On Monday, the Chancellor, Philip Hammond, presented his Autumn Budget to Parliament. Whilst there’s a lot to decipher from his announcement, we’ve taken a concentrated look at the changes and predictions that are most likely to affect you and your business.
Targets Met for Higher Rate Threshold & Personal Tax Allowance
The higher rate tax threshold has been increased to £50,000, one year quicker than anticipated. So, those who earn up to £50,000 will only be obliged to pay 20% in income tax.
Personal tax allowance is set to rise to £12,500 from April 6 2019, up by £650, while taxpayers with annual incomes of £50,000 will see their income tax liability reduced by £860 each year, though employees’ NICs have risen in mitigation. These changes will remain in place up to 2020/21, before increasing annually in line with the CPI (Consumer Price Index).
However, for the country’s highest earners, £150,000 will remain the level at which a rate of 45% income tax applies.
The 2018 Autumn Budget sees a temporary increase in the Annual Investment Allowance, or AIA, with the limit increasing for a two year period from £200,000 to £1,000,000. The 2018/19 Finance Bill will introduce the legislation, which will increase the limit for two years from New Year’s Day 2019.
From the end of this month, businesses will also be able to deduct 2% off the cost of any new, non-residential buildings from their profits before paying any taxes.
Capital Gains Tax & Private Residence Relief
The Government will also be consulting on two proposed changes, which will have an effect on tax relief on private homes.
For the purposes of Private Residence Relief (which offers a reprieve from Capital Gains Tax on the sale of an individual’s main home), if an individual is selling a property which hasn’t been their main home for the entirety of their period of ownership, it is currently the last 18 months of ownership which is deemed the ‘period of qualifying occupation’. Following Monday’s Budget, the Government is proposing to halve this period for any property disposals after April 6 2020.
That means that those individuals purchasing a new home before selling their current property will need to sell their ‘old’ home within nine months, to avoid a potential charge under Capital Gains Tax.
VAT Registration Threshold extended to 2022
The threshold for VAT registration currently stands at £85,000, and the Chancellor announced on Monday that this will remain in place until March 31 2022. The initial freeze was set to end in 2020, allowing the Government ample time to consult on possible alternatives to the current threshold level, but Mr Hammond has put pay to any changes and extended the period by a further two years. The ‘deregistration threshold’ will also stay frozen at £83,000.
Reverse Charge for UK Construction Industry
From October 2019, a ‘domestic reverse charge’ will be introduced on the supply of certain construction services made in this country. The reverse charge will apply where the recipient makes an onward supply of the same construction services.
So, under the reforms, if you’re a VAT registered business which supplies construction services to another VAT registered business, you will be required to provide a VAT invoice to state that the services are subject to the new reverse charge. Then, through its own VAT return, the company receiving the services must account for the VAT on that supply, as opposed to paying the VAT directly to the supplier. The recipient may then recover said VAT amount as ‘input tax’.
Changes to Entrepreneurs’ Relief
Entrepreneurs’ Relief serves to reduce the rate of Capital Gains Tax on disposals of certain business assets, from 20% to 10%. Following this week’s Budget announcement, the Government has introduced two significant changes to how claims are made under Entrepreneurs’ Relief, including a longer holding period for shares and business assets held by individuals. These will need to be held for a minimum of two years – double the current term – before the individual can claim Entrepreneurs’ Relief on any disposals.
This amendment will only apply to disposals made on and/or beyond April 6 next year, though those people who have held their assets or shares for between one and two years at the date of disposal will not be eligible.
Off-Payroll Working in the Private Sector
Intermediaries Legislation, or IR35 as it’s more widely known, has been a contentious issue for the Government over the last few years. Following the somewhat tricky implementation in the public sector, calls have been growing for a comprehensive review of the impact the reforms have had before any legislative change is applied to the private sector.
It seems the Government has heeded this advice and, though they seemingly intend to push ahead with their plans for off-payroll reform in the private sector, any changes have been delayed until April 2020.
Amidst all the rhetoric of an ‘austerity-less’ Britain, here are a few other things that might be worth noting:
- Ahead of next week’s National Living Wage Week, it was revealed that the UK’s Living Wage will increase by more than 4%, from £7.83 to £8.21 as of April next year.
- From April 2019, larger businesses will be able to invest up to ¼ of their Apprenticeship Levy to support any apprentices within their supply chain.
- As of April 2020, larger digital firms such as search engines (e.g. Google), social media platforms (e.g. Facebook) and online marketplaces (e.g. Amazon), will have to pay an extra 2% tax on any revenue earned which is linked to users in the UK.
- Smaller retail businesses will see their business rates cut by a third for two years from April 2019, in order to try and support the flailing high street economy.