government on a path to a full spending review next year.
The Chancellor acknowledged the Brexit negotiations were at a crucial point arguing that a successful deal would be a boost to the economy, ending a prolonged period of uncertainty and allowing the Government to use the fiscal headroom they have held back. However, he also made clear, that in the event of a ‘no deal’ exit from the EU, he would consider fiscal action which may result in upgrading the Spring Statement to a full Budget. A case of watch this space, given the politics and uncertainty inherent in the Brexit negotiations.
Set out below are the key points announced in the Budget, which may be of interest to SMEs and individuals.
Personal taxes
Tax rates and allowances
From April 2019, the personal allowance will rise to £12,500 (currently £11,850), one year earlier than planned, and the higher rate threshold will be £50,000 (currently £46,350). These thresholds will be frozen for 2020/21 and will increase in line with inflation (CPI) in later years.
There are no changes to personal income tax and NI rates for 2019/20.
These rates and thresholds will apply to all types of income of taxpayers in England and Northern Ireland. If you are a Scottish or Welsh taxpayer, the Scottish Parliament and Welsh Government will set income tax rates and thresholds for non-savings and non-dividend income, so check the details if relevant.
The capital gains tax annual exemption for individuals will rise to £12,000 for 2019/20 (currently £11,700). There are no changes to capital gains tax rates for 2019/20.
The tax-free ISA savings threshold stays at £20,000 for 2019/20. The annual limits for Junior ISAs and Child Trust Funds will increase in line with inflation to £4,368.
The pensions lifetime allowance will increase to £1,055,000 (currently £1,030,000). There are no changes to the normal pension annual allowance limit of £40,000.
Entreprenuers’ relief (ER)
There were two significant announcements in respect of capital gains tax ER:
- The minimum qualifying period during which the qualifying conditions for ER must be met will increase from the current 12 months to 24 months (from April 2019).
- For a person to qualify for ER on disposal of company shares, the company must be the individual’s ‘personal company’. For disposals after 29 October 2018, an individual must have a 5% interest in both profits and net assets of the company, in addition to the current requirement to be entitled to at least 5% of the ordinary shares and voting rights.
Private residence relief
The Government announced that, from April 2020, changes will be introduced to restrict the availability of capital gains tax private residence relief for individuals who do not occupy their main home for the entire period of ownership.
This is subject to consultation, but the Government proposes:
- To reduce the ‘final period exemption’ from 18 months to 9 months. This period was 36 months until April 2014.
- A change to lettings relief, such that gains will only qualify for relief where the owner of the property is in shared-occupancy with the tenant. Currently up to a maximum of £40,000 of gain can qualify for lettings relief, where the property has also been used as a main home.
Trusts
In the 2017 Budget, the Government stated that it planned to consult on the taxation of trusts. The 2018 Budget confirmed that this is something we should continue to watch out for. The stated goal is to make the taxation of trusts simpler and fairer.
Our thoughts:
The decision to bring forward the increases in the level of income tax allowance and the higher band by one year is welcome.
There was some concern expressed that the Chancellor might abolish entreprenuers’ relief. The relatively minor changes to ER will therefore be good news. The additional ER requirement for a 5% interest in profits and net assets may affect shareholders in companies with more than one class of shares.
The proposed changes to private residence relief may negatively impact people who find it hard to sell their main home and must move for work or personal reasons. These changes follow several other changes in recent years which may reduce the benefits of investing in property.
Business taxes
Corporation tax rate
No changes were announced to the current corporation tax rate of 19%, nor to the planned reduction to 17% from April 2020.
Capital allowances
Annual Investment Allowance (AIA). The 100% AIA has been temporarily increased from £200,000 to £1.0 million for qualifying capital expenditure in the 2 years between 1 January 2019 and 31 December 2010.
A new structures and buildings capital allowance (SBA). This applies to new non-residential (i.e. commercial) buildings and structures (excluding land). The SBA applies to contracts for construction works entered into on or after 29 October 2018. Relief is given at 2% per annum (straight-line basis) on the original cost of construction or renovation and can be claimed from the date the building is brought into use.
Special rate pool annual writing down allowance. The annual writing down allowance rate for integral features and long-life assets will fall from 8% to 6% per annum (reducing balance basis) from April 2019.
100% enhanced capital allowances. From 31 March 2020 (for companies) and 5 April 2020 (for unincorporated businesses), the scheme which currently gives a 100% first year allowance for certain energy-saving or environmentally beneficial plant and machinery is to be scrapped.
Electric charge-points. The 100% first-year allowance for expenditure on such points will be extended for a further 4 years until 31 March 2023 (corporation tax) and 5 April 2023 (income tax).
The taxation of intangible assets
There are proposals to partially re-instate tax relief for goodwill arising on the acquisition of a business with eligible intellectual property, from April 2019.
R&D tax relief for loss-making SMEs
The Government will consult on the reintroduction of a PAYE Cap on R&D relief for loss-making SMEs for accounting periods starting on or after 1 April 2020. This will restrict the payable R&D tax credit to the lesser of 14.5% of the surrenderable loss and three times the company’s total PAYE and NIC liabilities for the period.
Our thoughts:
The changes to capital allowances are significant. Businesses with major capital spend programmes planned for the next few years should consider accelerating their investment to benefit from the increased AIA.
The scrapping of the 100% enhanced capital allowances and the decrease in the special rate pool annual writing down allowance are unwelcome.
We will keep an eye out for further announcements flowing from the consultation on the R&D tax relief for loss-making SMEs and the PAYE/NI cap on the tax credit payable. Likewise, the consultation into changes to the corporate intangible fixed asset regime, in particular tax relief for goodwill on acquisitions.
Employment taxes
NI rates and allowances
The Budget left the rates of NI unchanged.
Access to the annual £3,000 employment allowance will be restricted, to focus support on smaller businesses. From April 2020, the allowance will only be available to employers with an annual NI liability below £100,000 in the previous tax year.
Off-payroll working in the private sector (IR35)
The rules for the taxation of contractors engaged via intermediaries, introduced in the public sector, are to be extended to the private sector from 6 April 2020. The change applies to large and medium-sized businesses only; for small businesses, the existing IR35 rules will apply.
HMRC will consult in 2019 on the detailed operation of the changes.
NI treatment of termination payments
The introduction of employer NI on termination payments over £30,000, planned for April 2019, appears to have been delayed until April 2020. This is the second time this change has been delayed.
Changes to the apprenticeship funding system
Employers paying the Apprenticeship Levy can transfer up to 25% of their levy funds (formerly 10%) to their supply chain. This applies to employers with an annual UK pay-bill more than £3.0 million.
Non-apprenticeship levy employers can share the cost of training their apprentices with the Government. This is known as ‘co-investment’. The employer co-investment contribution rate is being halved from 10% to 5%, with the Government paying the balance of 95% (subject to limits).
Increases in the national minimum/living wage
The Government has accepted the Low Pay Commission’s recommendations that, from April 2019, the hourly rates should increase as follows:
- For those aged 25 and over, from £7.83 to £8.21 (the national living wage);
- For 21 to 24 year olds, from £7.38 to £7.70;
- For 18 to 20 year olds, from £5.90 to £6.15;
- For 16 to 17 year olds, from £4.20 to £4.35; and
- For apprentices, from £3.70 to £3.90.
Van benefit in kind charge and fuel benefit charges for cars and vans (changes from 6 April 2019)
The taxable benefit, where a van is made available to an employee for private use, will increase to £3,430 (currently £3,350).
The van fuel benefit charge will increase from £633 to £655.
The multiplier for the car fuel benefit will increase from £23,400 to £24,100.
Our thoughts:
Contractors to the private sector and large/medium-sized employers who use them should monitor the results of the HMRC consultation in the coming months, to fully understand how this will operate in practice.
Businesses who offer or are planning to offer apprenticeships should review their training provision and consider whether they are making the most out of the Apprenticeship Levy or the cost-sharing arrangements afforded by Government (non-levy employers).
The apparent delay in the introduction of NI on the payment of termination payments over £30,000 was unexpected, but welcome.
Property taxes
UK property income of non-UK resident corporate landlords
From 6 April 2020, non-UK resident companies that carry on a UK property rental business, or have other UK property income, will be subject to corporation tax.
Stamp duty surcharge on non-UK resident buyers of UK homes
The Government is to consult on the potential introduction of a stamp duty surcharge of 1% on non-UK residents buying residential property in England and Northern Ireland.
Extension of stamp duty first-time buyers’ relief
The existing stamp duty exemption for first-time buyers will be extended to shared ownership purchases in England and Northern Ireland. The relief will not apply to purchases over £500,000. This change will apply retrospectively to purchases with effective dates on or after 22 November 2017.
The relief must be claimed in a Stamp Duty Land Tax return or by an amendment to a return already filed. The amendment window for purchases completed prior to 29 October 2018 is 28 October 2019.
Business rates
Several measures were announced to support the High Street. These included cutting business rates by one third, for 2 years from April 2019, for occupied retail premises with a rateable value below £51,000.
VAT and other taxes
VAT thresholds
The VAT registration and de-registration thresholds remain unchanged at £85,000 and £83,000 respectively.
VAT treatment of vouchers from 1 January 2019
There was confirmation that the new EU rules on the VAT treatment of vouchers will apply from 1 January 2019.
New plastics tax from April 2022
There will be a new tax on the production and importation of plastic packaging from April 2022. This is subject to consultation, but the new tax will be levied on packaging which does not contain at least 30% of recycled plastic.
Duties and levies
There were the usual changes to several other taxes and levies, including the Climate Change Levy, Aggregates Levy, Landfill tax and Fuel Duty. The latter has been frozen again.
If you need more information on any the tax issues noted above or any other advice, please do get in touch for a no-obligation, free discussion. We’d love to help – see our Contact Us page for how to reach us.