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It went by almost unnoticed when Chancellor Philip Hammond presented his Spring Statement on 13th March 2019. Sandwiched between two important votes on the Brexit deal, the Spring Statement took little attention away from the chaos surrounding the UK leaving the European Union.
Much of the statement is Brexit dependent of course, and it’s still not entirely clear how our economy will be affected moving forward. But nonetheless, it’s crucial to understand the key points that Hammond made and how they will affect your business. So here’s the low-down…
Please note: some of this information may be subject to change, we will provide up-to-date information, as the situation settles. Of course, give us a call if you need any more information.
Benefits to businesses…
DIGITAL BUSINESSES REPORT
The Chancellor announced a report into tech giants that dominate their markets. This report may result in new rules to be applied later this year, which could allow SMEs and new innovative tech companies to see greater success, as well as offering a wider variety of products and services to consumers in the UK.
CORPORATION TAX REDUCTION
The government has been promising for a while now that the corporation tax rate will reduce to 17% at some point in the future. They have now delivered on this by announcing that it will be the case from 1 April 2020. Companies that straddle this date will pay a proportion of their profits at the old and new rate, 19% and 17%.
ANNUAL INVESTMENT ALLOWANCE INCREASE
The annual investment allowance had increased from £200k to £1m from 1 January 2019, for any qualifying capital assets. Prior to the increase, if total qualifying assets exceeded £200k then the difference that surpassed this amount would only be deducted from your tax profits at 18%. The increase means there is an extra £800k that can be used to reduce your taxable profits at 100% rather than the 18%, which could result into a tax saving of up to £124,640, whilst corporation tax is still charged at 19%.
STRUCTURES AND BUILDINGS ALLOWANCE
HMRC has now introduced a new capital allowance, known as the Structures and Buildings Allowance. This gives relief for expenditure on certain structures and buildings. The allowance is available for new structures and a building intended for commercial use. It also includes the cost of converting or renovating existing premises to qualifying use. The allowance means companies can make a 2% deduction on all qualifying assets each year, whereas previously there were no allowances and the cost could only be relieved once the premises had been disposed of.
GOODWILL – WITH ELIGIBLE INTELLECTUAL PROPERTY
The government is reintroducing the allowable deduction on amortisation for goodwill, but only in relation to the acquisition of businesses with eligible intellectual property. Companies that acquire goodwill on or after 1 April 2019 will receive relief up to a limit of six times the value of any qualifying intellectual property in the business. The qualifying assets include: patents, registered designs, copyright and design rights and plant breeders’ rights. Relief will be given at a fixed rate of 6.5% in all cases.
Please note: the relief will still not be available to internally generated goodwill and the purchase of another business’ customer base.
EMPLOYEE TRAVEL EXPENSES
From 6th April 2019, new legislation has been introduced which removes the necessity for employers to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances, paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying expenditure. The overseas scale rates can be found on the HMRC website.
Restrictions to businesses…
R&D CLAMP DOWN FOR LOSS MAKING COMPANIES
HMRC is clamping down on the total amount repayable on the R&D tax credit for loss making companies. The amount repayable is to be restricted to three times the company’s total PAYE and NICs liability for that given tax year. This is to help prevent the abuse of the payable credit system, but the government is looking at ways to help minimise the impact on genuine businesses.
SPECIAL POOL WDA RATE REDUCTION
From 1st April 2019, there will be a reduction in the rate of writing down allowances on the special rate pool from 8% to 6%; therefore, this will result in increasing your taxable profits. The assets that qualify for the special rate pool are:
IR35 INTRODUCED TO PRIVATE SECTOR
There will be changes to the off the payroll working rules (also known as IR35), where it will be extended to the private sector from 1 April 2020. Under the current rules, implemented in April 2017, this only effect companies that work for other companies who were placed in the public sector. For any company that is current subjected to IR35, there will be no changes. However, the new rule means more companies will be subjected to IR35; therefore you may need to check whether you fall into the new legislation.
How do the announcements made in the Spring Statement affect individuals?
TAX FREE PERSONAL ALLOWANCE INCREASED AGAIN
Once again HMRC has delivered on their promise to keep raising your tax free personal allowance and from 6th April 2019 this will have increased to £12,500. Not only have they increased the personal allowance they have improved the basic rate tax band to £37,500. This means for the tax year 2019/20 you can earn up to £50,000 before you start to pay higher rate tax at 40%.
DIVIDEND ALLOWANCE SET AT £2,000
There were talks about decreasing or potentially scrapping the tax-free dividend rate, however the government is still keeping this at £2,000. The dividend tax rates are to remain unchanged for basic rate, higher rate and additional rate at 7.5%, 32.5% and 38.1% respectively.
SMALL INCREASE IN CAPITAL GAINS ANNUAL EXEMPTION
The annual exemption allowance for capital gains has increased from £11,700 to £12,000. The tax rates on capital gains remain unchanged with basic and higher rate remaining at 10% and 20% respectively, 18% and 28% for residential property. The entrepreneurs and investors relief remain at £10m each, but these are lifetime not annual allowances. The rate for qualifying gains will also stay at 10%.
COMPANY CARS EVEN LESS ATTRACTIVE
There will be another percentage increase on the tax bands for company cars, which will again make company cars less attractive to employees. The tax bands are split into groups that relate to the car’s CO2 emissions, which increases by 1% per every 5 g/km. For the tax year 2018/19, there was a general increase to each of these bands by 2% and there will be a further 3% increase this year. The maximum charge will remain at 37% of the list price of the car.