Monday 29th October saw Chancellor Philip Hammond present the Autumn Budget. He promised that “austerity is coming to an end, but discipline will remain”, but he also promised an extra boost should the negotiations for Brexit yield good results. Hammond also said that there could be a full Spring Budget in 2019 if the negotiations don’t come off.
This overview will concentrate on the tax issues that are relevant to individuals, families and businesses. Don’t worry, this isn’t a dry look at the budget, we’ll walk you through the key elements in an easy to understand, jargon-free manner.
Specifically we’re focusing on the following tax proposals:
● Personal allowance and basic rate band increases
● Off-payroll working extensions for medium/large private sector organisations
● Annual Investment Allowance temporary increase
● 2-year freeze on the VAT registration threshold
● Entrepreneurs’ Relief and private residence relief amendments
● Plastic problem measures
There were also measures that had previously been announced, such as:
● Car benefit increases
● Making Tax Digital for Business
● Charge extensions on gains for non-UK residents of non-residential UK property
It’s worth bearing in mind that proposals found in the Budget may be amended when we get to the Spring Statement in 2019 and the Finance Act. If you have any queries, or concerns, contact us before making any changes after reading our overview.
You’ll be aware that the personal allowance is set at £11,850, for now. For 2019-2020 personal allowance will be raised to £12,500.
This will allow certain couples, where neither partner pays over basic rate tax, to transfer 10% of their personal allowance to their spouse or partner.
Currently the basic rate for tax stands are 20% and the band for this rate is £34,500. For taxpayers entitled to their full personal allowance, the band is £46,350. 45% is due in tax from additional rate taxpayers on incomes in excess of £150,000.
Residents in Scotland have a different experience to those elsewhere in the UK. For Scottish residents, income tax rates and bands apply to:
● employment income
● self-employed trade profits
● property income
In his 2018/2019 Scottish Budget, the Finance Secretary for Scotland laid out 5 different income tax rates that range between 19% and 46%. When it comes to the personal allowance, Scottish taxpayers have the same allowance as those in the UK.
2019/2020 Tax Bands
The 2019/2020 basic rate band will increase to £37,500 with the 40% band applying to incomes with the threshold of £50,000 for those entitled to the full personal allowance. 45% is the additional rate applicable to taxable income above £150,000.
The Welsh government will have the right, from April 2019, to vary the rates of income tax due from Welsh taxpayers.
In their Draft Budget of 12th December, 2018, the Scottish Government will announce the Scottish income tax rates and bands for 2019/2020.
Tax on Dividends
For 2018/2019 the first £2,000 of dividends are tax chargeable at 0%, known as the Dividend Allowance, and this will remain the case for 2019/2020. Above £2,000 the follow rates apply:
● 7.5% for basic rate taxpayers
● 32.5% for higher rate taxpayers
● 38.1% for additional rate taxpayers
Bear in mind that dividends within the allowance threshold will still go towards a shareholder’s basic, or higher, rate band. So, it’s normal that dividends are the last type of income to be taxed.
Savings Income Tax
The Savings Allowance applies to income such as bank or building society interest, and came into effect for the 2016/2017 tax year. Savings Allowance gives an allowance of £1,000 to taxpayers within the basic tax rate band. Additional rate taxpayers cannot benefit from any allowance. Some taxpayers can qualify for a 0% taxable starting rate on savings income up to £5,000.
Individuals can gain relief from income tax for up to £7,500 of income provided they let furnished accommodation in their main, or only, residence.
National Living Wage (NLW) and National Minimum Wage (NMW)
The government is to increase the NLW by 4.9%. This will mean an increase from £7.83 to £8.21 from April 2019. As a consequence the other NMW rates will also change from April 2019 as follows:
● 21 to 24 year olds by 4.3% from £7.38 to £7.70 per hour
● 18 to 20 year olds by 4.2% from £5.90 to £6.15 per hour
● 16 to 17 year olds by 3.6% from £4.20 to £4.35 per hour
● apprentices by 5.4% from £3.70 to £3.90 per hour
An increase of £1,000 will come into effect from April 2019 for the amount that households with children and disabled individuals can earn before their Universal Credit can be withdrawn.
VAT and Making Tax Digital for Business
Making Tax Digital (MTD) is a scheme that HMRC has been phasing in for some time. It will eventually mean that all taxpayers will switch over to submitting their tax information via a digital system. The various regulations have been determined with regards to VAT. Under the new rules coming into effect from 1 April 2019, businesses with a turnover above £85,000, the VAT threshold, must:
● Maintain digital records for VAT
● Use software compatible with MTD to submit VAT info
For businesses with more complex requirements the regulations will start from 1 October 2019.
A pilot scheme has been made available for businesses with relatively straightforward situations. The next few months will see this pilot scheme rolled out to other businesses.
Corporation Tax Rates
Corporation tax rates have been settled as follows until 31 March 2021:
● 19% is the current rate and will remain this way for the next year.
● From 1 April 2020, the rate will fall to 17%.
Class 2 and 4 National Insurance Contributions (NICs)
For the duration of this Parliament, Class 2 NICs will not be abolished and there are still no planned increases to Class 4 NICs.
UK Property Income of Non-UK Resident Companies
Corporation tax will be charged to Non-UK resident companies running a UK property business, or with income from some other UK property, instead of income tax which is the case at present.
Annual Investment Allowance
The Annual Investment Allowance will be increased for two years to £1 million for qualifying expenditures from 1st January 2019.
Capital Allowances are due to undergo a range of other changes, as follows:
1. There will be a reduction, from 8% to 6%, in the rate of writing down allowance for special rate pool of plant and machinery. This includes:
● long-life assets
● Thermal insulation
● Features and expenditures on cars with CO2 emissions of more than 110g/km
2. The costs of altering land, to instal qualifying plant or machinery, that qualify for capital allowances will be clarified.
3. There will be an extension, until 2023, of the 100% 1st year allowance for expenditure on electric charge-point equipment.
4. April 2020 will see the end of the 100% 1st year allowance and 1st year tax credits for Energy Technology List and Water Technology List products.
The Structures and Buildings Allowance will be introduced and will apply to new non-residential structures and buildings. This will offer relief at an annual rate of 2% on eligible construction costs incurred on or after 29 October 2018.
“Permanent Establishment” Changes
Corporation tax is liable to be applied to non-resident companies that have a permanent establishment in the UK. At the moment, having a property in the UK is not considered a permanent establishment if it is for preparatory, or auxiliary activities. January 1st, 2019, will see any exemption be denied for these activities if they are part of a “fragmented business operation”.
R&D Tax Relief for Small-Medium Enterprises
From April 2020 the amount that loss-making companies can receive in Research & Development (R&D) tax credits will be capped at three times its total PAYE and NICs. This is to curb the abuse of the the R&D SME tax relief.
Protecting Taxes in Insolvency
2020 will see HMRC prioritise more highly the recovery of taxes paid by employees and customers. This is to target funds distributed to financial institutions such as creditors. HMRC will remain below other creditors, such as the Redundancy Payment Service and there will be no change to the rules for taxes owed by the business.
Digital Services Tax
Reforming the international corporate tax framework for digital businesses is something that the government remains committed to. To this end the government has announced a Digital Services Tax (DST). Over a period of 4 years this will raise £1.5 billion and will apply from April 2020 by applying a 2% tax on revenues of businesses generating global revenues of at least £500 million. Such businesses include:
● Search engines
● Social media platforms
● Online marketplaces
It had been announced that the VAT registration and deregistration will be held at £85,000 and £83,000 respectively until April 2020. We now know that these we be held at this thresholds for another 2 years after April 2020.
A domestic VAT reverse charge will apply to reallocate responsibility for paying VAT for construction services. This will come into force from October 2019. The government hopes to give businesses enough time to adapt to this change.
Private Sector Off-Payroll Work
IR35 changes of April 2017 for the public sector will also come into effect for the private sector from April 2020. Off-payroll responsibilities will shift from the worker to the business, agency or third party receiving the worker’s services, but this will only affect medium and large organisations.
The Employment Allowance affords charities and businesses up to £3,000 off their NIC bill. This will be limited, from April 2020, to only employers whose NIC bill for the previous tax year was below £100,000.
Cars Provided by Employers
The maximum tax applied for an employer provided car is determined using CO2 emission bands in combination with the original list price of the vehicle, with a maximum of 37%. This year saw a general increase of 2% being applied for each band. A general increase of a further 3% is expected for 2019/2020.
Unless the car is registered on or after 1 September 2017 and meets Euro 6d emissions standard, all diesel cars will see the diesel supplement increase from 3% to 4% with the maximum remaining 37%. Hybrid cars are not eligible for the diesel supplement.
Capital Gains Tax Rates
Capital Gains Tax (CGT) is currently set at 10%, and 20% after any income tax basic rate band. Rates of 18% and 28% apply to certain gains. Two types of disposal may be eligible for a 10% rate: Entrepreneurs’ Relief and Investors’ Relief, both of which have a lifetime limit of £10 million per individual.
● Entrepreneurs’ Relief is meant for working directors and employees who own at least 5% of ordinary share capital at a company. It also applies to owners of unincorporated businesses.
● Investors’ Relief is aimed at external investors, in unquoted trading companies, with newly-subscribed shares.
CGT Annual Exemption
2019/2020 will see the CGT annual exemption rise from £11,700 for 2018/2019 to £12,000.
Entrepreneurs’ Relief (ER)
2 new tests will be launched on or after 29 October 2018 to define a “personal company”. This will necessitate the claimant having a 5% interest in both distributable profits and the company’s net assets. The new tests, with existing tests, must be satisfied throughout the applicable period for any relief to be due.
Minimum qualifying period
The Finance Bill 2018-19 will undergo legislation to increase the minimum period in which to assess conditions for ER. The government wants to increase the period from 1 year to 2 years and it will take effect for disposals on or after 6 April 2019.
Inheritance Tax (IHT)
Since April 2009 the nil threshold has been set at £325,000 and it is not due to be amended until April 2021.
The Residence Nil Rate Band (RNRB) has been in the process of being phased in since 2017. It is intended, after a death, to facilitate the passing on of the family home to the descendants. For 2018/2019 the band threshold is £125,000 and it is due to rise to £150,000 in 2019/2020 and £175,000 in 2020/2021. After that it is due to rise with the Consumer Price Index.
Stamp Duty Land Tax (SDLT)
First Time Buyers
First time buyers of qualifying shared ownership properties, who decline to pay SDLT on the market value of the entire property, will receive relief on the first share purchased on a shared ownership property with a market value of up to £500,000.
Higher Rates for Additional Dwellings (HRAD)
There will be an extension to the time allowed to claim back HRAD. Sellers selling their old home within three years of buying their new home will have more time to claim. This goes some way to clarifying the meaning of “major interest” in land for the purpose of HR