Today the Chancellor of the Exchequer, Phillip Hammond, delivered the 2018 Budget in a manner typical of a Party that is concerned about the results of an election which may not be too far around the corner. With Brexit looming large, Mr Hammond seemed keen to deliver a Budget that had something for everyone, especially those swing voters. Recent improvements in independent forecasts for UK economic growth has allowed the Chancellor to turn on the taps a little with the announcement that “austerity is over”. But what does the Budget mean for the clients of Blow Abbott who typically tend to be small business owners working across a range of sectors?
The Annual Investment Allowance has been a political football for the last few years. We thought this Capital Allowance, which had recently been set in statute at £200,000 per year, would remain at this level for some time, but it has in fact been temporarily increased to £1M for 2 years. What does this mean for small business? Qualifying expenditure on things like plant, machinery, fixtures and fittings can be deducted from taxable profit for the year up to £1M before the balance (should you be spending that much!) tips over into the pool where it is likely to attract tax relief at 18% on a reducing balance basis. The Chancellor aims to keep businesses investing in their future by giving them a tax incentive to buy capital instead of paying tax. Operating in the same way, Mr Hammond also announced that businesses building new non-residential property will be able to deduct 2% of such expenditure from their profits. Recently, no such expenditure has been eligible for this deduction so this is welcome news.
Another positive for small business owners is the opportunity to take those hard earners profits out of the business with less income tax payable. The Government had committed to increasing the personal allowance during this Parliament, however, Mr Hammond has accelerated the increase in the Personal Allowance which will now increase to £12,500 per annum from April 2019. In addition, we were pleased to hear that the point at which taxpayers will tip into higher rate tax has increased from £46,350 to £50,000.
Business rates bills for businesses with commercial property with rateable values of £51,000 or less is to be cut by third over the next two years. This will help numerous small business owners being stifled by rates bills and is particularly welcome for those in the competitive retail sector. Sticking with property, from April 2020, lettings relief will be reformed so that it only applies to those who are in shared occupancy with a tenant. The final period exemption will be reduced from 18 months to nine. This appears to be an anti-avoidance measure for a relief currently being abused by some.
We had been expecting measures implemented across the public sector to be rolled out across the private sector from April 2019 relating to workers caught by the IR35 rules. Mr Hammond did indeed confirm that the changes would come in, but from April 2020. What does this mean for workers in Personal Service Companies? Essentially, the ‘employer’ will have to determine whether legislation known as IR35 applies and will stop tax akin to Income Tax on the worker’s invoice for services rendered. In the public sector, this has been many workers switching to ‘full’ employment and has resulted in a higher tax take for HMRC. Small businesses in the private sector will be pleased to know that they do not have to undertake such an assessment.
Other measures to note for the small business owner, especially those where fuel is a significant cost, will be pleased to hear that fuel duty has been frozen again for the ninth year in a row. A welcome freeze given the increases in oil prices recently along with the weak pound. We were also pleased to hear that small businesses contribution to the apprenticeship levy shall decrease from 10% to 5%. If you are particularly Entrepreneurial, you will be pleased to hear that Entrepreneurs relief, which reduces Capital Gains Tax to 10% on qualifying disposals, is to remain in place, but the qualifying period has been increased from 12 months to 2 years.
Overall a generally pleasing budget for the small business owner, but with Brexit in sight, the Chancellor hinted at possible second Budget in the Spring. If you would like to discuss the impact of the Budget on your business, please feel free to call a member of the Blow Abbott team or contact us today. Or find out more about the 2018 Budget by visiting gov.uk Budget 2018.