Phillip Hammond delivered his third Budget as Chancellor, but what do the changes in the next mean for you and your business?
Here are some of the Budget announcements which will affect individuals and small business owners.
Increase in tax thresholds
The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April – a year earlier than planned.
The higher rate income tax threshold, the point at which people start paying tax at 40%, will also rise, from £46,350 to £50,000 in April.
After that, the two rates will rise in line with inflation.
This would mean an annual tax saving of £130 for basic rate taxpayers, £860 for higher rate taxpayers and £600 for additional rate taxpayers.
Increase in Annual Investment Allowance
The Annual Investment Allowance (AIA) is specifically for expenditure on plant and machinery with a few exceptions, the main one being cars. It’s a beneficial allowance of 100% of the expenditure incurred, with a limit for the period.
Budget announced that AIA limit will increase for two years from 1st January 2019 until 31st December 2020 from £200,000 to £1 million pounds.
If you need help with business tax planning, get in touch.
Reduction in business rates
The Business Rates for Shops, Pubs, Restaurants and Cafes will be cut by one third if their rateable value is below £51,000. It is estimated that will be up to 90% of all High Street retail properties.
This cut will be for 2 years from April 2019.
Clamp down on IR35
The chancellor announced that tighter tax rules for those working in the public sector will be extended to those working for private firms.
The rules, known as IR35, are designed to hit those deemed by HM Revenue and Customs (HMRC) to be employees. Among those affected will be IT contractors, engineers and consultants.
From April 2020, larger businesses – like banks – will take on responsibility for deciding which contractors will need to pay more tax and NI. However, the Treasury has insisted that the reforms would not affect anyone who was genuinely self-employed.
For IR35 to apply, you have to work through your own company for another business.
If the way you work is similar to an employee of that business, you should pay income tax, and National Insurance (NI) at the 12% rate. The tax will be calculated on your ‘deemed income’.
Changes to Entrepreneur’s Relief
Chancellor Philip Hammond has decided not to scrap Entrepreneurs Relief, but has made conditions for qualifying stricter.
Entrepreneurs Relief reduces the Capital Gains Tax (CGT) due to a rate of 10% on a maximum of £10 million of lifetime gains. It was designed to encourage those with a business mind to build businesses, retaining funds in the business to make them grow rather than stripping all of the profits from the business.
To ensure it is going to genuine entrepreneurs, the government will extend the minimum qualifying period from 12 months to two years, and shareholders who can claim this lower tax rate are restricted to those who have rights to a minimum of:
• 5% of the company’s distributable profits
• 5% of its assets available for distribution on a winding up
From 6 April 2019, you will need to have owned an asset for at least two years to qualify for entrepreneur’s relief. But there’s an immediate restriction from today.
Shareholders have to be entitled to at least 5 per cent of the net profits and distributable profits and net assets of a company to be able to claim a relief as well as five per cent of the ordinary share capital. This counters some tax “planning”.
If you would like to discuss your exit strategy from your business, get in touch with Michael.
Reduction in PPR and Letting Relief
Capital Gains Tax (CGT) is due when an asset is sold at a profit. When the asset is an owners only or main residence, any gain is exempt under Principle Private Residence Relief (PPR), meaning no gain is chargeable to CGT. For properties that are owned for a period and let for a period, CGT is due on the proportion of the profit or gain which relates to the period when the property was a let property, but it is not due on the period of time the property was the only or main residence.
The final period of ownership is always deemed to be part of the PPR calculation to allow for a period of time when the property might be empty, for example, whilst arranging for a sale. This period has been falling from its original 36 months, down to 18 months and Budget 2018 announced that from April 2020 the period will be further reduced to 9 months.
Letting Relief is used to reduce the gain chargeable when a property had been both an individual’s main residence and also a let property during the period of ownership. Budget 2018 announced that from April 2020 Lettings Relief will no longer be available except in the exceptional circumstances where the owner is in shared occupancy with a tenant.
Moving to Electric Vehicles for Business
In order to encourage the use of electric vehicles for businesses the Budget gives 100% allowances for the expenditure incurred by businesses on the installation of electric charge point equipment.
Meaning a business can set all of the cost of the qualifying expenditure against its profits for the year in which the expenditure is incurred and reduce its tax bill.
The Return of Allowances for Expenditure on Commercial Buildings.
A new Structures and Buildings Allowance (SBA) will be immediately available on the eligible construction costs of new commercial structures and buildings.
The allowance is intended to give tax relief over a period of time for the construction costs of buildings intended for commercial use, for the costs of improvement of existing structures and buildings including the cost of converting existing premises for use in a qualifying activity.
If the structure or building is of mixed use i.e. it has some residential element then the relief will be apportioned accordingly.
It is not available for work spaces within a domestic dwelling, for example a home office.
The relief will be limited to the original construction or renovation costs over a fixed period of 50 years at a rate of 2% per year. This will be granted regardless of changes of ownership.
The relief is available to businesses paying either corporation tax or income tax but because tax year end dates may not be the same as accounts year end dates it is important to discuss with us any purchase prior to completion. There may be an optimum purchase date to achieve maximum tax benefits.
As well as the above points mentioned, there are many other aspects to Budget. A summary of the key points at a glance can be read here
If you think some of the new changes will have an impact on you and your business, or you would like to discuss the Budget further, give us a call.