Personal allowance/Tax bands
The annual amount of income that people can earn before they have to pay tax will be £12,500 from April 2019.
In addition to this the higher rate tax band will be increased to £50,000. This represents an £860 per annum tax saving for individuals earning that much.
What is of interest to many of our clients who pay themselves dividends right up to the higher rate band, is that they will be able to increase their drawings by £3,650 per annum and because of the personal allowance rate increase would actually pay less tax than they are currently doing!
Pensions and savings
There were no significant changes here. The ISA annual subscription amount remains at £20,000 and the starting rate for savings remains at 0% tax for the first £5,000 of savings income.
The junior ISA subscription limit has increased in line with the CPI to £4,368.
The Government has delayed the abolition of Class 2 National Insurance for another year due to the unknown effect on low earners. The rate is currently £2.95 per week or £153.40 per annum.
Employers’ National Insurance
The annual £3,000 exemption from Employers’ National Insurance will be only available from 2020 for employers with a NI bill of less than £100,000. We don’t foresee this affecting many of our clients!
National Living Wage
This will be increasing from £7.83 to £8.21 next April for paid to workers aged 25 or over. In real terms the full time equivalent worker who is currently paid £15.268 per annum will see their salary rise to £16.009.
Capital Gains Tax
From April 2020 lettings relief will be abolished. This is the relief which is given to people selling a property that they have let, which they previously lived in. Lettings relief is always claimed alongside Principal Private Residence relief. The loss of this relief will make a significant difference to people planning on selling properties such as this, that they have owned for many years.
We do not think that this is reason to start selling property portfolios, but we would strongly recommend that if you are planning on selling a property in the next 18 months that may be affected by this relief, that you contact us so that we can calculate the potential impact. Timing of any sales will be critical!
In addition to the scrapping of lettings relief, the final period exemption for Principal Private Residence will also be reduced from 18 months to 9 months.
Making Tax Digital (MTD)
A little reminder for you, that all businesses with turnover over the VAT threshold have to do digital recordkeeping from April 2019.
We have been making contact with clients to help them determine how to help them get compliant and are also delivering free training sessions on some of the most popular recordkeeping software, including Xero, Quickbooks and FreeAgent.
Please do get in touch if you would like to come along to one of these free sessions.
Retail business premises with a rateable value of £51,000 or less will have 1/3 relief for two years from April 2019. For a retail premises with a rateable value of £51,000, this would represent a savings of over £8,000 per annum.
IR35 – Off Payroll Working
This was the most significant part of the budget in terms of the numbers of clients that may be affected by this. Companies that supply contractor labour that currently falls outside the scope of IR35 may find from April 2020 that they will be treated as employees by the contracting companies.
Rather than the current system where the contractor determines whether they are subject to the IR35 rules, from 2020 it will be the contracting company that decides how to treat them for tax purposes.
We believe that the same rules will apply as now in respect of the tests to identify whether an individual is within the scope of the IR35 rules.
We do suspect that many companies faced with the decision where it is marginal as to whether a business could fall within the scope of IR35, that they might choose the route that results in the lower National Insurance and processing costs! Or are we being cynical?
The annual investment allowance, where businesses get tax relief in full for new items of capital equipment will increase from £200,000 to £1m from 1 January 2019 to 31 December 2020.
This relief is only going to affect a very small number of our clients, but for those affected, timing is everything. If someone is planning on spending over £200,000 on equipment in the next few weeks or before Christmas, it would be very beneficial to wait a little while and make the purchase once the rate has increased.
The Chancellor also announced a new Structures and Buildings Allowance (SBA). This will be a 2% tax relief of the cost of purchases of new buildings. It should also apply to new builds of business premises. This will apply from 29 October 2018.
The Capital Allowances special rate will reduce from 6% to 8% from April 2019.
This is the 10% rate of tax that is available to people when they sell their business. Before someone is eligible to pay this rate of tax, they had to have owned the asset of business for a minimum of 1 year.
From April 2019 this will increase to 2 years.
The VAT registration threshold has been frozen at £85,000 for the next two years.
The VAT deregistration threshold has been frozen at £83,000.
The main points that clients need to be considering are the property changes for individuals selling properties that they currently let but used to live in. Also people with contracts that could be argued as falling under the IR35 rules should be reviewing their contracts and letting us know if they are concerned.
If there are any areas that you would like further clarification on, or if you feel that you may need to look at how you structure your tax affairs, please do not hesitate to get contact us on 01423 567499 or email firstname.lastname@example.org
Finally, a date for your diary, Friday 8th February, we are holding a free joint seminar in the morning with Stuart Wright of Action Coach, to look at business growth and planning for 2019.