Budget 2018 – Summary

Philip Hammond presented the 2018 Budget on Monday 29 October 2018.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2018-9 tax year and beyond.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

Main Budget proposals from the Autumn Budget

  • The income tax personal allowance for 2019-20 and 2020-21 will be £12,500 and the 40% threshold will be £50,000.  For subsequent years, increases to the personal allowance and basic rate limit will be indexed with the CPI (The Consumer Price Index)
  • Class 2 National Insurance, planned to be abolished from April 2019 will not now be abolished during this parliament.
  • There will be new off-payroll working rules for workers in the private sector from April 2020.
  • A tax return and payment on account of tax will be due on the sale of residential properties by UK residents, where tax is due, from April 2020.

A reminder of key changes announced previously

  • The income tax personal allowance for 2018-9 is £11,850 and the 40% threshold is £46,350.
  • The VAT registration threshold will be frozen at £85,000 for two years and there will be a consultation on its future.
  • Indexation allowance for capital gains in companies has been frozen for disposals after 1 January 2018.
  • The nil rate dividend allowance reduced to £2,000 from April 2018.
  • Corporation tax rates will fall to 17% from 1 April 2020 (Current: 19%).
  • The changes to interest deduction rules for landlords started from April 2017, being phased in over a 4 year period.  Relief for interest will be limited to basic rate tax.
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Budget 2018 – Corporate and Business Tax

Corporation tax rates

As announced previously, corporation tax will fall to 19% from 1 April 2017 and then to 17% from 1 April 2020.

National Insurance (NI) for the self employed

The Chancellor confirmed in the Spring Budget 2017 that Class 2 National Insurance (paid at a weekly flat rate by the self employed) would be abolished from 6 April 2018, but it was then announced in November 2017 that the abolition would take place in 6 April 2019.  In the 2018 Budget, the Chancellor has said that the government will not now abolish Class 2 NICs during this parliament.

Class 2 NI will be £3.00 per week for 2019-20.

Dividend tax

The nil rate dividend allowance reduced from £5,000 to £2,000 from April 2018.  It will remain at £2,000 for 2019-20.

Making Tax Digital

Making Tax Digital (MTD) has been going through consultations over the past few years.   There were no new announcements in the Budget.

A reminder that the plan is that, under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.

From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) will be required to file their VAT returns through compliant software under making tax digital.  They will no longer be able to manually type figures into the HMRC website.  There will be bridging software available to allow businesses keeping their records in Excel to file under MTD.

Capital Allowances

Businesses can claim an annual investment allowance” (AIA) when they buy plant and machinery for use in the business.  The current limit is £200,000, which means that businesses can claim an immediate tax write down of the first £200,000 of expenditure every year.  The AIA will be increased to £1,000,000 for two years from 1 January 2019.

For asset purchases in excess of the AIA, expenditure goes into one of two pools – the main rate or the special rate pool, with current writing down allowances of 18% and 8% respectively, on a reducing balance basis.  The rate for the special rate pool will be reduced to 6% from April 2019.

From Budget Day, 29 October 2018, a new capital allowance (the Structures and Buildings Allowance) will be available, at a rate of 2%, for new qualifying non-residential structures and buildings on a straight-line basis.

Off Payroll Working

The government will legislate in Finance Bill 2019-20 to reform the off-payroll rules in the private sector. Responsibility for operating the existing off-payroll working rules, and deducting any tax and NICs due, will move from individuals to the organisation, agency or other third party paying an individual’s personal service company. Small organisations will be exempt and this change will bring private sector organisations in line with public sector bodies and agencies. The change will come into effect from 6 April 2020.

More details can be found here

Budget 2018 – Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget.

Allowances and tax bands

The personal allowance for 2019-20 and 2020-21 will be £12,500, with the income on which you start to pay tax at 40% increasing to £50,000.  For subsequent years, increases to the personal allowance and basic rate limit will be indexed with the CPI (The Consumer Price Index)

This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1250L taking effect in April 2019.

Other allowance levels can be found on the HMRC web site here.

ISAs

The ISA limit will remain at £20,000 for 2018-9.

The Lifetime ISA

A reminder that the ‘Lifetime ISA’ was introduced from 6 April 2017.  This allow adults under 40 to open a Lifetime ISA and pay in up to £4,000 per annum.  The government will add a 25% bonus to the ISA, so, up to £1,000.

Contributions can continue up to the age of 50.

Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.

Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government, and an additional 5% charge will be applied if the withdrawal is not for the purchase of your first home.

Dividend tax

The nil rate dividend allowance reduced from £5,000 to £2,000 from April 2018.  It will remain at £2,000 for 2019-20.

Tax Credits

There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.

There were no changes to tax credits announced in the Budget 2017.   The rates of payments have increased slightly for disabled workers and children, but remain largely the same.

Universal Credit

Universal Credit a new benefit system being phased in currently.  It replaces the following benefits:

  • Child Tax Credit
  • Housing Benefit
  • Income Support
  • income-based Jobseeker’s Allowance
  • income-related Employment and Support Allowance
  • Working Tax Credit

It is being phased in by region, to new claimants initially and then existing claimants transferred over later.

The Chancellor announced in the Budget that claimants will be able to earn an extra £1,000 before having their benefit reduced.

Child Benefit

There were no changes announced to child benefit in Budget.  Rates for 2019-2020 will remain at £20.70 for the first child and £13.70 for subsequent children.

Don’t forget that there are special rules for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

Landlords

Capital gains tax

Currently, if an individual sells a property that they have both lived in and rented out during their period of ownership, there is a capital gains tax relief – letting relief – that potentially reduces the taxable gain.  The Chancellor announced that letting relief will be reformed so that it only applies when the owner of the property is in shared occupancy with a tenant.  There will be a consultation on the details.

For disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 30 days of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.

Interest deduction

A reminder of the interest restrictions announced in the Summer Budget 2015 that started to come in to effect from April 2017:

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

  • in 2017-18 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
  • in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
  • in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
  • from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Rent a room

Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property remains at £7,500 per year.

It was announced in Budget 2017 that there will be a consultation on the future of rent a room relief.  This consultation has now concluded and there will be no changes to rent a room relief.

Making Tax Digital

Making Tax Digital (MTD) has been going through consultations over the past few years.  There were no new announcements in the Budget.

Under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.

From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) will be required to file their VAT returns through compliant software under making tax digital.  They will no longer be able to manually type figures into the HMRC website.  There will be bridging software available to allow businesses keeping their records in Excel to file under MTD.

 

Budget 2018 – Employment Issues

National Insurance Contributions (NI)

No changes to the rates of income based NI contributions on employment were announced in the Budget.

Class 2 NI (paid at a weekly flat rate by the self employed), was due to be abolished from 6 April 2019, but will now not be abolished in this parliament.  It will be £3.00 per week for 2019-20

The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) will increase to £166 per week.  This means that company directors paying themselves the national insurance threshold can have an increase in pay from April 2018 to £719.33 per month (from £702).

The upper earnings (or profits for the self employed) limit is £50,000 (£962 per week), aligned with the point at which 40% tax becomes payable.

Details of the rates of NI can be found here.

Employer’s Employment Allowance

The employment allowance will remain at £3,000 per annum for 2019-20.

From 2020-21, the allowance will be restricted to companies with employer national insurance bills of less than £100,000.

Minimum wage

The Minimum Wage rates from 1 April 2019 will be:

  • 25+ (National Living Wage) – increases from £7.83 to £8.21 per hour
  • 21 to 24 year olds increases from £7.38 to £7.70 per hour
  • 18 to 20 year olds increases from £5.90 to £6.15 per hour
  • 16 to 17 year olds increases from £4.20 to £4.35 per hour
  • apprentices increases from £3.70 to £3.90 per hour

 

Budget 2018 – Pensions

The lifetime allowance will increase in line with the Consumer Prices index to £1,055,000 for the 2019-20 tax year.

The annual allowance remains at £40,000.

There is a reduced annual allowance for those who have started to draw from a pension. This remains at £4,000 for 2019-20.

Budget 2018 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits will remain frozen at £85,000 and £83,000 respectively until 31 March 2022.

VAT fraud in labour provision in the construction sector

The Chancellor announced in the 2017 Budget that the government would consult on legislation for a VAT reverse charge for building and construction services.

The measure will, for certain supplies of construction services and related goods, mean that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier.

VAT: split payment for online payments

Following the consultation launched at Spring Statement 2018, the government will publish a government response document on 7 November 2018.

A split payment model would allow VAT to be extracted from online payments in real time. The responses to the call for evidence were broadly positive about the concept but highlighted the complexities of implementation. The response document will set out plans for further engagement with external stakeholders, in preparation for a full consultation in 2018.

Budget 2018 – Capital Gains Tax

The capital gains tax (CGT) annual exempt amount will increase from £11,700 to £12,000 from 6 April 2019 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees will be £6,000.

For capital gains above the annual exempt amount the CGT rate for basic and higher rate tax payers will remain at 10 and 20 per cent respectively.

Gains on residential properties (not qualifying as your personal private residence) and carried interest (the share of profits or gains that is paid to asset managers) will remain at the 18 and 28 per cent for basic and higher rate tax payers respectively.

Residential properties

Currently, if an individual sells a property that they have both lived in and rented out during their period of ownership, there is a capital gains tax relief – letting relief – that potentially reduces the taxable gain.  The Chancellor announced that letting relief will be reformed so that it only applies when the owner of the property is in shared occupancy with a tenant.  There will be a consultation on the details.

For disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 30 days of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.  No return will be required if no tax is due (for example, for disposals covered by private residence relief).

Entrepreneurs’ Relief

There were some amendments announced to the qualification rules for Entrepreneurs’ relief.

Firstly, there are two new tests introduced, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company.

In addition, the minimum period for the qualifying conditions to be met was increased from one to two years.

Budget 2018 – Motoring costs

Fuel prices

Fuel duty was frozen again.

Vehicle Excise Duty (VED)

VED (Road Tax) for cars, vans and motorcycles will increase in line with the Retail Price Index from 1 April 2019.  The rates for HGVs will be frozen for 2019-20.

There will be a supplement for new diesel cars registered after 1 April 2018 that do not meed the Real Driving Emissions 2 (RDE2) standard.

Business mileage payments

HMRC sets an approved mileage allowance payment (AMAP) rate. This is the rate at which employers may reimburse business mileage tax-free.

The AMAP rate will remain at 45p for the first 10,000 miles per annum and 25p per mile for any excess.

Company Cars

Car benefit

Car benefits are based on a percentage of the list price of the car.  The percentage depends on the CO2 emissions of the vehicle.
Rates through to 2020-21 were confirmed/announced in the Budget in November 2017 and can be found here.
No further rates were announced in the Budget this year since the government will produce a report in the spring reviewing the impact of the Worldwide harmonised Light vehicles Test Procedure (WLTP).  WLTP are emissions tests that aim to provide a closer representation of ‘real-world’ fuel consumption and CO2 emissions.
Van benefit
 The van benefit in kind charge will increased from £3,350 to £3,430 for 2019-20.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £24,100 (from £23,400) with effect from 6 April 2019.

The van fuel benefit charge will be £655 (increased from £633) for 2019-20.

Budget 2018 – Other matters

Inheritance tax (IHT)

There were no changes to inheritance tax rates.

As previously announced, the residence nil rate band increased from £100,000 to £125,000 for 2018-9 and will increase to £150,000 in 2019-20 and £175,000 for 2020-21.  There is a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2m. This is at a withdrawal rate of £1 for every £2 over this threshold. Any unused RNRB can be transferred to a surviving spouse or civil partner. It is also available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There were some technical amendments in the Budget to ensure that some of the rule re downsizing were working as intended.

Stamp Duty Land Tax (SDLT)

The relief for first time buyers will be extended to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share.

The relief will apply retrospectively from 22 November 2017, meaning that a refund of tax will be payable for those who have paid SDLT after the 22 November 2017 in circumstances which now qualify for first time buyers relief.
Relief will be applied to the first share purchased, where the market value of the shared ownership property is £500,000 or less.

Single-use plastics waste

The government will introduce a tax on the production and import of plastic packaging from April 2022.  Subject to consultation, this tax will apply to plastic packaging which does not contain at least 30% recycled plastic.

Charities

The Chancellor announced an increase in the small trading tax exemption limits for charities that apply to trading that does not relate to a charity’s primary purpose.

The current limits are:

Annual charity income       Maximum non-primary purpose trading
Under £20,000                   £5,000
£20,001 to £200,000          25% of the charity’s total annual turnover
Over £200,000                   £50,000

The limits will increase to:
Annual charity income       Maximum non-primary purpose trading
Under £32,000                   £8,000
£32,000-£320,000              25% of income
Over £320,000                   £80,000

Autumn Budget 2017 – Summary

Philip Hammond presented the 2017 Autumn Budget on Wednesday 22 November 2017.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2017-18 tax year and beyond.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

Main Budget proposals from the Autumn Budget

  • Indexation allowance for capital gains in companies will be frozen for disposals after 1 January 2018.
  • The VAT registration threshold will be frozen at £85,000 for two years and there will be a consultation on its future.
  • From today, there will be no stamp duty for first time buyers on the first £300,000 of a property bought for £500,000 or less.
  • The income tax personal allowance for 2018-9 will be £11,850 and the 40% threshold will be £46,350.

A reminder of key changes announced previously

  • The nil rate dividend allowance of £5,000 will be reduced to £2,000 from April 2018.
  • It was announced in the Spring Budget that National Insurance rates for the self employed (Class 4) were going increase from 9% to 10% from 6 April 2018 and then to 11% from 6 April 2019, however the Chancellor later did a u-turn on this and there will be no increase.
  • Class 2 National Insurance will now be abolished from 6 April 2019.
  • Corporation tax rates will fall to 17% from 1 April 2020 (Current: 19%).
  • There will be £1,000 allowances for trading and property income from 5 April 2017.
  • The changes to interest deduction rules for landlords start from April 2017, being phased in over a 4 year period.  Relief for interest will be limited to basic rate tax.