We waited today to see if ‘Fiscal Phil’ followed his party conference speech by proving that they are the “party of business”.
So, did the Chancellor deliver bold action to boost investment and confidence at precisely the moment that our business communities need it most?
Below is all the Budget information you’ll need as a business owner how the announcements will affect you, your business and your employees.
The Chancellor surprised everyone by bringing forward the increase in both the personal allowance and higher rate threshold by one year. From April 2019 the personal allowance will increase to £12,500 and the higher rate threshold to £50,000. This gives an effective pay rise to both employees and business owners.
No change has been made to the effective 60% rate on incomes between £100k and £125k.
There was also an unexpected tightening of the rules for tax relief on the sale of your home. Changes mean lettings relief will in effect disappear unless the owner lives with the tenant, meaning a loss of relief of up to £80k per couple. There will also be a reduction to the final 18 months of ownership, having previously always being exempt from tax, this is now reduced to 9 months.
National Living Wage
The National Living Wage (NLW), the statutory minimum for workers aged 25 and over, will increase by 4.9% to £8.21 per hour. Rates for younger workers will also increase above inflation and average earnings. They will apply from 1 April 2019. This will affect many business owners with increases in their salary bills, but will be a welcome announcement to many employees earning the National Living Wage.
Research & Development
R&D tax relief restrictions are changing and will be based on the level of PAYE/NIC liability of the claimant. The cap will be three times the company’s total PAYE and NICs liability for that year. This means that companies whose payroll costs are relatively low in respect of the total R&D claim may a face a cap on their claim. This may only affect companies with a very high proportion of sub-contractor and material costs in their claim.
The Annual Investment Allowance will increase from £200k to £1m for two years for purchases on, or after 1st January 2019. This is a potential planning opportunity and the timing of purchases may need to be delayed to benefit from this valuable relief.
Despite the Chancellor facing calls to abolish Entrepreneurs Relief, it has been decided to retain this but extend the minimum qualifying period from 12 months to 2 years for disposals from 6 April 2019. This may have an impact on the timing of shares or options being available to employees.
Following the successful changes to public sector organisations in respect of IR35, the Governments attention has now been turned to the private sector.
For companies: From April 2020, medium and large companies who engage limited company contractors will now have to apply IR35 rules to payments made to these contractors. This means the liability will fall on the companies if they do not apply the legislation. We wouldn’t be surprised if this is rolled out to small companies at some point in the future. Now is be the time to review your workforce.
For contractors: Any contractor has exposure to this legislation and it would prudent for them to understand their exposure now!
The Office for Tax Simplification (OTS) had previously pointed out that the UK has the highest VAT threshold in the EU, where the average is £20,000. The Chancellor avoided dragging more small firms into the VAT regime by leaving the threshold unchanged for the next 2 years.
Employer contributions for apprenticeships could be halved from 10% to 5% for some companies. Good news for businesses willing to recruit and train future talent and to ensure the UK remains competitive and builds skills for the future.
For businesses with a rateable value of £51k or less, there will be a saving of a third on business rates annually for two years. This takes effect from April 2019, rather than 2021.
Our final round-up
On balance, with the Chancellors hands tied, this has been a good budget for business owners. After much speculation there was no change to either Corporation Tax or Pensions. As always, the devil is in the detail, early communication with your advisors will allow opportunity for successful medium term planning to take advantage of these changes.
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