Updated: Jan 20, 2021
This is the fourth in this series of circulars looking to address commonly asked questions or topical issues. Previous additions, which have been included below, cover Payments on Account 06/08, Telephony and Broadband 31/08 and MTD & Bookkeeping software 02/10.
This edition coincides with the Chancellors budget announced yesterday.
There is a wealth of analysis on yesterday’s statement available across our media. Here is my interpretation on the areas I believe impact you most directly. I’d be really interested to hear your take on yesterday’s budget too.
30TH October 2018
For those unfamiliar with IR35, this is a piece of legislation introduced to attempt to level the playing field for tax between PAYE and non-PAYE workers performing similar roles. It has been lightly policed and heavily challenged. There had previously been an emphasis on the Contractor to determine whether they are in scope for IR35, with mixed results. In recent years, the responsibility had been passed to the organisation to decide in scope roles, but only for those in the public sector. The Chancellor was expected to announce a rollout of this shift in responsibility to the private sector, and he did – with 2 caveats.
- It will take affect from April 2020, not from April 2019 as expected
- It will apply only to Large and Medium size organisations (>50 employees / >£10m turnover and/or assets)
It could be complex for contractors and their agents moving in and out of small businesses, and perhaps a blanket albeit staged rollout would have been preferred. Anyway, there are the headlines, and we’re now clear on what the government intend to do. Now it’s a case of waiting to see how the private sector responds.
It is my view that Contracting is, and will remain to be, mutually beneficial to both the contractor and the ‘employer’ (term used tentatively). The arrangement reduces the bureaucracy of employment, provides flexible working arrangements for both parties, and maintains a distance between the contractor and tiresome company politics which is often the catalyst for this career move in the first place.
In the long term it is clear that tax liabilities will increase for individuals placed in roles deemed to be in scope by the employer. However, in order for businesses to be able to attract the talent they need to deliver their programmes, they may introduce measures such as agile working, remote working, increased day rates and altered security arrangements for example, in order to negate increased income tax and keep roles out of scope.
Time will tell and we’ll all be keeping a keen eye on developments.
Income tax and NI
There was an accelerated rollout of the increase in the personal allowance (£11,850 to £12,500). Prior to the announcement this was understood to be just a marginal increase this time round. The basic rate tax band is also increasing from £46,350 to £50,000. Both of these measures will have a better-than-inflation impact on your take home pay in the 2019/2020 tax year.
The National Insurance primary threshold (level at which NI contributions start) has increased from £8,424 to £8,632, and the National Insurance upper earnings limit (the point at which contributions are calculated at 2% rather than 12%) has increased from £46,384 to £50,024. In summary, the rise in NI contributions caused by the increase in the Upper Earnings Limited will negate some of the gains made above for those in employment and self-employment
For those operating via limited companies the changes to the personal allowance, the basic rate tax band and the NI primary threshold will drive your remuneration strategies for the 2019/2020 tax year. Overall the news has been refreshingly kind.
There was some concern here but ultimately there has been no change to dividend tax. The £2,000 tax free allowance remains and tax rates hold at 7.5%, 32.5% and 38.1% for basic, higher, and additional rate taxpayers respectively.
Business rates relief
The government will cut business rates by a third for small retailers with a rateable value of £51,000 or less.
So, partial respite for the high street and good news for I think all of you in business premises. In essence the Chancellor is saying large retailers must evolve and the Treasury can’t incentivise an out of date model. At the same time enterprise and entrepreneurship must be protected, hence why small businesses have gained from yesterday’s business rates announcement. In an interview with Sky News, the Chancellor explains that the Government’s vision for our towns are 1) smaller high streets 2) less retail 3) more leisure, and 4) space on the peripheries of the high street used for housing. This measure is clearly congruent with that vision.
For the third straight year, no change in savings allowances. The personal savings allowance holds steady at £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers with no allowance for those paying additional rate tax.
No change to the VAT threshold of £85,000.
Pension tax breaks are safe for now - despite the Chancellor's recent gripes that the bill is 'eye-wateringly expensive'. The annual allowance remains at £40,000 per year. A slight rise to the lifetime allowance to £1.055m.
Capital gains tax
The personal allowance for capital gains will rise to £12,000 in 2019-20, allowing people to make an extra £300 profit on asset sales before they owe any tax. However, pressure on investment property continues by a slash in the 18 month residency relief to 9 months and an effective abolishment of the £40,000 lettings relief.
Other areas of interest
Annual Investment Allowance - For those businesses dependant on large and regular capital expenditure. The AIA, which is the amount permitted to be written off against taxable income in the year, is increasing from £200k to £1m.
Apprenticeships – some of you have expressed an interest in exploring apprenticeships to relieve some of your administrative burden. Contribution of small companies to apprenticeship levy is to be reduced from 10% to 5%.
Alcohol – Beer, cider and spirits duty frozen. Duty on wine increased in line with inflation.
Burns – A packet of 20 cigarettes will go up 33p. A 10 gram pack of cigars goes up 17p.
If you’d like to have a chat through anything relating to the 2018 Budget, please give me a call.