Yesterday Chancellor of the Exchequer, Philip Hammond, presented the Autumn Budget for 2018. In this blog we’ve pulled out the key details affecting your business and personal accounting, including changes to Income Tax, the National Living Wage / Minimum Wage, private sector IR35, support for high street businesses, capping of R&D tax relief, entrepreneurs’ relief, and pensions.
IR35 Private Sector
So there is some bad news, and maybe a hint of not so bad news about IR35. The bad news is, and we all guessed it was coming, IR35 reform in the private sector. This means that, just like the public sector changes that we saw in 2017, private sector contractors will now have their IR35 status determined by the engaging company.
There are a multitude of reasons why this is a bad idea, read our blog about how successful IR35 reform has been in the public sector. In short it’s been chaos, and public sector employers, for the most part, have blanket labelled contractors as working under IR35, largely due to the fact that they don’t understand the intricacies of IR35.
So expect more of this to come – however it is going to apply to PSCs working for ‘medium and larger’ companies only… That’s the potentially ‘not so bad’ news. Medium and large businesses are defined* as meeting two of the following criteria:
- Turnover of £6.5 million +
- Gross assets over £5.1 million
- More than 50 employees
However, there sure to be some grey areas ahead when it comes to defining a business’ size in relation to IR35. And competition to work as a contractor for small businesses and startups is surely about to heat up!
“The reform will not apply to the smallest 1.5 million businesses, and large and medium businesses will have longer to adjust, with the changes being introduced in April 2020”
The other not so terrible news is that this will come into effect from April 2020 rather than April 2019, so that’s at least giving us a year longer to help businesses prepare before the chaos hits. The reason for the delay is thought to be Brexit, so you never know, this may be pushed back further still.
*Our definition is taken from the Companies Act, there are several official definitions of a Medium/Large business, the industry has called for clarification on what is considered a Medium/Large business regarding IR35 reform.
The basic Income Tax threshold was increased to £12,500 in-line with the Tory manifesto, and the higher rate threshold has been increased to £50,000, providing a ‘tax cut to 32 million people’. Basic rate taxpayers will benefit from an additional £130 per year, higher rate taxpayers will save £860 and additional rate taxpayers will save £600 per year.
This has effectively doubled the Income Tax threshold within the last 10 years and will be welcome news to many of you.
If you think this changes your tax position, why not give your accountant a call to discuss how you can benefit the most from the new Income Tax thresholds?
The National Living Wage
This one isn’t much of a surprise, in April 2019 the National Living Wage will be increased to £8.21 per hour for those 25 years and older as previously promised. And in addition to the updated National Living Wage, the National Minimum Wage bands will also be updated as follows:
|National Living Wage (25+ year olds)||£7.83||£8.21|
|National Minimum Wage (21-24 year olds)||£7.38||£7.70|
|National Minimum Wage (18-20 year olds)||£5.90||£6.15|
|National Minimum Wage (16-17 year olds)||£4.20||£4.35|
|National Minimum Wage (apprentices)||£3.70||£3.90|
Surprisingly, the Government have decided not to scrap Entrepreneurs’ Relief, instead option to make it stricter. The minimum qualifying period has been extended to 2 years from 12 months, which will come into force in April 2019.
However there has been an immediate measure introduced to help avoid taxpayers abusing this system, and that’s that you must hold at least 5% share of the net profits to be able to claim entrepreneurs’ relief. This measure is specifically aimed at those entering into a business with the sole interest of gaining entrepreneurs’ relief, and those shareholders whose shares are diluted lower than 5% by organic means should not be affected.
R&D Tax Relief
From April 2020 we will once again have a cap on the R&D Tax Relief which can be claimed by small businesses. The cap will be individual to each business, set at three times the total PAYE + NIC for that accounting period.
The measure is already coming under heavy criticism by the industry who agree that larger companies without genuine R&D expenses may have been abusing the system, but who believe the measure will hit hardest on the small SMEs / Startups who are genuinely carrying out R&D which may have to be restricted from 2020.
The pension lifetime allowance has been increased to £1.055 million.
The pension allowance cut rumoured in the industry has thankfully not come true, with the pension allowance remaining at £40,000. Pension tax relief was also left untouched.
What is new in pensions is an additional £5 million put towards the Pensions Dashboard Project – an online tool providing easy visibility of your pension savings.
High Street Businesses
With ‘Black Friday’ and ‘Cyber Monday’ right around the corner, we’re only too aware of the state of our high streets and independent businesses at this time of year. And it sounds like the Government is too, with the new measures set to provide annual savings of up to £8,000 pa for 90% of independent high street businesses.
The extra £675 million tops up the £12 billion fund that provides relief to small independent businesses, aiming to improve infrastructure, access and provide rates relief on bills. But is it too little too late?
We hope you’ve found this summary for small businesses helpful, you can watch the budget in full here on the BBC iPlayer. The Autumn Budget also included plenty about Brexit – no surprises there, single use plastic measures, NHS support – including a mental health helpline, and a digital services tax – which is aimed at search engines, social media platforms and online marketplaces (no prizes for guessing who in particular).
If you are concerned about any of these updates, please do get in touch with us to discuss your tax situation.