How does the 2018 Budget impact on Small Business Owners?

Another budget has gone by and yet again it seems to miss out most of the items that were speculated about in the weeks leading up to it.

As far as budgets go this is a fairly low impact one for small businesses in our opinion. That said the Budget is a large report and we haven’t read it all, yet, so we will keep you posted on any changes that weren’t part of the public speech.

Finally, we can’t help but wonder whether there will be an emergency budget next year if things don’t go our way with Brexit.

Here are some summarised highlights:

Annual Investment Allowance

Currently, you can spend up to £200,000 on plant and machinery and receive 100% tax relief. After April 2019 this increases to £1m.

We will put our necks out and state that most small businesses won’t be affected by this but if you do have this amount to invest then it may pay to delay the purchases until the threshold increases.

Corporation Tax unchanged

No changes were announced in respect of Corporation Tax, with the rate of Corporation Tax remaining at 19%, and expected to fall further to 17% from April 2020.

This was expected, Corporation Tax is heading towards being the lowest in Europe and the chancellor needs us to remain competitive.

VAT threshold

Despite speculation, the VAT registration threshold will remain at £85,000 for the next two tax years. Businesses suffer a great deal when they are forced to register when they just exceed the threshold.

It was thought this might have been acknowledged in this budget. In fact, the speculation was that the threshold would be abolished or reduced to a much lower rate – however, this sort of move would have had huge implications and given the proximity of Brexit it is no real surprise that it remains the same.

Personal Allowances and Higher Rate Threshold

The personal allowance will increase by to £12,500 from April 2019 and the higher rate threshold for Income Tax will increase to £50,000.

This is good news and moves forward this Conservative manifesto pledge by a year.

There were no changes in tax rates announced and no change in the dividends allowance or the employer’s allowance.

Research & development tax credit restriction

If you do claim R&D tax credit and you are not profitable you can receive a refund of this tax credit. This restriction will now make the calculation a little more complicated because the refund cannot exceed 3 times the annual NI and PAYE liability of the company.

Restriction to lettings relief from April 2020

This is a continuation of the war on landlords by restricting the allowance enjoyed by landlords when they dispose of a property they had previously lived in.

From 2020 this relief will only be applicable where the owner of the property cohabited with the tenant – a clever way of basically ruling this out for 90% of disposals.

In addition, a further reduction was announced which reduces from 18 months to 9 months the additional period where a capital gain on the property is exempt.

Entrepreneurs Relief

Entrepreneurs relief reduced a capital gain from 20% to 10% when selling a trading business if you meet the criteria. These criteria have now been changed to include:

  • You must now have been involved in the business for 24 months – formerly 12 months.

  • You must have at least 5% interest in the capital, voting rights and distribution of the business asset (appears to be a test for companies only).

ER is still a great relief from capital gains it’s just a bit trickier to qualify.

IR35 Changes

Last year saw a squeeze on public sector employers, where workers who could be deemed staff had to be employed rather than subcontracted.

This budget announced that these rules will apply to the private sector in April 2020 initially with large and medium-sized businesses.

However, if you are a contractor, and you work for the businesses affected you will also be affected.

National Minimum Wage

The National Minimum Wage will continue to apply for individuals under 25 years of age, with the rates increasing from April 2019 as follows:

  • 21 to 24 year olds will increase to £7.70 per hour

  • 18 to 20 year olds will increase to £6.15 per hour

  • 16 to 17 year olds will increase to £4.35 per hour

  • Apprentice rate will increase to £3.90 per hour

HMRC to become a preferred supplier in insolvency cases

HMRC lose too much tax revenue to preferred creditors when things go wrong. This change prevents that and just means you are even more unlikely to get paid in the event of an insolvency.

As usual good credit checking procedures and credit control are essential in this economic environment.

In Summary

On the face of it, this budget means business as usual. No real shocks or huge announcements. It remains to be seen if there is any detail hidden in the small print but for now, the chancellor has tried to keep a steady ship as we sail into to potentially turbulent waters.

By |2020-08-18T11:03:36+01:00October 30th, 2018|Blog, Tax|0 Comments