Now that “Spreadsheet” Phil, the Chancellor of the Exchequer, has unveiled his latest and now Autumnal budget 2018 to the nation, we at Prestige Business Management wanted to break it down for you. The purpose of this guide is to help enlighten you to the twists, turns, and developments lurking in the 2018 Autumn Budget big red book.
This article will breakdown the budget by evaluating business taxation, personal taxation, property taxation along with indirect taxation developments. Furthermore, all and any information in this guide does not constitute financial advice. Please contact Prestige Business Management for a more bespoke breakdown of the Budget 2018 and the tax implications on both your business and your own personal tax affairs.
Business Tax & Relief
From a business tax perspective, the changes to payroll working (IR35), the annual investment allowance along with the continuation of entrepreneurial relief showcases the pro-business credentials of this Budget. However, the news that a new 2% digital sales tax will be levied on online businesses does pose some serious questions about tax implications. Let us find out more about the latest changes of business tax and relief from the Budget 2018.
Digital Services Tax
The Digital Services Tax (DST) will come into force by April 2020 with a 2% tax applied to the revenues of large e-tailer/online corporations. The move is a ‘nod’ to the woeful sums raised by the Exchequer from the likes of Facebook, Amazon and Apple – who make billions through sales revenues in the UK yet pay very little corporation tax. The new DST, whilst still needing some industry input and tweaks, will be aimed at businesses with more than £500m in global revenue. This is designed to help protect, and to give some support to struggling high streets and online minnows alike, whilst helping the government raise income from behemoth tech giants.
Intangible Fixed Assets
From April 2019, HMRC will allow relief to be applied to the intangible assets acquired when a business is purchased. This is a nod to the intangible ‘intellectual property’ vacuum that has given unfair advantages in terms of relief to companies with tangible assets over, predominantly tech companies, with more intangible assets. The move is designed to align Capital Gains on tangible sales with the same experience for intangible sales when companies ‘de-group’.
From April 2020, only businesses with employer National Insurance Contributions (NICs) below £100,00 will be ‘eligible’ for Employment Allowance, a relief that provides businesses and charities alike with up to £3,000 in relief.
From April 2019, HMRC have decided to extend the minimum period of relief from 12 to 24 months. The additional changes to the relief surround the shareholder entitlement to a minimum of 5% of the accessible profits along with the net assets in order to satisfy the minimum requirements in order to claim Entrepreneurs’ Relief.
Annual Investment Allowance
From January 1st, 2019 the Government have uprated the maximum amount a business can ‘write off’ on qualifying capital expenditure against the business’s qualifying taxable profits for that same financial period. The new qualifying investment has been increased from £200,000 to £1 million.
The Capital Allowance enhanced special rates for plant and machinery assets that qualify has been reduced, or will be from April 2019, from 8% in 2018/19 to 6%. This rate will impact on equipment, machinery and vehicle value and the deduction from your business profits once you deploy the new lower rate.
Corporate Capital Loss Restrictions
New loss restrictions on big companies have seen new rules on capital loss restriction standards. The Budget announced that from April 2020, the ‘brought-forward’ relief on capital losses will be capped at 50% on capital gains allowances greater than £5 million.
Personal Tax & Relief – What The Budget Announced
The biggest news announced by Mr Hammond on the personal tax front was the changes to IR35 “extension rules” and the implications on self-employed workers engaged with medium and large businesses. The increase in the Personal Allowance (PA) and the rise in the threshold to £12,500 from April 2019 was also announced
The Conservative Government, since 2010, has lavishly uprated the personal allowance threshold before which an individual will pay tax. The original goal of earning £1,000 a month before being taxed was George Osborne dream back in 2010. However, it has taken nearly a decade for this ‘dream’ to be realised. However, this year’s budget saw the Chancellor increase the personal allowance threshold beyond the £12,000 mark. The new PA threshold is now set at £12,500 from April 2019. The Chancellor has also stated that going forward the PAT will be increased annually in relation to the Consumer Price Index.
Higher Rate Threshold
The changes to the Personal Allowance have also similarly impacted the Higher Rate Threshold (HRT). The HRT will increase from £46,350 to £50,000. The move, The Chancellor argues, will help lift a million tax-payers out of the Higher Rate tax bracket helping more middle-income public servants and private sector workers keep more of their income. The bad news is that the uprating of the HR threshold is at the Chancellor’s discretion whereas the PA threshold will match the CPI on a year-by-year basis.
“Off-Payroll Working” Changes for Private Sector Self-Employed Workers
The Government has already ‘cracked down’ on public sector workers who claim to be self-employed who use Personal Service Companies to avoid tax that other employees pay in full. The move has impacted the Civil Service, the NHS and even the BBC. However, Chancellor Hammond has announced the roll-out of new limits on IR35 extension rules applied to medium and large private sector organisations from April 2020. The new rules mean that people who work for a single private company yet claim to be self-employed and use a ‘personal services company, will find their tax breaks coming to an end very soon.
Indirect Taxation – What The Budget Announced
The Chancellor, in relation to indirect taxation, was mindful of Brexit and upcoming Government income needs. Overall, the Chancellor erred on the side of caution with key duties and taxes. The VAT threshold will remain yet new guidance will come into play once Brexit is negotiated by 2022. Furthermore, key duties like fuel and sin purchases like beer and cider were frozen.
VAT Registration Threshold
The Chancellor announced that the current £85,000 VAT registration threshold will stay in place for a further two years – until April 2022. The Government, still in consultation with key stakeholders, wants to introduce a new VAT payment mechanism that “avoids the cliff edge”. The idea that a company could be hit if Brexit negotiations impact VAT rules and guidelines is at the very heart of this freeze.
Changes to Duties – What Did The Chancellor Announce?
Fuel Duty, the big one and the one with major industrial implications, was frozen for the ninth consecutive year-in-a-row. The Chancellor likes his annual right to state how much the Great British White Van driver has saved, thanks to the Conservatives, and to date that sum is £2,500. There was no real concern here as this was a Conservative Party manifesto promise.
Passenger Air Duty for short-haul flights were frozen by Mr Hammond for the eight-consecutive year. The duty on long-haul flights will be linked to inflation and will rise accordingly.
Beer and Cider Duty has been frozen from the next tax year. The duty on Spirits has similarly been frozen from the next financial year. However, Wine Duty is linked to RPI inflation and will increase accordingly. These changes now mean a pint of beer is 14p less and a bottle of whisky will be £1.54 less than the expected price based on the duty escalator. Tobacco, however, wasn’t spared the usual freeze measures afforded to other sin duties. Tobacco duty was increased by 2% above the rate of inflation (based on the RPI) effective from 6pm on the budget day until the end of this current sitting of Parliament.
Property Tax & Relief Changes – What The Budget Announced
The Chancellor announced a raft of measures in the budget that impacted on property for individuals and businesses alike. The Chancellor outlined changes to Stamp Duty for shared ownership homes, Help to Buy was extended until 2023, and lettings relief for shared occupancy was decreased to 9 months along with business rate changes.
Stamp Duty for Shared-Ownership Properties
The Chancellor announced that the Government would cut stamp duty for first-time buyers of ‘shared-ownership’ properties valued up to £500,000. The cut is retrospectively applied to anyone who has purchased a shared ownership home since the last budget. The cut will help people, especially in the South East of England and London looking to get on the housing ladder.
Help To Buy Extended For Two Years
The Government’s flagship scheme to help people ‘save-up’ for a deposit through innovative ISA savings schemes has been extended. The scheme was originally intended to end in 2021 but the Chancellor has extended the scheme until 2023. The building sector, who have profited from the scheme, applaud the extension. But some question the value of the scheme in helping people get their foot on the property ladder.
The Government plans to limit lettings relief in a further sign of continued pressure on the private rental sector. The Lettings Relief scheme is a tax-free scheme that allows a live-in landlord to share the occupancy in exchange for rent. The initial exemption period for the scheme was 18 months but Chancellor Hammond has reduced this to 9 months. Sector bodies argue this will further “punish” hard-working landlords.
Public Lavatory Tax Relief
Companies that have a business rate value of less than £51,000 will see their business rates cut by a third over the next two years, which has a net savings value of £8,000 for businesses if they make their lavatories available to public. The move could help High Street institutions – from Libraries to Public Houses – save money by helping to increase the flow, if you can forgive the pun, of potential customers into their premises.
Funding Commitments and other announcements
A Brexit coin, a new rail-card, investment in broadband, uprating of the Minimum Wage and more. Let’s find out what else Chancellor Hammond outlined in the 2018 Budget.
The National Minimum Wage
The National Minimum Wage (NMW) will increase from April 2019 from £7.83 for over 25-year-olds to £8.21. The Government’s so-called ‘Living Wage’ is still below the official Living Wage Foundation minimum wage of £9 outside of London.
The 26-30 Railcard
The Millennials’’ Railcard will be available for all – within the age group – from the end of 2018 and the Chancellor argues the move will help nearly 4.4 million millennials save a third on their rail fares. Thus, helping to improve the cost of living crisis for Millennial rail commuters in the UK.
The Brexit 50p Coin
This was widely reported with some distain in the popular presses. The “special” coin will ‘commemorate’ Britain’s exit from the European Union.
Plastic Manufacturing and Import Taxes
The Government is looking at new ways to tax plastic manufacturers and importers. The Government wants a minimum of 30% recycled plastic to be a mainstay within the sector. However, the move looks set to impact the wholesale supply end of the spectrum and we are not looking at a tax on Starbucks coffee cups or Wetherspoons straws.
£250 million for Broadband Investment
As the UK continues, in small geographic locales, to experience ‘Blackspots” whereby no data is available, and Wi-Fi is practically impossible to get from general providers. The Government wants to invest in new schemes to help remote parts of the UK access superfast broadband. The initiative will help the nearly 2% of the UK population with data / Wi-Fi signal issues.
No budget would be complete without the obligatory soundbite on tax evasion and avoidance. This latest budget was no exception.
Profit Fragmentation Changes
The Chancellor announced new legislation to prevent UK businesses from avoiding UK tax through complicated arrangements based on profits accrual and distribution to low-tax territories. The new announcement will see the taxable profits increase to the actual total profitable level thus negating the original low-tax benefit.
Mr Hammond also talked about insolvency and the monies collected on behalf of other taxpayers in the form of VAT, PAYE and income tax, employee NICSs and more and how they will, if legislation is forthcoming, get “preferential treatment” from the insolvency managers after April 2020 in order to prevent Directors and Limited Companies from undertaking tax avoidance or ‘phoenixism’ in order to promote fair tax liabilities and to reduce deliberate insolvency applications.
If you would like to find out more about how the 2018 Budget will affect you, your family and your business, why not call the team at Prestige Business Management today for professional financial advice. Call us on 0203 773 2927 for more information on the key developments of the 2018 Budget and the tax implications you may face.