2018 Autumn Budget
- By stephensontilley
- •
- 03 Dec, 2018
- •
The Chancellor of the Exchequer delivered the 2018 Autumn Budget on 29th October 2018. Here are the highlights and key changes from the budget that affect our core client base.
Personal Tax
Personal allowances and tax thresholds
From 6th April 2019
· Personal Tax-free allowance: £12,500
· Basic rate limit: £37,500
· Higher rate threshold: £50,000 (an increase from £46,350)
Income tax rates
These will remain the same:
· Basic rate - 20%
· Higher rate - 40%
· Upper rate - 45%
Dividend income tax rates
The dividend allowance currently allows the first £2,000 of dividends that would otherwise be taxed to be paid tax-free, this will remain the same for 2019-20.
The dividend tax rates remain the same which are:
Over and above the £2,000 dividend allowance any dividend income is taxed as follows:
· If you have any un-used personal allowance then that element is tax free
· Any dividends in the basic tax band attract a tax charge of 7.5%
· Dividends above the basic tax band are charged at 32.5%
· Any dividends in the upper tax band (£150,000+) are taxed at 38.1%.
Business Taxes
VAT
The VAT registration threshold will remain at the current level of £85,000 until April 2022.
Corporation tax
The corporation tax rate will remain at 19%. There are discussions around the proposal that this will fall to 17% from April 2020.
Employees
Off-payroll working & IR35 rules in the private sector
These changes only affect those working through their own limited companies - they do not affect self-employed sole traders.
The chancellor has announced that the public sector off-payroll working rules will apply to the medium and large businesses in the private sector from April 2020.
Under these new rules, it is the responsibility of the end client to assess whether IR35 Off-payroll working rules applies to an engagement or not.
Where it is determined that the rules do apply, the business, agency, or third party paying the worker’s company will need to deduct income tax and employee NICs at source and pay employer NICs across to HMRC.
Under the current rules it is the responsibility of the contractor / freelancer to assess whether IR35 applies to an engagement or not.
HMRC has developed the Check Employment Status for Tax (CEST) service to help businesses determine whether the IR35 off-payroll working rules apply. HMRC will continue to work with stakeholders to improve further CEST and guidance before the reform comes into effect.
“It is fair that two individuals working in the same way pay broadly the same income tax and National Insurance contributions (NICs), even if one of them works through a company. The off-payroll working rules were introduced in 2000 and require that individuals who work like employees, but through companies, pay similar taxes to other employees.”
Summary
Contractors working through their on limited company (PSC) on contracts within the private sector for medium and large companies could now fall inside the IR35 rules from April 2020. The onus is on your client to decide whether your contract with them falls inside the rules. If it does, they will deduct PAYE and NIC at source (as if you were an employee) and pay across to HMRC on your behalf before paying your limited company invoice.
We will issue further details as they emerge in the coming months.
Employment Allowance
The chancellor has announced measures to ensure that the Employers' NIC Allowance will be restricted to smaller businesses only, effective April 2020.
Land & Property
Rent-a-Room relief
The proposed Shared occupancy test for ‘Rent-a-Room relief’ has been abandoned following consultation on draft legislation this summer. This is 'to maintain the simplicity of the system'. The measure is removed from Finance Bill 2018-19.
The chancellor has instead announced changes to CGT Private Residence Relief letting relief: these will create a shared occupancy test for CGT
SDLT charge for non-residents
The government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
Stamp Duty Land Tax (SDLT) and first-time buyer’s relief
Backdated to 22 November 2017 and applying to transactions on or after 29 October 2018:
Relief extended 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.
Those eligible who have not previously claimed first-time buyers relief will be able to amend their return to claim a refund.
Capital Gains Tax (CGT)
CGT Private Residence Relief
From April 2020
The government will reform the considerations for ‘CGT Private Residence relief’s Letting relief’ so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant.
The final period exemption will also be reduced from 18 months to 9 months.
There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.
CGT Annual exempt amounts
From April 2019: The annual exempt amount increases to £12,000 for individuals and personal representatives and £6,000 for trustees of settlements.
This article is relevant for contractors or freelancers working through their own UK limited company on contracts within the private sector and small businesses with one or two directors / shareholders.
Extracting monies from your limited company in the most tax efficient way usually involves a combination of taking a low salary and declaring some dividends.
In December 2018, the guidance was amended as to when a director must file a tax return.
Previously, the guidance stated that all directors must file a tax return despite this not being provided for anywhere else in the tax legislation.
The guidance now states that where all of an individual’s income is taxed at source and there is no further tax to pay they do not need to notify HMRC of chargeability and do not need to file a Self-Assessment tax return.
In addition, the guidance no longer specifically states directors must file tax returns.
Pension contributions can be paid both personally and by the company. At the moment, it is often tax efficient in most cases to get your company to make pension contributions, although this may change in the future.
- They cannot be more than £50 per benefit (1p over and the full value of the benefit is taxable)
- Benefit must not be a cash payment - however gift vouchers are allowed (but only as long as they cannot be exchanged for actual cash) Gift vouchers must be purchased at separate times from online retailers (e.g. Tesco/Amazon) otherwise they are viewed as a single benefit.
- There is no entitlement to the benefit as part of the employee’s contract (including salary sacrifice schemes).
- It is not provided in recognition of a work-related service or employment duty.
- The exemption is an ‘all or nothing’ exemption: if the value of the benefit is £60 then the full amount of £60 is taxable, not just the £10 excess.
- Directors, office holders and employees who are members of their family and household are subject to an annual cap of £300.
- Flowers
- Chocolates
- Wine (not vintage wine for investment)
- Hampers
- Taking staff for meal
- Providing a working lunch for employees (because this is related to their employment).
- Gifts, incentives or events related to performance targets or results.
- Gifts, incentives or events in relation to employment services e.g. team-building events.
- Taxis when employees work late
- An ongoing or reoccurring cost. e.g. yearly gym membership/annual broadband
- In October Mrs Smith receives a bottle of wine from the company for her birthday.
- The cost to the company is £30 and this amount is deducted from her annual cap of £300, leaving her an available exempt amount for any future trivial BIKs in the tax year of £270. - At Christmas Mr and Mrs Smith both receive a gift from the company that cost the company £50 each, and their daughter receives a gift costing £25.
- As Mr Smith has not received any other trivial BiKs, the cost of the Christmas gift is deducted from his annual cap of £300, leaving him an available exempt amount for any future trivial BiKs in the tax year of £250.
- For Mrs Smith, the cost of her Christmas gift is deducted from her available exempt amount of £270, leaving her an amount to set against any further trivial BiKs in the tax year of £220.
- Jo is an employee, but as she is also a member of the directors’ family, an annual £300 cap applies to her. The cost of her Christmas gift must be deducted from her cap, leaving her with an available exempt amount of £275 for any future trivial BiKs in the tax year.
- The available exempt amount for both Peter and George will be reduced by the cost of their own turkeys, leaving £5 and £45 respectively.
- As Sarah is not an employee, the cost of her turkey must be allocated equally between any employees who are members of her family or household and directors or other-office holders of the company.
- This means that an amount of £25 (£50/2) will be allocated to each of her brothers and deducted from their available exempt amounts.
- Peter will exceed his annual exempt amount of £300, as he only has £5 available. As the exemption is an all or nothing provision, he will be liable to tax on the full allocated amount of £25.
- George’s available exempt amount is sufficient for the allocated amount to be fully covered, and he has £20 (£45-£25) available for any future trivial BiKs in the tax year.
