A few weeks ago, I expect many of you were trying to think of ways to avoid having to listen to Chancellor Phillip Hammond bleat on for a few hours in the House of Commons when he presented his budget for the 19/20 tax year. Sadly, given my role in the accountancy world I had to give up a few hours of my life to listen to him, hours which I will sadly never get back.
To save you all from having to go through the same purgatory, I have summarised the main issues that came out of his speech.
Going into Budget 2018, between leaks and political instability, few expected Chancellor Philip Hammond would have surprises left to spring.
How wrong we were.
Under pressure to support No 10’s ’end of austerity’ message, bolstered by revised growth forecasts from the Office of Budget Responsibility which meant he had a few extra quid in his coffers (and safe in the knowledge that it could all go out of the window in the event that of a no-deal Brexit or Mr Corbin moving into number 10), the Chancellor gave the most eventful Budget speech of recent years…..which isn’t saying much to be honest!
There were commitments to increased public spending on emotive issues such as schools, high streets and hospitals….he even mentioned a pot hole fund to repair Britain’s ever crumbling roads!
High Street shops were given a bit of much needed relief in a bid to tackle the “death of the High Street” in the form of a 2-year cut in business rates for some independent shops, cafes and pubs.
The Government is to reduce business rates by one-third for many retail properties with a rateable value below £51,000 for two years from April 2019, subject to state aid limits.
Mr Hammond even went after global tech giants in the form of a new UK digital services tax, albeit some people believe he didn’t go far enough of this.
Minimum wages are to increase, stamp duty relief for first-time buyers is extended, fuel duty remains frozen, as do duties on beer, cider and spirits.
There were also many specific technical changes in both business and personal tax, including the headline measure of an increase to the personal allowance and the higher-rate threshold from April 2019, in line with last year’s Conservative manifesto pledge, but delivered a year early.
It wasn’t all good news however. As was expected by many business commentators, controversial public sector IR35 reforms will be extended into the private sector. To see my previous blog on IR35 changes please refer to the blog called “what is IR35”. Small organisations will be exempt from this change to ease the administrative burden for the vast majority of engagers, while medium and large organisations will be given support and guidance by HMRC.
Business Tax main issues
- Companies can breathe a sigh of relief with the rate of Corporation Tax remaining at 19%, with an increase in the investment allowance from £200k to £1 million for a two-year period from 1st April 2019 in a bid to promote capital investment.
A draw back however is that 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 employment allowance, which provides many employers with 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.
- From 1 April 2020, the Government will restrict the proportion of annual capital gains that can be relieved by brought forward capital losses to 50%.
The announcement will include an allowance that gives companies unrestricted use of up to £5m capital or income losses each year.
- A package of reforms will be introduced to strengthen the roles of employers in the apprenticeship programme with one of the main announcements being to halve the co-investment rate for apprenticeship training paid by smaller firms from 10% to 5%.
- As previously announced in September 2018, after a Tory U-Turn, the Government will not abolish Class 2 NICs during this Parliament.
Personal Tax main issues
- The personal allowance increases from £11,850 to £12,500 from 6 April 2019. The allowance will also remain at this level for the 2020/21 tax year.
- 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.
- The starting rate band for savings will remain at £5,000 for the 2019/20 tax year.
- The adult ISA annual subscription limit remains at £20,000 for 2019/20. The junior ISA annual subscription limit and the child trust fund annual subscription limit both increase from £4,260 to £4,368 with effect from 6 April 2019.
- The limit of individual donations made under the gift aid small donations scheme has increased from £20 to £30. Under this scheme, donations are made in cash or by contactless payment.
The measure takes effect from 6 April 2019.
- The national living wage increases 4.9% from £7.83 an hour to £8.21 an hour from 6 April 2019.
- Due to recent legal challenges regarding the validity of voluntary tax returns, legislation is being introduced to ensure returns will be accepted as valid returns on a statutory basis.
Capital Gains Tax issues
The capital gains tax (CGT) annual exemption amount for individuals rises from £11,700 to £12,000 from 6 April 2019.
The Government has increased the minimum period to which certain conditions must be met in order for entrepreneurs’ relief (ER) to be available from one year to two years. This measure will take effect for disposals made on or after 6 April 2019.
The one-year qualifying period will continue to apply for business disposals made on or after 6 April 2019, provided that trade had ceased before 29 October 2018.
The Government also announced two new tests to the definition of a ‘personal company’ in relation to the qualifying criteria for ER to be available.
For disposals on or after 29 October 2018, all claimants must possess a 5% interest in both the distributable profits and the net assets of the company in order to be eligible to claim.
These tests must be met for the specified period for relief to be obtainable.
From April 2020, lettings relief will only be available in circumstances where the owner of the property is in shared occupancy with the tenant.
Stamp Duty – on additional homes
Rates of stamp duty land tax remain unchanged for residential properties in England and Northern Ireland.
A higher rate of SDLT is payable by individuals purchasing an additional property. This also applies to individuals who are purchasing a new home before having sold their old home.
Minor amendments were proposed to extend the time limit allowed for an individual to reclaim the additional stamp duty paid where an individual sells their old home within three years of purchasing the new one. The measure now allows a claim for repayment of SDLT by the later of:
- 12 months from selling the old home
- a year from the filing date for the SDLT return for the new home.
Stamp Duty – for first time buyers
The relief for first-time buyers will be extended to qualifying shared-ownership properties whether or not they elect to pay SDLT on the market value of the whole property when they purchase their first share.
The relief applies retrospectively from 22 November 2017, so a refund may be due for those who have paid SDLT after 22 November 2017.
Relief will be applied to the first share purchased where the market value of the shared-ownership property is £500,000 or less.
The VAT-registration threshold was frozen at £85,000 until 1 April 2020 in the last Budget, and the Chancellor extended that until 1 April 2022.
The way in which tax charges (or tax relief, as appropriate) are applied depends on individual circumstances and may be subject to future change.
The information in this report is based on our understanding of the Budget 2018, in respect of which specific implementation details may change when the final legislation and supporting documentation are published.
This document is solely for information purposes and nothing in it is intended to constitute advice or a recommendation. You should not make any investment decisions based on its content.
While considerable care has been taken to ensure the information contained in this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.