Wednesday 13 March 2019 saw Chancellor Philip Hammond present his second Spring Statement. He used it to update the country on the economy, but also spoke about the forecasts from the Office for Budget Responsibility, and declared that consultations would be launched to improve the tax system. Hammond also provided the country with updates on earlier consultations.
Read on to determine how Chancellor Philip Hammond’s Spring Statement may affect you.
The chancellor announced changes to personal allowance, tax rates and bands for 2019/2020 in the UK.
The personal allowance of £11,850 for 2018/2019 is set to increase for 2019/2020 to £12,500. However, for individuals with “adjusted net income” over £100,000 their personal allowance will decrease by £1 for every £2 of income above £100,000.
So, if your adjusted net income is over £123,700 you will not be entitled to any personal allowance for the 2018/2019 period. For 2019/2020 the threshold increases to £125,000.
Using the marriage allowance it is possible for an individual to transfer 10% of their personal allowance to a spouse, or civil partner, if neither the individual, nor their spouse or civil partner, pays tax in excess of the basic rate. This was introduced in 2015/2016, and if you haven’t taken advantage of this already, you can still claim back the tax for the years going back to 2015/2016. Additionally, a recent change to the law means that you can also claim on behalf of a deceased spouse, or civil partner.
Tax Bands & Rates
For 2018/2019 the income band taxable at the basic tax rate of 20% is £46,350.
For 2019/2020 the income band taxable at the basic tax rate of 20% will be £37,500. This means that the 40% tax rate will apply to the £50,000 band.
45% tax will be applicable for incomes totalling over £150,000
In Scotland there are 5 different income tax rates ranging between 19% and 46%. When it comes to personal allowance, Scottish taxpayers enjoy the same rates as those elsewhere in the UK. However, instead of paying 40% and 45% as their higher tax rates, Scottish taxpayers pay 41% and 46%. The 41% rate applies to the income band of £43,430.
The tax paid by Welsh taxpayers remains in line with that paid by English and Northern Irish taxpayers.
Savings Income From Bank and Building Society Interest
Introduced in 2016/2017, the Savings Allowance depends on your marginal rate of income tax. Those taxed at the basic rate enjoy an allowance of £1,000. Higher rate taxpayers have an allowance of £500.
A 0% tax rate is applicable only to the initial £2,000 of dividends, known as the Dividend Allowance. Over £2,000 dividends are taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers.
It is important to note that dividends within the allowance continue to contribute to the tax band, and it is possible for them to impact the tax rate applicable. Dividends are the last type of income to be taxed.
Making Tax Digital for Business
The Making Tax Digital (MTD) continues to be phased in by HMRC. MTD will mean taxpayers will pay their tax via an entirely digital system. Those businesses with a turnover in excess of the £85,000 VAT threshold are required to keep digital records and submit VAT returns using software that is compatible with MTD.
This will be enforced from 1 April 2019 for taxpayers with a prescribed accounting period beginning on that date. If not, the change will be enforced from the first day of the prescribed accounting period after 1 April 2019. Some businesses with complex requirement will not have the new rules enforced until 1 October 2019.
It has been announced that penalties will be kept to the minimum during the first year that the system is introduced. Filing or record keeping penalties will not be imposed upon businesses that are clearly doing everything they can to comply.
There are no further changes planned for Corporation tax rates until 31 March 2021. Until then it is planned that the rate of corporation tax will remain at 19%, and will decrease to 17% for the Financial Year beginning 1 April 2020.
Intangible Fixed Assets
Brought into effect from 1 April 2002, the Intangible Fixed Assets regime changed how intangible fixed assets, such as goodwill, patents and copyrights, were treated by the UK corporation tax system. This regime manages the taxes on gains and losses for such assets.
However, from 1 April 2019 companies acquiring goodwill, on or after this date, will benefit from relief up to six times the value of intellectual property assets. Relief will be available at a fixed rate of 6.5%. The types of assets include:
● Registered designs
● Copyright and design rights
● Plant breeders’ rights
Existing tax rules will still apply to any goodwill acquired before 1 April 2019.
R&D Tax Relief for SMEs
A consultation will be published that focuses on how genuine businesses can be protected from changes that will be applied to combat the abuse of the payable credit system. From 1 April 2020 loss-making companies may only receive payable R&D tax credit up to three times the company’s total PAYE and NIC liabilities.
VAT Partial Exemption and Capital Goods Scheme
The government wants to ensure that the VAT Partial Exemption regime and the Capital Goods Scheme are as simple as possible for taxpayers. To achieve this the government will call for evidence on how the relevant processes can be improved.
Private Sector Work, Off-Payroll
IR35 changes were introduced from April 2017 for public sector workers and this will also take in the private sector from April 2020. A consultation has been put forth detailing the rules.
The changes to take place in 2020 will take as their starting point the off-payroll working rules in the public sector. The 2020 rules will only apply to medium and large businesses. Small businesses, defined by the Companies Act 2006, will remain unaffected. Small companies are defined as either having a turnover of £10.2 million or less, having £5.1 million on their balance sheet or less, or having 50 or fewer employees.
Cars from Employers
The maximum tax charge is limited to 37% for cars used by employees. There was a 2% general increase in the tax applied for each band in 2018/2019. This will increase by a further 3% for 2019/2020. The tax charge is worked out using the CO2 emission bands and the original list price of the vehicle.
Travel Expenses Exemptions
From April 2019, employers will no longer need to check receipts when reimbursing employees for subsistence, due to new legislation. From 6 April 2019 concessionary accommodation and subsistence overseas scale rates will be on a statutory basis. Employers will just need to confirm that their employees involved with qualifying travel.
Applying to employers whose annual paybill - total earnings upon which Class 1 employer NICs are calculated - is over £3 million, the Apprenticeship Levy is undergoing changes that will come into force from April 2019.
Employers paying the Levy may use the funds to meet apprenticeship training costs, benefitting from a 10% government top up. Employers can also opt for co-investment for apprenticeships, by paying 10% of the training costs and the government the remaining 90%.
With the 2018 Budget the government announced that the co-investment rate would be reduced to 5%. Meanwhile the amount that employers can take from the Levy would increase to 25%.
Capital Gains Tax (CGT) Rates
For those paying basic rate income tax, the rate of CGT is 10%, and 20% thereafter. 18% and 28% also apply, but mainly for gains on residential properties. Entrepreneurs’ Relief (ER) and Investors’ Relief are two types of disposal that quality for 10% rate, with a lifetime limit of £10 million per individual.
1. Entrepreneurs’ Relief, aimed at working directors and employees who own at least 5% of the company’s ordinary share capital. It is also aimed at owners of unincorporated businesses.
2. Investors’ Relief is mainly meant for outside investors in unquoted trading companies, with newly-subscribed shares.
CGT Annual Exemption
This is £11,700 for 2018/2019 and will be £12,000 for 2019/2020.
Entrepreneurs’ Relief (ER)
For disposals on or after 6 April 2019, the minimum period throughout which particular conditions must be met to qualify for ER will go up to two years. However, this is not for businesses that ceased before 29 October 2018. The existing one year qualifying period will continue to apply in the following cases:
● Claimant’s business ceased to be a trading company before 29 October 2018.
● Claimant’s personal company ceased to be a trading company before 29 October 2018.
Company Shareholders New 5% Rules
A company needs to be the “personal company” of an individual, in order to quality for ER. In order to qualify, an individual must:
● Be either an employee, or an office holder, at a company.
● Hold no less than 5% of the company’s ordinary share capital.
● Have the right to exercise at least 5% of the voting rights.
A person must also satisfy either of the following to qualify for disposale on, or after, 29 October 2018.
● The individual must be entitled to at least 5% of the company profits, and 5% of assets for distribution to equity holders for winding up.
● A proceeds test requiring an individual to be entitled to no less than 5% of the proceeds in the event of the disposal of the whole of the ordinary share capital of the company.
UK Property Gains for Non-Residents
From 6 April 2019 non-UK residents will be charged for gains on disposals of interests in any type of land. This will be regardless of whether it is a residential or non-residential property. This means that the CGT charge for Annual tax on Enveloped Dwellings is abolished.
Taxes can be imposed on all non-UK residents for indirect disposals of UK land. This will apply where an individual’s disposes of an entity where 75% or more of its gross asset value is from UK land. An exemption will exist for investors in entities holding no more than a 25% interest.
Corporation tax, rather than CGT, will be charged to all non-UK resident companies.
Inheritance Tax (IHT) Nil Rate Bands
The nil rate band of £325,000 is set to remain in force until at least April 2021.
IHT Residence Nil Rate Band
The Residence Nil Rate Band (RNRB) has been in force since 6 April 2017. It facilitated the passing on of family homes to direct descendants, upon death.
RHRB is still being phased in, rising from £125,000 in 2018/2019 to £150,000 in 2019/2020, and then £175,000 in 2020/2021. After that it is due to rise in line with the Consumer Price Index.
However, there exist a range of conditions that must be met to benefit from RNRB, including the possibility of having to redraft an existing will.
Downsizing, or ceasing to own a home on or after 8 July 2015, may mean that RNRB becomes available to a person, where the assets of an equivalent value, to the value of the RNRB, are passed to direct descendants, upon death.
Stamp Duty Land Tax (SDLT)
A consultation has been published by the government regarding the introduction of SDLT surcharges for non-UK residents. This surcharge will apply to residential properties purchased by non-UK residents and certain non-natural persons. It will mean that there will be a rate of 1% added on top of existing SDLT rates, applying to freehold and leasehold purchases. This will include the rates applicable to rentals of leasehold property.
At the moment there has not been a date applied for the surcharge to come into force.