2018 Autumn Budget

louise.stephenson • December 3, 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.


Extracting monies from your limited company     Optimal Directors Salary & Tax on dividends 2019/20

By stephensontilley • April 10, 2019
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.

Changes to Director's Self-Assessment Tax Returns

By louise.stephenson • January 28, 2019
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 (for Directors)

By louise.stephenson • December 3, 2018
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.

Travel & Subsistence (for limited companies)

By Louise Stephenson • November 6, 2018
You must be working away from your normal place of work at a temporary workplace to be able to claim for the travelling expenses to get to that temporary workplace. There are special rules which cover employee travel, these are summarised as follows: Journey from and to Home > Permanent workplace: Ordinary commuting = Disallowed Workplace > Workplace: Business travel = Generally allowed Home > Temporary workplace: Business travel = Allowed Home > Depot: Ordinary commuting = Disallowed Home > Sales patch: Ordinary commuting = Disallowed Workplace > Client/business function: Business travel = Allowed A temporary workplace is defined as one which an employee visits for a limited or temporary purpose, for a duration of less than 24 months. Contractors For most contractors, their office at home is their permanent place of work and their clients’ offices are their temporary workplaces. However, please be aware of the 24-month expenses rule, which says that after 24 months consecutive work at one location a contractor can no longer call this place a temporary workplace and can no longer claim expenses. Also, if a contractor creates a limited company specifically for the purpose of working on a particular contract at a single location, with no other contracts before or after, they will find it hard to convince HMRC that their expenses claims are legitimate.

Trivial benefits (for limited companies)

By Louise Stephenson • November 6, 2018
These are small perks that an employer can provide to their employees without having to pay tax on them. Trivial benefits that are exempt from income tax are automatically be exempt from Class 1A NIC from 6 April 2016. Trivial benefits will mainly consist of gifts to staff or members of their family on special occasions such as Christmas, birthdays, marriage or the birth of a child. Conditions: 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. Examples of what is allowed: Flowers Chocolates Wine (not vintage wine for investment) Hampers Taking staff for meal Examples of what is NOT allowed: 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 Examples Scenario 1: Celebrating Birthdays You take a group of your employees out for a meal to celebrate their birthdays. Five employees attend the meal at a cost to you of £240. Each of the employees choose a different selection of food and drinks. The cost per head works out at £48, if the bill is split evenly. This can be covered by the exemption since the cost for each individual does not exceed the trivial benefit limit. Scenario 2: Staff Parties As director, you decide you want to provide your employees with two annual functions, one at Christmas and one in the summer. The first function costs £140 a head and the second costs £40. The first function is exempt by virtue of the annual parties function exemption. The second would be considered a trivial benefit in kind because it does not exceed £50. Scenario 3: Director Benefits As a director you are provided with 3 bottles of wine that cost £30, £40 and £50 respectively in a single tax year. The total cost of the benefits is £120. The total cost does not exceed the annual exempt amount of £300 and all of the benefits can be covered by the exemption. HMRC Example 1 Mr and Mrs Smith are directors of a close company and their daughter Jo is an employee. 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. Comment: Jo is a member of Mr & Mrs Smith’s family and so benefits provided to her are subject to an annual £300 cap. She is an employee of the company in her own right and so she has her own cap of £300. HMRC Example 2 Peter and his brother George, are directors of a close company. They have a sister, Sarah, who is not an employee of the company. Due to the provision of eligible trivial BiKs earlier in the tax year, Peter has an available exempt amount of £55 and George has £95. At Christmas they are each provided with a turkey by the company, each costing the company £50. 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.