Autumn Budget 2018: Tax changes for businesses and individuals
The year’s budget coverage was sponsored by Garbutt + Elliott. Rob Durrant-Walker head of business tax at the firm, explores what is meant for businesses and individuals.
For businesses, the 2018 Autumn Budget was broadly positive, if somewhat disappointing in terms of a hard-hitting strategic vision, which was perhaps to be expected given the uncertainty of Brexit hanging in the air. Despite the lack of an overarching theme that has been seen in budgets of recent years, a variety of initiatives are still being brought out.
Rob Durrant Walker
With a background set against a lower than expected budget deficit of 1.2% of GDP (how much we borrowed this year), down from the 10% of GDP that we were borrowing a few years ago, the Chancellor Philip Hammond felt able to say that the national debt had peaked in 2016 and was currently falling, in essence, saying that he had some flexibility to open his wallet.
Hammond produced an interesting range of tax opportunities for a wide range of business. Increasing the Annual Investment Allowance from £200,000 to £1m a year will mean that the vast majority of businesses will be able to fully relieve their plant and machinery capital expenditure in the year of spend. This high increase will help all businesses but will have the most impact on small and medium sized businesses (SMEs) who can potentially offset all their investment in their first year. Ultimately this will help with continued reinvestment and long-term plans, helping to strengthen and maintain the future of business in the UK. It is however a temporary two-year increase.
There were tweaks to employer incentives and costs, such as halving of the Apprenticeship Levy cost for smaller firms from 10% to 5%, and the acknowledgement that the Employment Allowance incentive is not working for larger firms therefore in future it will be targeted only at smaller businesses.
The government has pledged £675m to help high streets transform, including reductions in business rates for those with a rateable value of £51,000 or less, effectively means a cut of 1/3. This could mean an annual saving of up to £8,000 for up to 90% of independent shops, pubs, restaurants and cafes.
Start-up loans funding will also be extended to 2021, a positive move in securing the continued development of UK enterprise. The Chancellor introduced a new targeted relief for the acquisition of businesses with valuable intellectual property with an aim to maintain knowledge in the UK.
Meanwhile, for entrepreneurs looking to sell their business – the good news is that the 10% rate of Capital Gains Tax is here to stay with Entrepreneurs’ Relief being retained. However, the minimum qualifying period will be extended from 12 months to 24 months. There were also a couple of amendments to the requirements in respect of the rights attached to shares sold.
Many independent contractors may find themselves in a different relationship with their engager. Changes to the “IR35” rules for the private sector target those using their own personal company to undertake their work through for the engager. The IR35 rules apply where there is a question mark over whether they are truly independent contractors, or are really employees in all but name. This clamp down on the tax status of individual contractors working for companies is perhaps the biggest new revenue raiser in the budget. HMRC will put the tax risk and potential cost back on the engaging party where they are a medium or large business. Smaller businesses who engage such contractors are left out of these changes, and so in those relationships, the contractor will still carry the risk in a tax dispute with HMRC.
A new Digital Services Tax will be introduced on UK revenues for tech giants (£500m global revenue or more) from April 2020. This will not harm tech start-ups and the tax will be rescinded if an appropriate global digital tax regime comes in.
Research and Development tax relief for companies continues as a key plank in the government’s aim to grow innovative businesses in the UK. However, there will be a new cap for loss making companies on the amount of credit refund that they can claim, with a link to their annual employee tax liability being brought in.
A final point to note is that the VAT-registration threshold will remain frozen at £85,000 until April 2022. For the most part the 2018 Budget for business was focussed on selective tax cuts for smaller and medium businesses, and a headline grabber against the global digital companies.
What does the Budget mean for individuals and their taxes?
The Chancellor, Philip Hammond, said the budget would pave the way for a “brighter future” for Britain and promised “the era of austerity is finally coming to an end”. But what does this mean to the individual?
Perhaps the biggest news to come out of the Budget was Chancellor Hammonds pledge to increase the Personal Tax Allowance to £12,500, a year earlier than pledged, from April 2019. The new threshold will effectively mean an increase of £130 a year for most workers. The higher rate threshold (the point at which someone becomes liable to pay the 40 percent tax rate), will increase from £46,350 to £50,000.
In terms of personal tax, people will enjoy a freeze on fuel duties, for the 9th year in a row, meaning the average car driver will have saved £1,000 a year and van drivers £2,500 a year had the rates kept in line with inflation. Meanwhile, moving from road to air, airline passenger duty will remain unchanged for short haul flights.
Drinkers raised a glass in thanks, with a freeze on the duty on beer, cider and spirits, the Chancellor’s offering to “patrons of the great British pub.” However, those who favour wine as their tipple did not fare so well with the tax charged on wine rising in line with inflation, from February 2019, adding 7p to a bottle of still wine and 9p to a bottle of sparkling wine. Smokers will see a further rise in the cost of tobacco, with a tax increase in line with inflation plus 2%.
At first glance, a reduction of pension tax reliefs for high earners hasn’t appeared, keeping contribution allowances at £40k per year and the Lifetime Allowance continuing to see an inflationary increase in April 2019. The annual ISA allowance of £20k has been frozen.
Those looking to get on the property ladder have been offered help. Most first-time buyers of shared ownership properties will now no longer pay stamp duty stamp duty. This means that individuals buying between 25% and 75% of a home and the rest owned by a housing association. It will apply to shared ownership homes up to the value of £500,000 and will also be backdated for people who have purchased an eligible property since last year’s Budget. The Chancellor also extended the Help to Buy scheme by a further two years.
However, other property owners did not come out of the budget so positively. There were hits to Private Residence Relief for some residential property owners selling their home, where they will have less time to sell after they have left the property and claim full exemption on the profit – this is reduced by half from 18 months to just 9 months of non-occupancy. In addition, those who let their previous home will have their access to “Lettings Relief” on the sale profit taken away unless they continue to live in the property with their tenants.
So, the two key takeaways are tax cuts for most and earlier than planned; and changes to the property sector – good news for some buyers, bad news for some landlords.
