The Autumn Budget 2018
The Chancellor’s Autumn Budget was delivered on Monday 29 October 2018, which was moved forward two days from the traditional Wednesday to deny the press the easy Halloween headline comparisons with blood sucking vampires – yes really!
The mood of the Budget message was overwhelmingly positive and, although there were one or two aspects which will increase the tax and national insurance burden for some people, the majority of taxpayers will benefit from a small reduction.
In particular individual taxpayers will see an increase in income tax personal allowance introduced earlier than planned from April 2019, together with an increase in the higher rate threshold.
Retail businesses will benefit from a two-year cut in business rates and all businesses will be able to obtain immediate tax relief on qualifying capital expenditure to a much higher level during 2019 and 2020. There is also a welcome return to tax relief on qualifying new non-residential buildings.
We have summarised below the main announcements and changes which we think will affect our clients. More detail is available in our full Autumn Budget 2018 brochure – available on request. As always, we will be happy to discuss anything you think might be relevant to your own circumstances – click here to contact us.
Autumn Budget 2018 Highlights
Business Tax and Investment Incentives:
Currently at 19%, corporate tax will fall to 17% from 1 April 2020.
Annual Investment Allowance (AIA)
The AIA will be temporarily increased from £200,000 to £1m. This change will have effect in relation to qualifying expenditure incurred from 1 January 2019 to 31 December 2020.
Capital allowances – special rate pool
The rate of writing down allowance on the special rate pool of plant and machinery will be reduced from 8% to 6%. The new rate will be effective from 1 April 2019 for businesses within the charge to corporation tax and 6 April 2019 for businesses within the charge to income tax.
Structures and Buildings Allowance (SBA)
The government will introduce a new SBA to provide relief for qualifying expenditure on new non-residential structures and buildings. Relief will be available for eligible expenditure incurred where all contracts for the physical construction works are entered into on or after 29 October 2018. Relieve will not be available for the costs of land or dwellings. The SBA will be available at an annual rate of 2%. This will be a at flat rate, calculated on the amount of original construction expenditure. There will not be a system of balancing charges or balance allowances on a subsequent disposal of the asset. Instead, a purchaser will continue to claim the annual allowance of 2% of the original cost.
First Year Allowances (FYAs)
Legislation will be introduced to end the FYA and first year tax credits for products on the Energy Technology List and the Water Technology List from April 2020.
The current 100% FYA for expenditure incurred on electric charge-point equipment will be extended for a further four years. It will expire on 31 March 2023 for corporation tax and 5 April 2023 for income tax purposes.
Corporate Capital Loss Restriction
The government will legislate to restrict companies’ use of carried forward capital losses to 50% of capital gains from 1 April 2020. The measure will include an allowance that provides companies unrestricted use of up to £5m capital or income losses each year. An anti-forestalling measure to support this change will have effect on and after 29 October 2018.
Research and Development (R&D) Tax Relief
A limit will be introduced on the amount of payable tax credit that can be claimed by a company under the R&D SME tax relief. The limit will be set at three times the company’s total PAYE and NICs payment for the period. The change will have effect for accounting periods beginning on or after 1 April 2020. Any loss that a company cannot surrender for a payable credit can be carried forward and used against future profits.
Legislation will be introduced to increase the small trading tax exemption limits. These limits apply to trading that does not relate to the charity’s primary purpose. The current exemption threshold of £50,000 will be changed to £80,000 and the lower band changed from £5,000 to £8,000. The changes will have effect on and after 6 April 2019 for unincorporated charities and from 1 April 2019 for incorporated charities.
Off-payroll Working Rules
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. This change will come into effect from 6 April 2020.
The government will legislate to restrict access to the NICs Employment Allowance to employers with an employer NICs liability below £100,000 in their previous tax year. Where employers are connected under the Employment Allowance rules the threshold will apply to their aggregated liability. This will take effect from 2020.
National Insurance Contributions (NICs), National Minimum Wage and National Living Wage:
Entitlement to contribution-based benefits for employees retained earnings between £118.01 and £166 per week. The employer rate is 0% for employees under 21 and apprentices under 25 on earnings up to £962 per week. In a change to the government’s previous plans, Class 2 NICs are no longer set to be abolished from April 2019.
Increases in the National Minimum Wage and National Living Wage now occur in April each year. The rates applying from April 2019 are outlined in the link below.
Click here to view for details of 2019/20 Class 1 (employed) rates and the increases in the National Minimum Wage and National Living Wage.
Tax and Travel:
Car and Fuel Benefits
The taxable petrol and diesel car benefit is based on the car’s CO2 emissions. It is calculated using the car’s UK list price and applying the ‘appropriate percentage’. The diesel supplement increased to 4% from 6 April 2018. It is removed altogether for diesel cars which are certified to the Real Driving Emissions 2 (RDE2) standard. The car fuel benefit is calculated by applying the same percentages to the fuel benefit charge multiplier, which for 2019/20 is £24,100.
2020/21 sees the introduction of a new range of bands with appropriate percentages ranging from 2%-19% for ultra-low emission vehicles (ULEVs) emitting less than 75 g/km of CO2. Cars with emissions over this amount would see the appropriate percentage set at the lesser of: 20%, plus 1% for each 5 g/km by which emissions exceed 75 g/km; and 37%.
VAT on Fuel for Private Use in Cars
Where businesses wish to reclaim the input VAT on fuel which has some degree of private use, they must account for output VAT for which they may use the flat rate valuation charge.
The taxable benefit for the unrestricted private use of vans is £3,430 for 2019/20. There is a further £655 taxable benefit if the employer provides fuel for private travel.
There is a benefit charge for zero emission vans but there is no fuel benefit for such vans.
Changes to the HMRC business mileage rates are announced from time to time. The fuel only advisory rates shown in the link below relate to company cars only and apply from 1 September 2018.
The government has reformed the plug-in grant scheme, which offers grants towards the purchase of new qualifying ultra-low emission cars. The scheme will now focus on zero emission models such as pure electric and hydrogen fuel cell cars. By 9 November 2018 at the latest, the grant rate for Category 1 vehicles will reduce from £4,500 to £3,500 and Category 2 and 3 vehicles will no longer be eligible. The government has rolled out new plug-in van and motorcycle grants.
Vehicle Excise Duty (VED) Rates For the first year this is based on CO2 emissions. However, new diesel vehicles registered after 1 April 2018 that do not meet the RDE2 standard will be charged a supplement on their First Year Rate to the effect of moving up by one VED band.
After the first year, all vehicles with zero emissions will be exempt from the standard rate of vehicle tax, and all other petrol or diesel vehicles will pay a standard rate of £145 a year. An additional rate will be added to the vehicle tax for all new vehicles with a list price of over £40,000 (including zero emission vehicles). This additional rate of £320 will be payable each year for five years from the end of the first vehicle licence. After the five-year period the standard rate will apply.
The government proposes to change to the new worldwide harmonised light vehicle testing procedure (WLTP) for measuring CO2 emissions.
Click here to view all relevant figures related to the tax and travel announcements.
Income Tax and Personal Savings:
The Chancellor announced a bringing forward of the planned increases in the personal allowance and the higher rate threshold for income tax.
Click here to view the details on income tax rates and bands, savings income, dividend income and personal allowances.
Individual Savings Accounts (ISAs) Individuals can invest in any combination of cash or stocks and shares up to the overall annual ISA subscription limit. However, a saver may only pay into a maximum of one Cash ISA, one Stocks and Shares ISA, one Innovative Finance ISA and one Lifetime ISA. The overall investment limit for 2019/20 is £20,000 (£4,368 for junior accounts).
Inheritance Tax (IHT) IHT is currently charged at 40% on the proportion of an individual’s estate exceeding the ‘nil-rate band’ of £325,000. Married couples and registered civil partners can pass any unused nil-rate band to one another on death.
A residence nil-rate band (RNRB) now applies in addition to the nil-rate band, allowing a current or former ‘family home’ to be passed wholly or partially tax-free on death to direct descendants.
The RNRB rates are set as follows:
2018/19 = £125,000
2019/20 = £150,000
2020/21 = £175,000
There is a tapered withdrawal of the RNRB for estates valued at more than £2m, at a withdrawal rate of £1 for every £2 over this threshold.
IHT: changes to RNRB The RNRB is intended to make it easier to pass on the family home to direct descendants without an IHT charge. A new measure introduces minor technical amendments to the RNRB relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes. These amendments clarify the working of the downsizing rules, and provide certainty over when a person is treated as ‘inheriting’ property.
This measure will ensure that the RNRB is working in line with the original policy intent, meaning that it cannot be claimed outside of the intended scope and removing any uncertainty for taxpayers.
Capital gains tax (CGT)
Higher rates (18%/28%) may apply to the disposal of certain residential property and carried interest.
Entrepreneurs’ Relief and Investors’ Relief The first £10m of lifetime qualifying gains for each relief are charged at 10%. Gains in excess of the limit are charged at the rates detailed above.
Entrepreneurs’ Relief: minimum qualifying period extension A new measure increases the minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs’ Relief from one year to two years.
This measure affects individuals who dispose of all or part of their business, individuals who dispose of shares in their personal company on or after 6 April 2019, and trustees who dispose of trust business assets.
It will have effect for disposals on or after 6 April 2019, except where a business ceased before 29 October 2018. Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group), before 29 October 2018, the existing one year qualifying period will continue to apply.
Entrepreneurs’ Relief: definition of a ‘personal company’ A new measure adds two new tests to the definition of a ‘personal company’. Both conditions, as well as the existing ‘share capital’ and ‘voting rights’ conditions must be met throughout the specified period.
The new conditions require the individual to be beneficially entitled to at least:
- 5% of the company’s distributable profits
- 5% of its assets available for distribution to equity holders in a winding up.
The measure has effect for disposals on or after 29 October 2018.
CGT payment window UK residents will be required to make a payment on account of CGT following the completion of a residential property disposal. The new legislation will also replace and extend the existing reporting and payment on account rules for non-UK residents.
The above changes to the legislation will apply to disposals by non-UK residents on or after 6 April 2019. For UK residents the changes will have effect for disposals on or after 6 April 2020.
CGT private residence relief: reform of ancillary reliefs From April 2020 the government will make two changes to private residence relief. The final period exemption will be reduced from 18 months to nine months. There will be no changes to the 36 months that are available to disabled persons or those in a care home.
Lettings relief will be reformed so that it only applies in circumstances where the owner of the property is in ‘shared-occupancy’ with a tenant.
Value Added Tax (VAT):
There are no changes to the VAT standard rate (20%), VAT fraction (1/6), Reduced Rate (5%), Annual Registration Limit (£85,000) and the Annual Deregistration Limit (£83,000).
VAT: treatment of vouchers The government will implement an EU Directive on the VAT treatment of vouchers to ensure that the correct amount of VAT is charged on what the customer pays, irrespective of whether payment is with a voucher or other means of payment.
This measure introduces legislation providing for the VAT treatment of vouchers issued on or after 1 January 2019. It affects only vouchers for which a payment has been made and which will be used to buy something. The measure does not apply to vouchers issued before 1 January 2019, for which existing rules will continue to apply.
Stamp Duty Land Tax (SDLT) and First-time Buyers Relief As from 22 November 2017, first-time buyers in England and Northern Ireland paying £300,000 or less for a residential property pay no SDLT. First-time buyers paying between £300,000 and £500,000 pay SDLT at 5% on the amount of the purchase price in excess of £300,000.
This Budget announced an extension to first-time buyers relief in England and Northern Ireland so that all qualifying shared ownership property purchasers can benefit, whether or not the purchaser elects to pay SDLT on the market value of the property. This change will apply to relevant transactions with an effective date on or after 29 October 2018, and will also be backdated to 22 November 2017 so that those eligible who have not previously claimed first-time buyers relief will be able to amend their return to claim a refund.
Business Rates Relief Retail properties with a rateable value below £51,000 will see their business rates bills cut by a third for two years from April 2019, subject to state aid limits.
Gift Aid Small Donations Scheme (GASDS) Currently the GASDS only applies to donations of £20 or less made by individuals in cash or by contactless payment. This limit will increase to £30. Parliamentary timetable permitting, this will become effective from 6 April 2019.
Please contact the Phillips Frith team if you would like a copy of our Autumn Budget 2018 brochure or if you have any questions on the key highlights we have outlined above.