Autumn Budget 2018
Posted on 5th November 2018 at 21:57
The Chancellor Philip Hammond presented his second Autumn Budget on Monday 29 October 2018.
Our summary focuses on the tax measures which may affect our contractors, small businesses and personal tax clients.
IR35 off-payroll working in the private sector
The changes to IR35 that came into effect in April 2017 for the public sector will be extended to the private sector and expected to be part of the draft Finance Bill to be published in Summer 2019. The rules will be given effect from 6 April 2020.
The Government believes that the current rules are not working effectively, alleging that only 10% of personal service companies (“PSCs”) that should be applying the rules are currently doing so.
To increase compliance with the existing IR35 rules in the private sector, responsibility for operating the off-payroll rules will be transferred from the individual to the organisation, agency or third party engaging the worker. Only medium and large organisations will be subject to this change. However, this will add further complexity to the application of the IR35, and we expect the government to provide a clarification prior to the new rules being introduced.
The government agreed that it is important to consider the administrative burden on businesses and their capacity to implement change. Therefore, having listened to feedback, the government has decided that for services provided to small businesses, the responsibility for determining employment status and paying the appropriate tax and NICs will remain with PSCs. Small Businesses as outlined in the Companies Act 2016 will not need to consider the employment status or deduct employment taxes from the fees of people they engage in this way.
The Government will look to improve the HMRC CEST tool used to determine the employment status of contractors prior to April 2020.
The government will publish a further detailed consultation on the full proposals next year.
The personal allowance is going to rise to £12,500 for the tax year 2019/20 and a higher-rate threshold of up to £50,000.
The basic-rate limit increases from £34,500 to £37,500 from 6 April 2019. Consequently, this will increase the higher-rate tax threshold from £46,350 to £50,000. This limit will remain in place for the 2020/21 tax year. From 2021 to 2022 onwards, the Personal Allowance and basic rate limit will be indexed with the Consumer Price Index (CPI).
The additional rate of tax of 45% remains at the same level and applied to income above £150,000.
Tax on Dividends
The dividend allowance will remain at £2,000 for 2019/2020. The rates for dividends received above the allowance remain unchanged and are as follow:
• 7.5% for basic rate taxpayers
• 32.5% for higher rate taxpayers
• 38.1% for additional rate taxpayers
The dividends within the personal allowance will not be taxable. It also needs to be noted that dividends within the allowance will count towards an individual’s basic or higher rate band.
Tax on savings income
No changes have been introduced to the savings allowance introduced from the 2016/17 tax year which are as follow:
• Basic rate earners can receive up to £1,000 in savings income is tax-free
• Higher rate earners can receive up to £500 in savings income is tax-free
• No allowance is due to additional rate taxpayers.
The starting rate band for savings will remain at £5,000 for the 2019/20 tax year.
National Living Wage (NLW)
The government will increase the NLW by 4.9% from £7.83 to £8.21 from April 2019.
National Insurance rates
The threshold at which employees begin to pay NI at 12% will rise, annually, from £8,424 to £8,632.
At the same time, the upper earnings limit, above which employees pay 2%, will rise annually from £46,350 to £50,000.
Therefore, higher rate tax payers’ saving from the increase in the personal allowance will see a reduction to the tax gained due to the extended threshold at which the 12 % NI is applied.
The employment allowance, providing relief of up to £3,000 per tax year from their employers’ national insurance contributions (NICs) bill, will be restricted to only those employers who had a NICs bill below £100,000 in the previous tax year.
Non-UK residents and immovable property
The previously announced measure will extend the scope of the UK’s taxation of gains to non-UK residents to include gains on disposals of interests in non-residential UK property.
Capital Gains Tax
Capital Gains Tax annual exempt amount is set to increase to £12,000 for the 2019/20 tax year (increased from £11,700).
Capital Gains Tax private residence relief
It is proposed that from April 2020 the government will make two changes to private residence relief:
• The final period exemption will be reduced from 18 months to 9 months. There will be no changes to the 36 months that are available to disabled persons or those in a care home
• Lettings Relief will be reformed so that it only applies in circumstances where the owner of the property is in ‘shared-occupancy’ with a tenant.
The main rate of corporation tax is currently 19% and will remain at this rate for next year. The rate will fall to 17% for the Financial Year beginning on 1 April 2020.
Class 2 and 4 National Insurance contributions (NICs)
The government has recently announced that Class 2 NICs will not be abolished for the duration of this Parliament. The Chancellor confirmed that there will be no increases to Class 4 NICs rates in this Parliament.
The annual investment allowance will be temporarily increased from £200,000 to £1m for a two-year period from 1 January 2019.
From April 2019, the rate of the writing-down allowance on the special rate pool of plant and machinery will reduce from 8% to 6%.
The VAT-registration threshold is to stay at £85,000 until April 2022.
- For the next two 2 years business rates will be reduced by a third for retail properties that a valued below £51,000.
- Qualifying conditions for entrepreneurs’ relief extended from 12 months to two years.
- Lettings relief limited to properties where the owner is in shared occupancy with the tenant.
- From April 2020, the Government will introduce a 2% tax on the revenues of certain digital businesses.
- The construction industry reverse charge – with effect from October 2019 the recipient of relevant construction services will be required to account for the VAT on the supply as a reverse charge.
- Inheritance tax - a residence nil-rate band (£150,000 for 2019/2020) now applies in addition to the nil-rate band £325,000.
For further information, call us on 0118 4492321 or email [email protected]
Tagged as: Autumn Budget 2018
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