As 2018 starts to wrap up, I thought now was a great time to provide updates on The Budget, looking at some of the changes being made to Tax Bands, Capital Gains Tax, Enterpreneurs Relief, VAT thresholds, and Employer’s National Insurance Contributions. Some of the changes won't affect your business, but it's worth being in the know about the changes just in case they may affect you.
In these turbulent political times, it is worth bearing in mind that these Budget changes are proposals and won't become law until the Finance Act is passed early in 2019
In the next issue of Tax Times, we'll be looking ahead to the year-end with some top-tips to getting your Tax Returns in on time.
Ian Vogan FCA CTA Director
The Chancellor's update to Tax Bands
The Chancellor brought forward the Conservative party’s manifesto promise to increase the personal allowance to £12,500. This will now come in from April 2019, meaning all individuals can earn up to £12,500 before they start to pay income tax. He also increased the level at which higher rate kicks in to £50,000. He did nothing however, with the level at which individuals start to lose their personal allowance. This remains at £100,000, when income exceeds this level individuals lose their personal allowance at the rate of £1 for every £2 over the limit, at an income of £125,000 the individual gets no personal allowance.
How about company vehicles?
From 6 April 2019 the flat-rate van benefit charge will increase to £3,430, and the flat-rate van fuel benefit charge will increase to £655. This means that a basic rate tax payer will pay an extra £20 in tax!
IR35 to be extended to the private sector - Good news not until 2020!
The IR35 off-payroll working rules which have already been introduced for the public sector are to be extended to the private sector the Chancellor has confirmed in the Budget, saying that the move was ‘essential to ensure fairness between individuals working side by side for the same employer’.
The rules will not apply to small businesses and so most of our clients will not have to worry about the status where they use a personal service company (PSC). But if the PSC is working for a large company the decision on status will be made by the end user and they may make a blanket decision to apply IR 35 to all contractors and start to deduct PAYE and National Insurance from payments made.
Capital gains tax when you sell your home
The Chancellor made two important changes that could increase the amount of tax that you have to pay when you sell your home (principal private residence). At the moment if you move out of your home it still counts for tax purposes as your principal private residence and is exempt from capital gains tax for 18 months. This period has now been reduced to 9 months.
In addition, where some individuals had difficulty selling the property they rented it out. There was a relief to reduce the gain where this had happened, the relief has been abolished.
Entepreneur's relief - thinking of selling your business?
This relief means that when an individual sells their business the capital gains tax payable may be only at the rate of 10%. The relief has been available for a number of years but here have been two changes announced in the budget. The shares (or other asset) must now have been owned for two years prior to sale (previously it was only one year) and the individual must hold 5% of the shares of the company and be entitled to a share of the distribution of the assets of the company if it is wound up.
The Annual Investment Allowance, on which capital expenditure qualifies for 100% allowances in the year of purchase, is increased from £200,000 to £1,000,000 for assets purchased between 1 January 2019 and 31 December 2020.
From April 2019 the "Special rate pool" allowance reduces from 8% to 6% per annum. Assets in this category include long life assets and cars with a CO2 emission level greater than 110g/km.
In a move to offer improved capital allowances on buildings there will be a new Structures & Buildings Allowance (SBA) for new non-residential buildings and structures. Relief will be provided on eligible construction costs incurred on or after 29 October 2018 at an annual rate of two percent on a straight-line basis once the property is brought into qualifying use.Expenditure on home offices which are an integral part of the home will not qualify for SBA.
VAT threshold - it's remaining at £85,000 until 2022
The real problem for many businesses isn’t the threshold but the way that it works. It is a “cliff edge” limit and there is no mitigation. Once the turnover exceeds the £85,000 limit the business has to register and account for VAT at 20% (assuming the sales are standard rate).
Many business owners decide to restrict the business so that the level isn’t breached and they do not have to register. For example - a small business owner may decide to only operate 4 days per week to avoid exceeding the £85,000 turnover limit.
The government is still consulting about reform, but may be able to introduce a more flexible approach when we are no longer part of the EU.
Do you qualify for the National Insurance Contribution relief?
The Employment Allowance (EA) means that employers do not have to pay over to HMRC the first £3,000 of employer’s national insurance contributions payable in a tax year. From April 2020 only employers with a National Insurance Contribution bill below £100,000 in the previous tax year will qualify for the relief. This is to target the relief at smaller businesses and will not affect many of our clients.
From 6 April 2019The Adult Cash ISA annual subscription limit for 2019-20 will remain unchanged at £20,000The annual subscription limit for a Junior Cash ISA will be upgraded to £4,368
The government’s Cryptoassets Taskforce has made its final report. Cryptocurrencies are not recognised as currencies. This means that for the immediate future any gains on selling cryptocurrencies will be taxed as a capital gain.
November 30th - Filing company accounts with 28th February year-end
December 20th - Final day for getting information to Vogan Accountancy for December payroll
January 1st - Corporation Tax is payable for companies with 31 March Year End 2nd - First day of business for 2019! 31st - Self Assessment returns must be submitted and January Tax instalments paid today too