Philip Hammond delivered his 3rd Budget as Chancellor on 29 October 2018. The Government have clearly decided to loosen the purse strings a little and the commitment to bring the Government finances back in to surplus has been delayed until at least 2025. Growth forecasts of 1.4 – 1.6% for each of the next 5 years are very low by historical standards and paint a very gloomy picture of the British economy.
As the Chancellor pointed out this Budget is predicated on the UK getting an average Trade Agreement with the EU. Therefore, should we get a worse than average deal or no-deal we can expect a further emergency Budget in Spring next year.
There was welcome news on the reduction of business rates to small retailers and an increase to Annual Investment Allowance, albeit temporary and the commitments to increase the personal allowance and point at which higher rate tax is paid personally.
There was bad news on the extension of the qualifying period for Entrepreneur’s Relief to two years from the current one year.
Our main ‘take-aways’ from the Budget are:
Personal taxes
The personal allowance (tax free amount) will increase from 6 April 2019 to £12,500 (from £11,850), with an increase of the basic rate band by £3,000 to £37,500; combined with the Personal allowance this means you can have £50,000 of income before starting to pay higher rate tax (40%). Please note that if you are a Scottish Taxpayer the Scottish Government control the rise in allowances and these will be announced in the Scottish Government’s Budget on 12 December 2018.
Do bear in mind that for earnings over £100,000 the personal allowance is lost by £1 for every £2 over so lost in full by the time your income hits £125,000.
The Capital Gains tax allowance has been increased to £12,000 from £11,700.
For those clients operating a low salary high dividend routine their salary income can increase to £719 per month (£8,628 per annum) from 6 April 2019, before attracting a National Insurance charge.
VAT
Despite suggestions to reduce the VAT turnover threshold the Chancellor has decided to maintain it at £85,000 until 31 March 2022 (usually it goes up by £1,000 or £2,000 per annum).
Reducing the threshold would bring more small and micro businesses into accounting for VAT.
For those clients registered for VAT they must be mindful of the changes to filing effective for periods after 1 April 2019 when the new Making Tax Digital for VAT system starts. If you are VAT registered and have not heard from us please get in touch so we can through this.
Corporation tax
The Chancellor did not mention any changes to his previously announced reduction of Corporation Tax form the existing 19% to 17% effective 1 April 2020. There had been speculation that this reduction may be reversed. Of course, the Chancellor could still change this at his next Budget.
Business Taxes
There was a welcome increase to the Annual Investment Allowance (AIA) to £1m per annum for two years form 1 April 2019. This is the allowance of capital items that get 100% tax relief in year of acquisition, usually for plant and equipment (it excludes cars and property held for investment purposes). For clients expanding or spending a lot on new equipment this will be welcome because the tax relief will be closely aligned with the expenditure.
That said on the downside the Chancellor did reduce the Special Rate pool writing down allowance to 6% from 8% on long term assets and cars with large Co2 emissions.
Contractors in the private sector will be pleased that the changes already made to public sector contracts that are under the IR35 regime will be delayed until April 2020. There was little detail on this measure in the Budget or the accompanying papers. We will update further when we have more detail.
Apprenticeships
The Government is desperately trying to up the skills of the British workers. Apprenticeships are available in all sorts of industries and, for small employers, the government will now contribute 95% of the costs of training (up from 90%). This is worth looking at if you have staff training for particular qualifications that help both you, as employer and the employee.
Property taxes
For the first Budget in many years there were no changes to any of the taxation elements applying to property investors.
If you have any questions based upon anything in the Budget please do not hesitate to contact us.