How does the 2018 Autumn Budget affect businesses?
According to the Office for Budget Responsibility (OBR) the economy has grown every year since 2010, with employment at a near record high. But how does the October 2018 budget affect businesses?
Changes to the IR35 rule
Currently, if you are a contractor whose clients are in the private sector, you are able to decide whether or not you are an employee in all but name under the IR35 rules.
However, from April 2020 medium or large business will be able to assess whether or not you fall under the IR35 regulations. The consequence of this could be increased tax and National Insurance contributions, as you would be taxed as an employee.
Crucially the budget does not outline the definition for a medium or large business. However, Companies House thresholds state the following:
A small business is one that has at least two of:
annual turnover (sales) not more than £10.2 million
the balance sheet total not more than £5.1 million
the average number of employees no more than 50
To be a medium-sized company, you must meet at least two of the following conditions:
annual turnover must be no more than £36 million
the balance sheet total must be no more than £18 million
the average number of employees must be no more than 250.
If you do not meet the above criteria, then you would be a large business.
Digital Service Tax
From April 2020 the Government will introduce a new digital service tax. Large social media platforms, search engines and online marketplaces will pay a 2% tax on the revenues they earn which are linked to UK users.
It will only apply to groups generating over £500 million a year globally from these services.
To meet the new criteria for Entrepreneurs Relief shareholders will now need to be entitled to at least 5 per cent of the net profits and distributable profits and net assets of a company as well as five per cent of the ordinary share capital.
From April 2019, you will also need to have owned the asset for a minimum of 2 years, previously this was 1 year.
Employment Allowance restriction
From April 2020, Employment Allowance will be restricted to employers whose annual employer’s NI bill was under £100,000 in the previous tax year.
Personal tax increase
From April 2019 the personal tax allowance will increase to £12,500 a year. The limit for higher tax rate taxpayers increases to £50,00 per annum.
Annual investment allowance increase
Currently, businesses can claim tax relief on the cost of qualifying capital assets up to a limit of £200,000 a year.
From the 1st January 2019 to 31st December 2020 Annual Investment Allowance will be temporarily increased to £1 million a year.
Also, from October 2018, businesses will be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.
VAT threshold unaffected
This remains at £85,000 until April 2022.
Business rates reduction
For two years from April 2019 business rates will be reduced by one third for retail properties with a rateable value that’s below £51,000, saving retail businesses £900 million in total.
From April 2019, large businesses will be able to invest up to 25% of their apprenticeship levy to support apprentices in their supply chain.
This means that some employers will only pay half of what they currently pay for apprenticeship training – from 10% to 5%. The government will pay the remaining 95%.
Structures and building allowance
Where all the contracts for the physical construction works are entered into on or after 29th October 2018, new non-residential structures and buildings will now be eligible for a 2% capital allowance.
Capital allowances special rate reduction
As of April 2019, the capital allowances special rate for qualifying plant and machinery assets will be reduced from 8% to 6% to match average accounts depreciation more closely.
Corporate capital loss restriction
As a way of ensuring that large companies pay tax when they make significant capital gains, the Government will bring the tax treatment of corporate capital losses in line with the treatment of income losses.
Starting from 1st April 2020, the government will restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%. This measure will also include an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year, meaning that 99% of companies will be unaffected.
The government plan to consult on the detailed design of this change and legislate it in the Finance Bill 2019-20. The measure will be subject to anti-avoidance rules that are to apply with immediate effect.
From 6th April 2019, fuel benefit charges will increase in line with RPI and the van benefit charge will rise in line with CPI.
Protecting taxes in insolvency
For those businesses that enter insolvency from 6th April 2020, more of the taxes that have been paid in good faith by its employees and customers will go to publicly funded services rather than being distributed to creditors.
This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE Income Tax, employee NICs, and Construction Industry Scheme deductions). The rules will remain unchanged for taxes owed by businesses themselves, such as Corporation Tax and employer NICs.
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