In what will likely be the last full Budget before Brexit, the Chancellor laid out his plans for the future of the UK economy. There were some positives for small businesses. However, we felt more could have been done to provide some much-needed relief and support to business owners ahead of Brexit.
Under the changes the personal allowance will rise from £11,850 to £12,500, meaning that anyone who earns between £12,500 and £100,000 a year will be spared paying tax on £650 of earnings.
The higher rate threshold will be raised from £46,350 to £50,000. This will mean somebody earning between £50,000 and £100,000 will pay £860 less in income tax each year.
For those earning over £100,000, the personal allowance goes down by £1 for every £2 of income above the £100,000 limit. Those earning £123,700 or above do not get a personal allowance at all. This means they pay tax on all their earnings, and will start paying the higher rate of income tax earlier – currently, this would be on any income over £34,500.
Despite predictions, the government has listened to the concerns of the private sector and has delayed extending the rules affecting contractors and freelancers (known as IR35) until April 2020. These rules will then apply only to large and medium-sized businesses. However, there is no further definition of the small businesses that will be exempt.
The delay is welcomed, but businesses should start preparing now. Those who have not yet done so should not underestimate the work involved to ensure they are ready to go live when necessary. (If you’re worried about this, please do not hesitate to get in touch with us).
Making Tax Digital hits in April 2019 and the first phase affects any businesses that are VAT registered. Small businesses will be grateful that the VAT registration thresholds stays at £85,000.
If you’re on Xero, you have nothing to do. If you’re not on Xero or have friends that aren’t on Xero, please have a chat with us about how you will file your VAT return from April 2019 onwards.
Thankfully, the tax break entrepreneurs receive when selling their company will be protected. From 2019, one significant change is that you will now need to have owned the business for two years to qualify, up from one year currently.
A new condition to claim the relief has been introduced immediately that requires the individual to be entitled to at least 5% of the company’s distributable profits and 5% of its assets available for distribution, to qualify.
The business rates relief will effectively freeze rates for all businesses with a rateable value of £51,000 or less for the two years ahead of the 2021 rate evaluation. This will provide an annual saving of up to £8,000 for independent shops, businesses and cafes.
Most employers can currently claim an employment allowance of up to £3,000 to reduce their employer Class 1 National Insurance contributions (Employers NICs). From April 2020 this will change to only be applicable to employers with an employer NIC bill below £100,000 in their previous tax year.
If you’ve got a wage bill over £700,000 each year, it’s worthwhile having a chat to us to ensure you’re paying the right NIC.
The annual investment allowance will temporarily increase from £200,000 to £1 million for two years. This does mean there will be complex rules for periods of account spanning those dates, and businesses will need to take care that they do not inadvertently spend too much at the wrong time in the accounting period – but if you’re planning a big investment, this is good news and it’s worth talking to us about getting the timing right.
Business owners will face increased staffing costs from April 2019. Auto-enrolment employer pension contributions increase to 3% and the national living wage goes up 4.9% from £7.83 to £8.21. Employee auto-enrolment contributions will also rise to 5%.
If you move out of your home or let it out before it is sold. Principal Private Residence relief (PPR) will now only cover you for 9 months, not 18. There will be more details to come with a consultation still to happen.
Additionally, if you are renting out a spare room in your home, you may have a tax charge when you sell the property as you may no longer qualify for PP from April 2020.
Do speak with one of Wow’s tax advisers if you think this may affect you.
To avoid abuse of the R&D tax credit scheme, the PAYE restriction will be reintroduced for the SME scheme. This means from 1 April 2020 there will be a limit on the amount of tax credit that a company can claim under the R&D SME tax relief scheme. The limit will be set at three times the total PAYE and NICs payment for the period. (If we prepare your R&D claim, we’ll take care of this for you).
To support British businesses exporting, there will be an increase of £2bn to UK Export Finance’s direct lending facility over the next two years. This will help provide additional support to UK companies wanting to win and fulfil export contracts.
The Government announced in the Budget Policy Paper a working partnership with large banks, professional services firms and technology companies to support the productivity of their small business customers.
This includes investing £20m in 2019-20 to support local peer-to-peer networks focused on business improvement. While this is a welcomed start, it doesn’t seem to directly address the business banking pain points small businesses are facing: opening an account, getting a loan, and making and receiving payments. To look towards the future of SMB banking and what needs to improve, take a listen to our co-founder Paul Bulpitt on FinTech Insider’s Podcast series SMB Banking Insights.
The Digital services tax will be a 2% tax on revenues generated from search engines, social media platforms and online marketplaces where those activities are linked to UK users. This will only apply to the tech giants and groups that generate global yearly revenues of more than £500 million (so most Wow clients will be fine!).
If you’re looking to grow your business regardless and would like that journey to be as profitable and pain-free as possible, our recent webinar gives you insight into what the UK’s top-performing businesses are doing right now to maximise their performance. This is based on a talk Wow’s co-founder, Peter Czapp recently gave at the O2 in London.
If you would like some advice on any of the issues highlighted above, please get in touch with your Lead Adviser at Wow on 0345 201 1580, by email or if you’re not yet a Wow client email email@example.com and we can connect you to the right person.
Book a call at a time that suits you