Budget Special: Advice for Businesses
We’re willing to bet you were just as excited as we were waiting for Philip Hammond to take to the stage and announce the upcoming budget changes. No? Well, lucky for you, we’ve sifted through all the details and summarised all the relevant information you need to be aware of in the coming months.
IR35
One of the biggest announcements in the budget was the changes to be implemented for IR35 for the private sector. The required businesses will need to become responsible for determining an individual’s employment status. The private sector rules are to be brought in line with current rules for the public sector and will be introduced in April 2020. The rules will only apply to medium and large businesses, and will not apply to small businesses, though the government has not yet explained what it constitutes as a small business in regard to IR35 for the private sector.
The government has said that it will continue to use CEST (Check Employment Status for Tax) tool to determine the status of individuals. They have stated that they are wanting to work with stakeholders to improve the tool which has received much criticism in the past for its inaccuracy.
HMRC has confirmed that they will focus on compliance moving forward and will not seek out cases from previous tax years.
A further consultation is expected to take place on the detailed operation of the reform to be included in the Finance Bill 2019-2020 legislation.
Annual Investment Allowance Temporary Increase
As announced in the Budget 2018, legislation will be introduced in the Finance Bill 2018/19 to increase temporarily the AIA from £200,000 to £1,000,000. These changes will start for plant acquired between 1 February 2019 and 31 December 2020.
It is important to note that this would be impacted by the company’s year-end. For example, the maximum AIA available for expenditure on plant and machinery to the year ended 30 June 2019 would be £600,000 being 6/12x £200,000 plus 6/12x £1,000,000.
Business Rates Deduction
In their aim to aid the Highstreet, the government has announced that qualifying businesses will receive further support to help them evolve with the changes to consumer behaviour. Those retail properties with a rateable value below £51,000 will have their bills cut by one third for 2 years from April 2019.
VAT Registration Threshold
To the relief of many, the VAT threshold will remain at £85,000 for a further 2 years until April 2022. The government were unable to arrive at a clear option for reform after a call to evidence on the design of the VAT threshold but will look at the situation again once the terms of the exit of the EU are clear. This will be good news for many, as the implementation for MTD for VAT is just around the corner and will go ahead as planned in April 2019.
Personal Allowance
The personal allowance rates are to be increased to aid those workers with low earnings. The rate at which people will start paying income tax will rise from £11,850 to £12,500 and the higher rate income tax threshold will rise from £46,350 to £50,000. The changes will be introduced in April 2019.
The national living wage will also be increased from £7.83 to £8.21 from April 2019.
Employment Allowance
The employment allowance enables employers to reduce their liability for secondary Class 1 National Insurance Contributions by £3,000 per annum. The changes announced in the Budget means that employers will only be entitled to claim Employment Allowance if they had an employer NIC bill of less than £100,000 in the previous tax year. These changes will be in effect from April 2020.
Pensions
Despite speculation, the chancellor has not announced changes to pensions relief. The decision is a relief to many, though this may just be a temporary respite. We’ll know more when the next budget comes along next spring.
R&D Tax Relief
If your business is making a loss and is undertaking qualifying R&D, then you can surrender the loss to HMRC for a tax credit. The value of the repayment will be the lower of the total loss in the year or 230% of the qualifying R&D expenditure.
The amount of payable R&D tax credit a qualifying SME can receive in any tax year would be restricted to three times the company’s total PAYE and NIC’s liability for that year, states the current proposal. The government plans to consult on this with an anticipated start date of 1 April 2020.
Under the proposed changes companies with no employees, directors on a minimal salary but incur legitimate R&D costs through sub-contractors would no longer be able to claim the R&D tax credit and the value it can bring.
Corporation Tax
It has been announced that corporation tax will remain unchanged for 2019, staying at 19%. This will change to 17% from 2020. The government hopes this decision will help toward making Britain more attractive to foreign investors particularly during the period of uncertainty as we head towards the UK leaving the EU.
Following draft clauses published in July this year, from 6 April 2020, non-resident companies which carry on a UK property business or have other UK property income will be chargeable to corporation tax.
Entrepreneurs Relief
Effective immediately, the definition of personal company will be expanded to add a requirement that the shareholder must have a 5% interest in the distributable profits and net assets of the company for the relief. This is in addition to the existing requirements where the shareholder needs to hold at least 5% of the share capital and that this entitles them to at least 5% of the voting rights.
The next change will be that the qualifying conditions in all cases must be met for two years to the point of disposal or the cessation of trade, extended from one year previously. This will apply to disposals on or after 6 April 2019.
The final change, subject to a genuine commercial reasons test, applies to shareholding when it is diluted to fall below 5% where, prior to the dilution, the shareholding was greater than 5%.
The relief will still apply to the growth on shares up to the point of dilution, however the shareholder can defer the notional gain until the shares are actually sold if they wish.
If you would like to discuss how these changes could affect you or if there are any other announcements from the budget we have not mentioned above you would like further information on, then please contact us for more details.