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November – Monthly Round up

The Budget: an end to austerity?

The 2018 Budget – delivered on a
Monday for the first time since 1962 – produced a number of
surprises, not least some high-profile ‘giveaways’.

Announcements in the Budget included:

  • A £650
    increase in the personal allowance to £12,500 for 2019/20, the
    level originally pencilled in for 2020/21.

  • A £3,650
    increase in the higher rate threshold to £50,000, again targeted
    for 2020/21.

  • A £25,000
    increase in the pension lifetime allowance to £1,055,000 from April

  • A one-third
    reduction in business rates on smaller retail premises, starting
    from next April.

  • An increase
    in the annual investment allowance (AIA), from £200,000 to
    £1,000,000, from January.

However, Mr Hammond’s generosity was
not all it appeared. For instance, the personal allowance and higher
rate threshold will both be frozen in 2020/21, while the business
rates reduction and higher AIA will only last for two years. The
Chancellor also kept many tax thresholds and allowances unchanged.

A good example of the impact of frozen
thresholds is the personal allowance that will continue to be tapered
from an income level of £100,000. This threshold has applied since
April 2010, and it creates high marginal rates for some taxpayers.
Combined with the increase in the personal allowance, for income
between the taper threshold of £100,000 and the starting point for
additional rate tax of £150,000:

  • the first
    £25,000 will be taxed at up to 60% (61.5% in Scotland); and

  • the next
    £25,000 will be taxed at 40% (41% in Scotland).

By far the largest element of spending
announced in the Budget was for the NHS. Investment is £7.35bn out
of a total £15.09bn in 2019/20, rising to £27.61bn out of a total
£30.56bn in 2023/24. With such large amounts to secure for the
health service, the Chancellor has limited scope to reduce personal
tax in the medium term.

If you would like to discuss the impact
of the Budget on your finances, please get in touch.

Tax laws are subject to change.

The Financial Conduct Authority does
not regulate tax advice.

Making Tax Digital deadline deferred for certain businesses

The Making Tax Digital (MTD) for VAT
deadline has been extended until October 2019 for certain businesses.
Around 3.5% of mandated customers are affected, including VAT
divisions and groups, trusts, unincorporated not-for-profit
organisations and traders based overseas.

The later deadline was announced in
response to concerns raised by businesses participating in the VAT
pilot scheme. This will give affected businesses with more complex
arrangements more time to prepare for their filing deadline.

The original deadline of 1 April 2019
still applies to most businesses with a taxable turnover above the
registration threshold. From next year any business filing under VAT
will need to provide quarterly VAT filings to HMRC and also record
transactions digitally as well.

The MTD system does not change any of
the filing requirements for VAT, so the same information will still
need to be supplied to HMRC. However, organisations will need to use
accounting software that allows them to file returns digitally. You
can use spreadsheet software but you will need ‘bridging software’
to submit records to HMRC.

The latest timetable for MTD is as
below. With many dates left to be confirmed, and deadlines moving as
close as six months before, it would be sensible to monitor
developments, and how they may affect your organisation.

Budget boost for business investment?

The 2018 Budget delivered
opportunities for businesses, intended to support and encourage them
to invest.

One of the key developments confirmed
by the Chancellor – but originally announced in previous Budgets –
is that corporation tax will fall to 17% from 2020. This new low rate
will make incorporation more attractive for smaller businesses and
reduce the tax burden for companies of all sizes.

Along with the cut in headline rate,
the Chancellor also announced some specific measures around business

Capital allowances

The annual investment allowance (AIA)
will increase from £200,000 to £1,000,000 for all qualifying
investments in plant and machinery. The increased allowance only
applies on investments between 1 January 2019 and 31 December 2020.

The AIA allows a company to deduct the
full value of an investment from profits before tax, and can be
claimed against items that you keep to use in your business,
including cars,
costs of demolishing plant and machinery, parts of a building
considered integral, known as ‘integral features’, some fixtures,
e.g. fitted kitchens or bathroom suites, and alterations to a
building to install other plant and machinery – although note this
doesn’t include repairs

Alongside this, a new structures and
buildings allowance has been introduced which has been set at 2% on
construction or conversion costs over 50 years, where all the
contracts for physical construction works were entered into from 29
October 2018.

It’s not all good news, however, as
the government has also reduced the special rate reduction from 8% to
6%, affecting qualifying plant and machinery assets.

If you are planning any investments for
your business, get in touch to discuss what tax-efficient options are
available to you.

Can the Chancellor save the high street?

Business rates will be cut by one
third for small retailers as part of the government’s drive to
revitalise the UK’s high streets, as announced in the 2018 Budget.

Most retail business with a rateable
value of less than £51,000 will see their business rates cut by 33%
for two years from April 2019. Whilst the relief is time-limited it
should affect around 90% of retail properties and provide some much
needed relief around the uncertain period during which the UK is due
to leave the EU.

Certain specific reliefs were also
announced, including a 100% business rate relief for public
lavatories – delivered with a barrage of associated puns from Mr
Hammond – and an extension of the £1,500 discount for local

The targeted relief for small
businesses was accompanied by a spending pledge from the Chancellor
of £675 million for a sustainable transformation of British high
streets. Some of this money will be spent on a High Streets Task
Force to support local leadership, and funding to strengthen
community assets, including the restoration of historic buildings on
high streets.

The ‘Amazon tax’

Mr Hammond made considerable use of his
announcement of a digital services tax – whether or not
international legislation will follow in suit – ahead of his
statement to parliament.

The details, which, emerged on the day,
are for a 2% tax on revenue derived from UK users for certain
business activities, such as search engines, social media platforms
and online marketplaces. The tax will also only apply to groups that
generate global revenues over £500 million a year.

The idea is to capture revenue
generated by large tech companies such as Google and Amazon, which
pay relatively little tax in the UK.

If you are running a retail business
and would like to discuss your rates, and other tax planning
opportunities, please get in touch.

Smaller firms benefit from Budget business detail

The details released after the 2018
Budget statement revealed a range of new restrictions for businesses.
However, they have been structured to reduce the impact on smaller

Off-payroll working and IR35

One measure announced was the expected
extension of the off-payroll working rules, known as IR35, to the
private sector. This has now been pushed to April 2020. The change
will place responsibility for taxation of off payroll workers with
the organisation offering the engagement.

This change has already been brought
into effect in the public sector, despite ongoing uncertainty about
how the rules should be applied – with even HMRC settling IR35
cases outside employment tribunals. The complex rules, uncertain
results from HMRC’s CEST employment status tool and large costs for
mistakes, may discourage some companies from using off-payroll

Fortunately, small organisations are to
be exempt, although exactly how the government will define a small
organisation in this context remains to be seen.

Restricting reliefs and allowances

Small organisations will escape a new
restriction from April 2020 as the government will withdraw the
employment allowance (EA) from employers with national insurance
contributions (NICs) bills of £100,000 or over. The EA allows
employers to claim up to £3,000 of class 1 NICs every year.

From April 2019 new restrictions will
also apply to entrepreneurs’ relief. The minimum period during
which qualifying conditions must be met will be extended from twelve
to twenty-four months. Also, from 29 October 2018, shareholders
claiming entrepreneurs’ relief must be entitled to at least 5% of
the distributable profits and net assets of a company, in addition to
the current requirements on share capital and voting rights. The
relief will still apply if a shareholding is diluted below 5% by
fund-raising events after April 2019.

The costs of employees

The national living wage will increase
4.9% from April 2019, with the national living wage (NLW) for
employees aged 25 and over will rise to £8.21.

Whilst salary costs will increase,
there is some good news for small employers with apprentices. The
co-investment rate for apprenticeship training will be cut from 10%
to 5% as part of a drive to encourage employers to take on young
staff for training.

The impact of these changes, which
aren’t headline material, could be significant. Please get in touch
if you would like to discuss how they affect you.