On Wednesday 22 November, Philip Hammond delivered the UK’s first Autumn Budget for 21 years.
Constrained by high borrowings, falling growth forecasts, poor productivity, the uncertainty of Brexit and a very slim Government majority the Chancellor wasn’t in a position to announce too many radical changes.
They might not grab the headlines but there are changes small businesses need to be aware. Here, we’ve worked with HFM Tax to bring you a summary of the key points from the Autumn Budget 2017 likely to directly affect small business owners;
The UK Economy
Prospects for growth, especially for productivity have been downgraded.
The Office for Budget Responsibility has cut its growth forecast for this year to 1.5% from 2.0%. It has also reduced expected GDP growth for the next 4 years to an average of 1.4% from 1.8%.
Lower growth forecasts mean an increase in the amount of money the government will need to borrow to make up the shortfall.
Chancellor is providing an extra £3bn to prepare for Brexit over the next two years.
Personal Tax allowance
The personal allowances for 2018-19 is £11,850 (2017-18 £11,500). According to HMRC, this means that an average taxpayer will pay £1,075 less tax than in 2010-11.
Income Tax bands, rates and the dividend allowance
The Income Tax bands for 2018-19 have been increased. They are:
- Basic rate band increased to £34,500 (2017-18 £33,500)
- Higher rate band £34,501 to £150,000 (2017-18 £33,501 to £150,000)
- Additional rate, no change, applies to income of more than £150,000.
There is no change in Income Tax rates, and the tax rates applied to dividend income. Readers should note that the present £5,000 tax-free dividend allowance will, as previously announced, be reducing to £2,000 from April 2018.
The Scottish parliament sets the basic rate limit for Scotland meaning that higher rate taxpayers may pay more tax in 2018-19.
There is a small increase in this allowance to £1,185 from April 2018. This is the amount of unused personal tax allowance that can be transferred between spouses, or civil partners, if the person receiving the transfer is not a higher rate tax payer.
From 29 November 2017, the Government will also allow Marriage Allowance claims on behalf of deceased spouses and civil partners, and for the claim to be back dated four years in appropriate cases.
Corporation Tax changes
There is no change to the rate of Corporation Tax, which stays at 19%.
HMRC is to freeze indexation allowance on corporate capital gains for disposals after 1 January 2018.
R & D expenditure credit increase
From 1 January 2018, there will be an increase in the rate of the R&D tax credit from 11% to 12%, to support business investment in R&D.
Legislation has been revised to be more compatible with commercial arrangements for allocating shares of profit, and to avoid additional administrative burdens for taxpayers. The changes will have effect for the tax year 2018-19 and subsequent tax years.
VAT Registration Threshold
Despite rumblings of the possibility of the VAT registration threshold being cut, the Chancellor decided against doing so. The VAT threshold will be frozen at the current £85,000 for 2 years.
Business Rates changes
From April 2018, business rates will rise by any increase in the Consumer Price Index (CPI) rather than the Retail Prices Index (RPI). The change has been brought forward two years. Historically, the RPI has tended to be higher than the CPI.
Rates revaluations will now be undertaken every 3 years rather than the present 5 years. This will start after the next rates revaluation due during 2022.
Pubs with a rateable value up to £100,000 will continue to receive a £1,000 discount next year.
Venture Capital Schemes
Changes are to be made to the Enterprise Investments Scheme, the Seed EIS and Venture Capital Trusts. The aim is to target Venture Capital Schemes on companies where there is a real risk to the capital being invested, and will exclude companies and arrangements intended to provide ‘capital preservation’.
The limit on the amount an individual may invest under the EIS in a tax year will double to £2 million, from the current limit of £1 million, provided any amount over £1 million is invested in more knowledge-intensive companies.
The annual investment limit for knowledge-intensive companies receiving investments under the EIS and from VCTs will also double to £10 million from the current limit of £5 million. The lifetime limit will remains at £20 million.
National Living Wage (NLW) and National Minimum Wage (NMW) increases
From April 2018, the NLW will increase from the present £7.50 per hour to £7.83 per hour.
From the same date, the NMW rates will also increase to:
- £7.38 per hour for 21 – 24 year olds
- £5.90 per hour for 18 – 20 year olds
- £4.20 per hour for 16 and 17 year olds
- £3.70 per hour for apprentices
For 2018, the fuel duty will remain frozen, for the eighth consecutive year.
Diesel Vehicle Excise Duty (VED) change
From April 2018, the first year VED (car tax) rate for diesel cars that don’t meet the latest standards will go up by one band. The Chancellor emphasises this is cars only, and that the money will go to a new Clean Air Fund.
Diesel car supplement increase
The diesel car supplement is to be increased from 3% to 4% from 6 April 2018. This will increase the company car tax and car fuel benefit charge (for company cars provided with an element of private use).
This change will apply to all diesel cars registered on or after 1 January 1998 that do not meet the Real Driving Emissions (Step 2) standards.
More tax help on ByteStart
For more information and guidance to help you deal with the thorny subjects of tax and accounting, try some of our popular guides for small businesses;
Paying less tax
- 10 ways small business owners can pay less tax
- Corporation Tax – How to reduce your bill
- Capital Allowances – A review of the various schemes available for businesses to cut their tax bill
- ByteStart’s Guide to the main business taxes
- Common self-assessment tax mistakes and how to avoid them
- Sole Trader Tax – A Guide for the self employed