On Monday 29th October 2018, Philip Hammond, the Chancellor of the Exchequer, delivered his Budget Report 2018.

You may have seen the headlines in the papers and on the news but here are the details which are most likely to affect you.

Overview

This was a positive budget with the Chancellor announcing how an end to austerity is in sight.  There were significant commitments to spending on public services, as well as tax cuts for families and businesses.

Note the caveat however, where Mr Hammond reserves the right to turn the 2019 Spring Statement into a full Budget, depending on the Brexit deal agreed with the EU!

The highlights

  • IR35 in the private sector – a reprieve until April 2020 & smaller engagers will be exempt
  • Sole Traders : Class 2 NIC is NOT being abolished (currently £2.95 pw)
  • The personal allowance is increasing to £12,500 from 2019/20
  • The higher rate threshold is increasing to £50k from 2019/20
  • Dividend Allowance – no change, from April 2018 will remain at £2k
  • Insolvency – directors could now be held jointly liable for unpaid company tax liabilities.

Business Tax

  • Corporation tax will remain at 19% until April 2020 when it then drops to 17%.
  • Capital Allowances – the annual investment allowance is currently £200k, from 1st January 2019 this will increase to £1m for a two-year period.
  • The capital allowance special rate pool is being reduced from 8% to 6%, well known as the pool for assets such as electrical systems, cold water systems, heating etc.  but this also includes cars with Co2 emissions greater than 110g per km.
  • A new digital services tax is being introduced to target Google, Amazon, Facebook etc.  They will be charged 2% of their revenue (so hitting the top line instead of the bottom line).  It’s a temporary measure until a global tax agreement can be implemented.
  • IR35 in the private sector has been pushed back until April 2020.  Small organisations will be exempt, with the responsibility of assessment falling to the medium to large organisations engaging the PSCs.
  • The Employment Allowance remains at £3k but is being targeted so that only small businesses with Employer’s NIC bills under £100k will benefit.
  • Class 2 NIC is not being abolished, as previously announced.
  • Business rates are being cut by a third for small retailers.
  • Insolvency – directors could now be held jointly liable for unpaid company tax liabilities

Personal Tax

  • The Personal Allowance is increasing to £12,500 from 2019/20 (from £11,850)
  • The higher rate threshold is increasing to £50k from 2019/20 (from £46,350)
  • Dividend allowance remains at £2k, with dividend tax also remaining unchanged at 7.5%, 32.5% and 38.1% for basic, higher and additional rate tax payers.

Capital Gains

  • Entrepreneurs Relief has been tweaked so shares need to have been held for two years (instead of the previous 12-month minimum holding period).  Directors / employees are also required to have had at least 5% shares AND 5% of distributable profits and assets.  If the criteria is met then the tax payable on a gain remains at 10%.
  • Private residence relief – we could see the final period exemption reduced from 18 months to 9 months, this is subject to consultation.
  • Lettings relief has also been changed so that it only applies where the owner of the property is in shared occupancy with the tenant.
  • Capital Gains Tax annual exemption is increasing to £12k April 2019 (from £11,700).

VAT

The VAT registration threshold will remain at £85k for the next two years.

Beware!  if the threshold drops then it will DRAG huge numbers of businesses into Making Tax Digital, which comes in from April 2019!

Duties

  • There’s a new plastic packaging tax.
  • Alcohol duties are frozen for spirits, beers and cider, with increases from Feb 2019 for high strength cider and wine.
  • Tobacco duty will increase.
  • Fuel duty will be frozen.

In other news…

The Royal Mint will produce a coin to commemorate the UK leaving the European Union. This ‘Brexit’ coin will be available in Spring 2019.

Reference

For the full Budget Report 2018 visit https://www.gov.uk/government/publications/budget-2018-documents/budget-2018

Or to discuss how the Budget Report 2018 will impact you and your business give us a call on 01737 652 852.