22 November saw a return of the Autumn Budget. In some ways, this is useful as it gives tax payers, and advisors more time to get to grips with any planned changes well in advance of the following 6 April, when many of the changes are usually effective from.
Many people were expecting quite a lot from this Budget, and on the face of it, it seemed a little lacklustre, with not much to comment on. From our point of view, having scratched the surface, we found many interesting changes that will affect some of the planning we have been doing recently, particularly in respect of property investment.
It was announced that the annual personal allowance would rise from 6 April to £11,850. This keeps the planned increases on track to get the personal allowance to £12,500 by 2020. The basic rate band was also increased to £34,500, meaning that someone can earn £46,350 before having to pay higher rate tax.
There were no changes to the tax rates, particularly the dividend tax rate. It had been suggested that this might be increased, and even the annual 0% band be reduced further, however this remains at £2,000 per annum from 6 April 2018.
The planned increase in Class 4 National Insurance from 9% to 11% has been put on hold.
In addition to this, the abolition of Class 2 National Insurance has also been delayed by one year. This means self-employed businesses will have to continue to pay the £148.20 in 2018/19.
Couples can continue to benefit from the transfer of 10% of one spouse/civil partner’s unused personal allowance, saving £237 in 2018/19. This transfer is not available for the top rate of tax payers.
National Minimum Wage
The National Living Wage for 25 year olds and over will increase to £7.83 per hour from April 2018. All other age related rates will also increase accordingly.
Employees - expenses
The benchmark scale rates for paying travel expenses are now to be written into legislation and can now be claimed without having to produce receipts or evidence of having incurred any cost. These are the fixed rates employees (including directors) can claim for subsistence costs when away from the office on company business. They are:
£5 for Breakfast
£5 if away from the office for 5 hours and covering one meal time or
£10 if away from the office for 10 hours and covering two meal times
£10 if away from the office and not home until after 8pm
Obviously if employers prefer to reimburse the employees for the actual cost incurred, then they can continue to do so.
Employees – Benefits in Kind
It was announced that there will be no benefit in kind assessed on employees using electric charging points at work to charge their electric cars. I would have liked to have seen how HMRC would have been assessing how much electricity had been used and by whom!
It was also announced that the diesel supplement on company cars would increase from 3% to 4%. This is reinforcing the drive to deter people from buying these dirty diesels!
The planning on whether to purchase a car through the company remains the same. It depends on the emissions and in future could also depend on the electric only range of hybrid vehicles. As always, consult your tax adviser before saddling yourself with a potentially hefty benefit in kind charge.
Making Tax Digital
HMRC are continuing to throw millions of pounds at getting the MTD system up and ready for use. The planned launch has been postponed several times now.
It was announced in the Budget that from 6 April 2019 VAT registered businesses will have to file their VAT returns using the digital record keeping and quarterly updates. All other business taxes will follow from April 2020, providing it works!
Landlords can now officially claim the 45 pence per mile for travel between their rental properties. Previously many landlords have claimed this, however now it will be written into legislation.
Company - Capital Gains
When a company purchases Capital items such as property, they have benefited from Indexation Allowance. This is an allowance that uplifts the original cost that the property or other asset was purchased for, so that when the property is sold, the Capital Gain is lower.
The Chancellor announced that this would be stopped from 1 January 2018.
What this now means is that when a company sells a property or other asset, they will only be allowed to deduct the actual original costs, rather than cost adjusted to take into account the time value of money.
Because the allowance does not stop until January, this gives us time to understand how it will work and to consider whether any of our clients wish to crystallise any capital gains now, to save tax in the future.
The reason for this measure is to counter the effect of all of the property investors buying property through companies instead of personally. Currently companies can offset all of the mortgage interest on a commercial property loan and also will pay a lower rate of tax, compared to higher rate tax payers.
Whilst this measure changes the landscape slightly, it means that careful consideration needs to be given to the best way of purchasing property. Obviously we can advise on the options here.
Company – Research & Development
The tax credit rate of R&D claims has been increased from 11% to 12%. This is the rate at which an R&D generated tax loss can be repaid to the company.
R&D tax credits are the only way that a company can reclaim tax regardless of whether it has paid any previously.
Value Added Tax
The VAT registration threshold has been frozen at £85,000 for the next two years. This is purportedly to look towards aligning us with the rest of Europe.
All in all, the changes announced in the Budget are not going to have a massive impact on the majority of the businesses that we deal with. We expect to be having more conversations with companies exploring R&D claims.
We also will be talking to many of our clients who restrict their business by not wanting to breach the VAT threshold.
We hope this gives you a good idea of how the budget might affect your business. If you would like further clarification on any areas, please do not hesitate to contact us on firstname.lastname@example.org