The Chancellor of the Exchequer, Phillip Hammond, announced the 2018 Autumn Budget this week, his last before the UK’s scheduled departure from the European Union on 29th March next year.
We have summarised the key tax announcements for small business owners.
This is the measure which will likely impact the most people: from 6th April 2019 the personal allowance will be increased to £12,500 and the higher rate threshold to £50,000. This had previously been pledged to increase from 2020/21 but was brought forward by a year in the budget announcement.
This increase will add £130 per annum to the take-home pay of a basic rate tax payer and £860 onto the take-home pay of those earning £50,000 or more.
As was widely rumoured, the chancellor announced the extension of the controversial off-payroll changes which have applied in the public sector since April 2017 to the private sector. This is, however, limited to large and medium organisations that engage contractors, and the roll-out has been extended to 2020 to give businesses time to prepare for the changes.
The changes do not affect the factors that determine IR35, but rather who it is that determines it. Where previously IR35 was effectively self-assessed, under the reformed rules the determination of IR35 is now shifted into the hands of the end client who will also be responsible for operating PAYE on the contractor.
As previously announced, the government will not abolish Class 2 National Insurance for the self-employed (currently fixed at £2.95 per week).
From April 2020 the government will restrict access to the Employment Allowance for employers with an employer National Insurance contributions (NICs) bill below £100,000 in the previous tax year. The EA provides businesses and charities with up to £3,000 off their employer NICs bill.
In spite of rumours of further tax increases on pensions for higher earners, the Chancellor used his speech to increase the lifetime allowance for pension savings in line with inflation (measured using the Consumer Price Index) for 2019-20 to £1,055,000.
The adult individual savings account (ISA) annual subscription limit for 2019-20 will remain unchanged at £20,000. The annual subscription limit for Junior ISAs for 2019-20 will increase in line with the consumer prices index to £4,368.
The rate of Corporation Tax will remain unchanged in 2019 at 19%, this rate remains scheduled to reduce to 17% from 2020.
The Annual Investment Allowance will increase from £200,000 to £1,000,000 between 1st January 2019 and 31st December 2020 to stimulate business investment. Additionally, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.
This will be offset by the reduction of the capital allowances special rate for qualifying plant and machinery assets, from 8% to 6%.
The VAT registration threshold will remain at it’s current level (£85,000) until April 2022. The government will revisit options to reform VAT once the terms of our exit from the European Union are finalised.
Capital Gains Tax
The Capital Gains annual exemption for individuals will increase from £11,700 to £12,000.
From 6 April 2019 the minimum period throughout which the qualifying conditions for entrepreneurs relief must be met will be extended from 12 months to 24 months.
In addition to the current requirements on share capital and voting rights, from 29 October 2018 shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company to claim entrepreneurs relief.
The government is cutting business rates by one-third for retail properties with a rateable value below £51,000, benefiting up to 90% of retail properties, for 2 years from April 2019.
Local high streets will benefit from £675 million to improve transport links, re-develop empty shops as homes and offices and restore and re-use old and historic properties.
National Living Wage
The National Living Wage will be increased from £7.83 per hour to £8.21 per hour from April, a pay rise of 4.9% for workers paid at this level.
To learn more on how the 2018 Budget affects you, contact a member of the Alchemy Accountancy team today.