On Monday 29 October, Philip Hammond delivered his second Autumn Budget. With stronger tax receipts driving better than expected Government borrowing figures, the Autumn 2018 Budget was more generous than most observers expected. So much so, that the Office for Budget Responsibility (OBR) calculates these spending promises to be the biggest Budget giveaway since the independent body was set up in 2010.
However, with the possibility of the UK leaving the EU without a trade deal hanging over the country, the Chancellor did say that he will consider a Spring 2019 Budget should there be a no-deal Brexit.
To help you quickly grasp the major changes, we’ve worked with HFM Tax to bring you a summary of the key points from the Autumn Budget 2018 likely to affect small business owners and self-employed people;
Personal Tax allowance
The personal Income Tax allowance for 2019-20 will be increased to £12,500 (2018-19 £11,850). It will remain at this increased level for two years.
Changes to personal tax allowances will apply to the whole of the UK.
Income Tax bands, rates and the dividend allowance
The Income Tax bands for 2019-20 have been increased. They are:
- Basic rate band increased to £37,500 (2018-19 £34,500)
- Higher rate band £37,501 to £150,000 (2018-19 £34,501 to £150,000)
- Additional rate, no change, applies to income of more than £150,000.
As a result, the higher rate threshold will increase to £50,000 from April 2019. There is no change in Income Tax rates, and the tax rates applied to dividend income.
Changes to these Income Tax bands apply to England, Wales and Northern Ireland. The Scottish parliament now set their own Income Tax bandings.
Corporation Tax changes
There is no change to the rate of Corporation Tax, which stays at 19% for the financial year beginning 1 April 2019.
Two significant changes to Entrepreneurs’ Relief were announced:
- Claimants must have a 5% interest in the distributable profits and the net assets of the company to qualify, and separately
- That the minimum period, during which certain conditions must be met to qualify for the relief, is being increased from one to two years.
The first measure will relate to all disposals made from 29 October 2018.
The second measure will have effect for disposals on, or after, 6 April 2019, unless a business ceased before 29 October 2018.
Employment Allowance reform
From 2020, the government is to legislate to restrict access to the £3,000 NIC Employment Allowance, to employers with employer NIC liabilities of under £100,000 in the previous tax year. Connected employers will have their contributions aggregated for this purpose.
Annual Investment Allowance increased
The Annual Investment Allowance (AIA) is to be increased from the present £200,000 to £1million from 1 January 2019 to 31 December 2020. It is then presumed that this will return to the £200,000 limit. This should provide a welcome boost to business investment during the Brexit transition period.
Please note that not all capital purchases qualify for this relief. Please call for clarification of what is covered if you are considering a significant acquisition.
R & D tax credit claims to be restricted
From 1 April 2020, the amount of payable tax credit that can be claimed under the R&D SME tax relief scheme will be limited to three times the company’s total PAYE and NIC payments for the period. Any loss that cannot be surrendered can be carried forward and used against future profits.
The government will consult with interested parties on this issue.
The changes recently made to IR35 arrangements in the public sector are to be rolled out to the private sector. The widening of the off-payroll working rules will take effect from April 2020 for medium and large organisations. Small firms will be exempt.
These changes could see thousands of contractors and consultants paying more in NI contributions and income tax.
Car and van fuel benefit charge increases
For 2019-20, these will increase by reference to the September 2018 Retail Prices Index.
Rates relief for High Street retailers
In a much anticipated announcement, smaller retailers in England, occupying shop premises with rateable values under £51,000, should benefit from a cut of one-third in their business rates bills for 2 years from April 2019.
They should also benefit from £675m to be spent on improvements by councils to help transform high streets, the redevelopment of empty shops as homes and offices and the repurposing of old and historic buildings.
In a humorous exchange, the Chancellor also announced 100% business rates relief for lavatories available for public use.
VAT Registration threshold – no change
The present VAT registration limit (£85,000) and deregistration limit (£83,000) will continue to apply for a further two years; until 31 March 2022.
VAT: Reverse charge process to be extended to construction services
This change, to extend the reverse charge process to the building and construction industry is due to come into effect from 1 October 2019.
This will place the onus for dealing with the VAT charge due on subcontractors’ bills to the main contractor.
This will cause accounting rather than cash flow issues for main contractors as they will add entries to their VAT returns to pay the subcontractors VAT, but then deduct the same amount as input VAT on the same return.
The aim is to stop subcontractors adding VAT to their bills and then disappearing without remitting the VAT to HMRC.
Company loss relief loop-holes to be closed
Most of the changes will apply from April 2019 and will prevent relief for carried forward losses being claimed in excess of that intended by legislation.
The changes will include:
- the definition of “relevant profit”,
- the computation of life assurance and annuity business profits,
- the deductions allowance in group situations,
- the calculation of terminal relief,
- the cap on profits against which certain losses may be allowed,
- and other minor considerations.
Tax relief for electric charge points to be extended
The present first year allowances available for the installation of electric charge points is to be extended for four years, until the end of the financial year 2022-23.
Reduction in tax writing down allowance
The special rate of writing down allowance is being reduced from 8% to 6% from April 2019.
Supposedly, this is intended to closer align tax depreciation with commercial depreciation rates.
Tax to be protected in insolvency
From 6 April 2020, the government will change the insolvency rules so that taxes collected on behalf of employees and customers, primarily employees PAYE and NIC and customers VAT, will be treated as a preferential creditor on winding up rather than distributed to other creditors.
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;
- 10 Ways small business owners can pay less tax
- Sole Trader Tax – A Guide for the self employed
- Thinking of going self-employed? The key finance & tax points you’ll need to get right
- ByteStart’s Guide to the main business taxes
- Common self-assessment tax mistakes and how to avoid them
- 15 Questions to ask when hiring an accountant for your small business
- Guide to Bookkeeping for new business owners
- Setting up accounts for a sole trader – A beginner’s guide
- How using ‘Simplified Expenses’ can save you time if you’re self employed
- Book-keeping basics every new business owner must know