Well, possibly the biggest change presented by the recent budget was just that…the budget happened in the Autumn as well as the Spring! Wednesday saw the first Autumn Budget replacing the previous system in which the Budget was in the Spring with an Autumn update.

Aside from the above, notable changes included;

  • First time buyers will not have to pay Stamp Duty Land Tax on homes up to £300,000
  • Increases to the personal allowance and basic rate band
  • More tax relief for investment in certain Enterprise Investment companies
  • Improvements to Research and Development tax credit regimes
  • VAT limits frozen for two years
  • Support for businesses regards the effects of business rates revaluation and the ‘staircase tax’

Personal Tax

The Chancellor reminded us that the government are committed to increasing the personal allowance to £12,500 in 2020 and the higher rate tax threshold to £50,000. However, there is still a little way to go on this following announcements in the recent budget

2018/2019 tax bands and rates

  • Personal Allowance increased in line with inflation to £11,850
  • Basic Rate Threshold increased to £34,500 where the applicable rate is 20%
  • Higher Rate threshold increased to £46,350 where the applicable rate is 40%
  • Additional Rate remains at £150,000 where the applicable rate is 45%

2018/2019 tax bands and rates (dividends)

The Chancellor confirmed that the Dividend Allowance will reduce from £5,000 to £2,000 as of April 6th 2018.  Therefore, the first £2,000 of dividends will be charged to tax at 0% (the Dividend Allowance). Dividends received above this will be taxed at the following rates:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate taxpayers
  • 38.1% for additional rate taxpayers

The cost of the restriction in the allowance for basic rate taxpayers will be £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Individual Savings Accounts (ISAs)

The annual ISA investment limit increased to £20,000 from 6 April 2017 and remains at that level for 2018/19. Dividends on shares held within an ISA continue to be tax free.

The overall ISA limit was significantly increased from £15,240 to £20,000 for 2017/18. The increase in the investment limit was partly due to the introduction of the Lifetime ISA. There are therefore four types of ISAs for many adults from April 2017 – cash ISAs, stocks and shares ISAs, Innovative Finance ISAs (allowing investment into peer to peer loans and crowdfunding debentures) and the Lifetime ISA. Money can be placed into one of each kind of ISA each tax year.

For more information on this, please contact us to speak to our Financial Adviser

Changes to diesel company cars

Company car benefits are based on CO2 emissions data which has encouraged employees to choose diesel cars due to lower CO2 emissions. The government is trying to reduce the number of diesel cars and will increase the current 3% diesel supplement to 4% from 6 April 2018.

As previously announced, radical changes to the company car benefit rules are being introduced in 2020. The benefit in kind for electric cars and hybrid cars with a range of 130 miles or more on the electric motor is being reduced to just 2%. That means that the taxable benefit for such a car with a list price of £30,000 would be just £600 a year. Where the employer allows staff to charge their own electric car at work there will be no taxable benefit.

Enterprise Investment Scheme (EIS) tax relief increased for investment in tech businesses

The Government will double the amount that an individual may invest under the EIS in a tax year to £2 million from the current limit of £1 million, provided any amount over £1 million is invested in one or more knowledge-intensive companies.

The annual investment limit for knowledge-intensive companies receiving investments under the EIS and from Venture Capital Trust (VCTs) will be increased to £10 million from the current limit of £5 million. The lifetime limit raised by such companies will remain the same at £20 million.

Business Tax

Making Tax Digital for Business (MTD)

No changes announced, but, a little reminder of what is ahead…

In July 2017, the government announced significant changes to the timetable and scope of HMRC’s digital tax programme for businesses. VAT will be the first tax where taxpayers will keep digital records and report digitally to HMRC. The new rules will apply from April 2019 to all VAT registered businesses with turnover above the VAT threshold.

Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software such as Xero will be required. Software will not be available from HMRC.  In the long run, HMRC are still looking to a scenario where income tax updates are made quarterly and digitally, and this is really what the VAT provisions anticipate.

Corporate tax rates

Rates remain on the course previously set out:

  • 2017/2018           –              19%
  • 2018/2019           –              19%
  • 2019/2020           –              19%
  • 2020/2021           –              17%

National Insurance Contributions (NIC)

Although Class 2 National Insurance contributions (NIC) for the self-employed are being abolished from 6 April 2019 and “merged” with Class 4 contributions the Chancellor did not mention an increase in the current 9% Class 4 rate following previous lessons learnt and the statement that there will be no increases to NICs rates in this Parliament.

R&D tax relief increased

The rate of the R&D expenditure credit is being increased from 11% to 12%, in order to support business investment in R&D. This is the relief available to those companies that do not qualify for the more generous relief available to SMEs.

We can provide more information on R&D tax relief, please contact us

VAT registration limit frozen

The VAT registration limit normally increases in line with inflation each year, however the limit has been frozen at £85,000 until 1 April 2020. At the same time, the deregistration limit remains at £83,000.

Coincidentally freezing the threshold will bring more businesses within the scope of MTD.

IR35 Off-payroll working extension to the private sector

Although not mentioned in the Budget speech the other documents released on Budget day mention the possible extension of the rules for personal service companies in the public sector to workers in the private sector.

The government will consult in 2018 on how to tackle non-compliance with the intermediaries legislation (commonly known as IR35) in the private sector. The legislation which currently only applies in the public sector seeks to ensure that individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a company.

Capital gains indexation allowance

This measure changes the calculation of indexation allowance by companies so that for disposals of assets on or after 1 January 2018, indexation allowance will be calculated using the Retail Price Index factor for December 2017 irrespective of the date of disposal of the asset.

Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.

There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:

  • Entrepreneurs’ Relief (ER). Relevant to working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses.
  • Investors’ Relief. Beneficiaries of this relief are external investors in unquoted trading companies.

CGT annual exemption

The CGT annual exemption is £11,300 for 2017/18 and will be increased to £11,700 for 2018/19.

Other matters

New starter homeSDLT relief for first time buyers

In an attempt to help first-time buyers get on the property ladder and stimulate the housing market the chancellor announced that for property purchases completed on or after 22 November 2017 there would be no SDLT payable if the purchase price is below £300,000.

This will be a permanent measure rather than a temporary holiday. Those claiming the relief will pay no SDLT on the first £300,000 of the consideration and 5% on any remainder. No relief will be available where the total consideration is more than £500,000. It should be noted that were a property is bought in joint names it must be the first property owned by all purchasers.

Business Rates

The business rates revaluation took effect in England from April 2017 and resulted in significant changes to the amount of rates that businesses will pay. In light of the recent rise in inflation, the government will provide further support to businesses including:

  • Bringing forward the planned switch in indexation from RPI to CPI to 1 April 2018
  • Legislating retrospectively to address the so-called ‘staircase tax’. Affected businesses will be able to ask the Valuation Office Agency to recalculate valuations so that bills are based on previous practice backdated to April 2010.

Compliance and HMRC

The government is investing a further £155m in additional resources and new technology for HMRC. This investment is forecast to help bring in £2.3bn of additional tax revenues by allowing HMRC to:

  • Transform their approach to tackling the hidden economy through new technology
  • Further tackle those who are engaging in marketed tax avoidance schemes
  • Enhance efforts to tackle the enablers of tax fraud and hold intermediaries accountable for the services they provide using the Corporate Criminal Offence
  • Increase their ability to tackle non-compliance among mid-size businesses and wealthy individuals
  • Recover greater amounts of tax debt including through a new taskforce to specifically tackle tax debts more than nine months old.

I’m sure you appreciate that there is a lot of information to provide and whilst we have tried to be succinct in our update we recognise that there are elements we have not covered. Please contact us if you have any specific questions…

Thanks for reading…