How does last week’s Budget impact on you?

Posted by | November 06, 2018 | News | No Comments
Budget 2018 Impact

How does last week’s Budget impact on you?

7 changes for you to think about


1. Income tax thresholds and allowances to increase

What’s the change?

Last week, the Chancellor announced that the personal tax allowance is to be increased to £12,500, and the higher rate threshold is to be increased to £50,000.

When will it happen?

The changes will apply from April 2019.

What’s in it for you?

The increased thresholds will mean basic rate tax payers save £130 per year, higher rate tax payers will keep an extra £860 per year. Additional rate taxpayers will save £600 with these changes.

So, what do Styles and Co think about it?

We believe it’s pretty good news for all our clients, but especially the higher rate tax payers.

Although the changes were always due to happen by 2020, it’s always nice to have that extra amount of spendable money in our pockets sooner rather than later.


2. Temporary lift in the Annual Investment Allowance

What’s the change?

The maximum amount of the Annual Investment Allowance (‘AIA’) available to businesses investing in plant and machinery will increase from £200,000 to £1 million.

When will it happen?

From 1st January 2019 for a temporary period of two years.

What’s in it for you?

Potentially, your company could save more than £250,000 in Corporation Tax over the next two years, if you are looking to spend more than £1m plant and equipment in each of those years.

So, what do Styles and Co think about it?

January 2019 isn’t too far away. Therefore, any company currently looking to invest more than £200k in plant and machinery might consider deferring making their investment until the new year.

Similarly, from a timing perspective (for the longer term) , any such expenditure should be made prior to 31st December 2020 in order to maximise the tax saving.


3. New Structures & Buildings Allowance

What’s the change?

A new form of capital allowances, Structures & Building allowances will be introduced for the construction of and purchase of commercial buildings. Relief will be at a rate of 2% pa.

The cost of land will be excluded from the charge.

When will it happen?

Although the draft legislation hasn’t been published yet, the relief will apply to all eligible expenditure from the date of the Budget (ie 29 October 2018)

What’s in it for you?

The rate of relief at 2% means that you could save £19,000 of corporation tax on construction costs of £100,000 but, as the relief is spread over 50 years, that’s only £380 per year!

So, what do Styles and Co think about it?

While the rate of relief is low, it all adds up! Because any remaining allowance is transferred to the purchaser if you later sell the building, keeping good records of exactly what work was done, is even more important than ever. Some of the expenditure, for example on the heating system may qualify as plant and machinery and so get a much higher allowance. However, builders don’t always provide a breakdown of costs to each separate bit of work they do and are often not very helpful if you go back to them a year later when your accounts are being prepared, so you need to make sure you ask for this at the time.


4. Proposed extension of the IR35 rules to the private sector IR35

What’s the change?

If you are a ‘worker’ operating through your own personal service company (‘PSC’), you will probably be aware that the Government introduced a new regime in 2017, switching the obligation to account for PAYE and NIC under IR35 to all ‘employers’ in the public sector.

The Government now intends to roll out these public sector changes to large and medium sized companies in the private sector as well.

When will it happen?

This change will apply from April 2020.

What’s in it for you?

Large and medium companies beware!

This is because you will need to carefully consider the status of all your contracts with third party companies who are providing services. As the paying organisation you will become liable for any tax that should have been deducted on payments to the PSC.

So, what do Styles and Co think about it?

In a way this is a little bit of good news, because there had been speculation that the proposed changes would be introduced in 2019.

Also, some more good news, because the new rules will not apply to small businesses – at least for the time being!


5. Restriction of Principal Private Residence Relief

What’s the change?

Principal Private Residence Relief (‘PPR’), is a very valuable relief that can offer complete exemption against the capital gains tax (CGT) arising when you sell your main, or only, residence.

Last week, the Chancellor indicated that he will restrict the final period that attracts the relief (after moving out of the home and before sale) from the last 18 months to the last 9 months.

Also, there will be no lettings relief (for the period the property is let) unless the owner occupies the property alongside the tenant.

When will it happen?

Although, not yet confirmed, the implementation date the Chancellor is aiming for is 6th April 2020.

What’s in it for you?

CGT on the disposal of residential properties can be as high as 28%. This is very high indeed when compared to a rate of 0% where PPR applies.

So, what do Styles and Co think about it?

We believe, it’s always better to avoid paying tax if you can, so always plan carefully if you are thinking of moving.


6. Capital Gains Tax payment date

What’s the change?

Capital Gains Tax has historically always been payable by 31 January following the end of the tax year in which the relevant sale took place. So if you timed things right, you may have had the use of that money for nearly 22 months before the tax was due.

Under new draft legislation, sales of UK residential property that result in a CGT liability (ie PPR isn’t available or is restricted) will need to be reported to HMRC and the tax paid over within 30 days!

When will it happen?

The new payment deadline will apply to disposals made on or after 6th April 2020

What’s in it for you?

Although you should safely have the money from the sale in the bank by then, you need to be organised to deal with this extra admin within 30 days. If you’ve just moved house you might be busy enough at that time!

So, what do Styles and Co think about it?

This brings UK residents in line with non-UK residents for whom the 30 day deadline has applied for a couple of years but in our view, 30 days is a very tight turnaround and HMRC ought to undertake plenty of publicity to make taxpayers aware of the change.


7. Changes to Entrepreneur’s Relief

What’s the change?

Continuing the Capital Gains Tax theme, on the sale of your privately owned company for up to £10m, provided you qualify for Entrepreneur’s Relief, your rate of tax should be only 10%.

This generous relief has been available since 2008 but prior to each Budget there were rumours that it could be taken away. This year the conditions have been tightened up slightly to prevent abuse.

To qualify, you must now own the shares for at least 2 years (not 1) prior to sale and the shares must give you at least a 5% interest in the company’s assets and profits.

When will it happen?

The new rules will apply to any disposals post 6 April 2019

What’s in it for you?

For the majority of owner managed businesses, particularly family companies, these conditions are normally met but if you are considering giving shares to family members you need to bear in mind the 2 year ownership period if a sale if on the horizon.

So, what do Styles and Co think about it?

Previously the 1 year ownership period allowed more flexibility. If this condition hadn’t been met and a buyer came along, delays as part of the normal sale process would usually bridge the gap but the 2 year ownership period means share structure needs more careful planning.


We’re here to help you, so please contact us if you require any help with any of the topics covered.