In his Budget Philip Hammond announced that the “era of austerity is finally coming to an end but discipline will remain”. It was a budget with no nasty surprises which is a relief. All we need now is a good Brexit deal! I have highlighted below some of the main headlines which will affect my clients. The Finance Bill will be published on 7 November 2018 we will provide further detail.
Annual Investment Allowance (AIA) – The amount of qualifying investment in plant and machinery made on or after 1 January 2019 until 31 December 2020 will go up from £200,000 to £1m.
Digital service tax – from 2020 a new 2% tax will apply to digital businesses with annual UK revenues above £25m. About time!
Employment allowance – From 2020 only employers with NIC bills below £100,000 in the previous tax year will be eligible for EA, which provides up to £3,000 of relief. This is good news and better targeted at smaller businesses instead of wasting money giving it to large corporations.
Entrepreneurs’ Relief – For disposals from 6 April 2019 the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months. In addition to the current requirements on share capital and voting rights, for disposals from 29 October 2018 shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company to claim the relief. This is a tightening up of ER.
Capital gains tax and private residence relief – from April 2020 the final period exemption will be reduced from 18 months to 9 months. Lettings relief will be limited to properties where the owner is in shared occupancy with the tenant. More detail is needed on this as it effectively seems to remove the relief in all but the most limited circumstances!
Business rates – Bills will be cut by one-third for retail properties with a rateable value below £51,000 for 2 years from April 2019 (until the next rate revaluation).
Personal Allowance (PA) and higher rate threshold – The PA and higher rate threshold will rise to £12,500 and £50,000 respectively from April 2019, one year earlier than planned. Both will remain at the same level in 2020-21 and then the PA will increase by Consumer Price Index (there is no corresponding commitment in relation to the higher rate threshold).
Off-payroll working in the private sector – In line with public-sector bodies and agencies, the IR35 extension rules will be applied in the private sector from April 2020. Responsibility for operating the charge will move from individuals to the organisation, agency or other third party engaging the worker, though small organisations will be exempt. It will apply to Large and medium-sized businesses who are generally defined as those with 50 employees or more and those with either turnover or assets of €10m or more. This needs to be confirmed. There will be a further consultation on coming months which is expected to be published in Summer 2019 and HMRC will provide support and guidance ahead of implementation. Yet more red tape!
VAT registration threshold – The current level of £85,000 will remain for a further two years until April 2022. The government will look again at the possibility of introducing a smoothing mechanism to avoid the ‘cliff-edge effect’ for small businesses once the terms of EU exit are clear.
Avoidance and evasion provisions
Insolvency – Taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE Income Tax, employee NICs, and Construction Industry Scheme deductions) will get preferential treatment on insolvency from 6 April 2020 (the rules will remain unchanged for taxes owed by businesses themselves, such as Corporation Tax and employer NICs). Further, directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.