Monday was the chancellor’s annual budget. Most of the measures will come into place from April next year. It was quite an optimistic budget thanks to an upgrade in the estimates for tax revenues by the Office of Budget Responsibility. However, it was tempered with the warning that should a deal not be secured with the EU, there will need to be a second “emergency” budget in April. He has also set aside around £4 billion to help with this transition. Assuming a deal is secured, the economy looks set to grow for the next five years at least, with unemployment low, wages finally beginning to grow and government debt significantly lower than it has been.
So what did he announce? Well, the big headline grabber was the raising of the personal allowance up from £11,850 to £12,500, and the threshold when you start to pay the 40% tax rising to £50,000. This means you will pay less income tax next year.
If you have employees on minimum wage or the national living wage, this will rise to £8.21 an hour from April 2019.
There will be a freeze in fuel duty, as well as the taxes on beer, cider, and spirits, however, a bottle of wine will increase by 9p, tobacco by 33p and there will be an increase to 21% on online gambling taxes (the Remote Gaming Duty).
Other major changes affecting businesses includes a rise in the Annual Investment Allowance (allowance on capital purchases you make as a business) from £200,000 to £1 million which will benefit a large number of medium-sized businesses, however this was countered with a reduction in the Writing Down Allowance (allowance on certain items such as cars) from 8% to 6% which means you won’t be able to claim as much tax relief against some items.
A significant change for small businesses considering taking on apprentices is that they will now only have to contribute 5% instead of 10% towards the cost of the apprenticeship, which will mean it may be much more cost-effective now if you are considering taking on an apprentice. In addition, the VAT threshold (when you start paying VAT) will remain at £85,000 for the next 2 years.
If you have a store on the high street or pay business rates on a property with a rateable value of less than £51,000 a year, your business rates bill will reduce by 1/3, and the chancellor also announced an extra £675 million for high street regeneration projects, so now is the time for local businesses to feed their ideas into their local councils about what can be done with the money.
The government announced £30bn to improve and repair roads which will help drivers, however Air Passenger Duty will rise in line with inflation meaning those who travel by air will pay more. There will also be a new tax on plastic packaging if it’s not recyclable.
If you are a contractor working for a medium or large company, the rules on IR35 are going to be tightened up from April 2020. This is significant because it could mean a big rise in the tax and national insurance contributions you pay from April 2020. And for large digital companies like Amazon, Facebook and Google, there is a new 2% “Digital Services Tax” coming in to ensure they pay more tax.
There will be additional help for first-time buyers who use shared equity schemes as they will now be exempt from paying stamp duty, and there was further cash announced for house building. Two additional announcements are particularly important to pay attention to – a new fund to help small house building businesses, and the removal of lettings relief if you rent out a house unless you are sharing the home with the tenant. Councils will also now be allowed to borrow more in order to build council houses. A consultation will be published in January that may mean stamp duty for non-UK residents who wish to buy property here paying an extra 1% in stamp duty.
There was some concern before the budget about the impact of coming changes to the government’s flagship welfare reform – Universal Credit, and the Chancellor announced new funds to help with the transition period. He also announced the next spending review which will happen next year will mean the public sector is in for a period of growth in spending following the past eight years of austerity. Those who claim social security will also have access to a new enterprise allowance fund that will give them help to get their business ideas off the ground.
The biggest new spending commitment was to the NHS which will see a £20 billion increase in spending over the next five years to help meet the growing demands of an aging population. This will also include a new Mental Health Crisis Service with help available in every A&E across the country, a children’s team in every area of the country and a new 24-hour mental health hotline. There was also £700 million extra announced to help local authorities with adults and children’s social care costs.
As it’s the anniversary of WW1, there was an extra £1 billion announced for defence, as well as smaller amounts to help with commemorations of the war and education about the Holocaust in schools. Talking of schools, an extra £400 million has been set aside for the rest of this financial year for school’s to apply for and use to help with any “little extras” they need to buy.
Finally, there was extra money announced for the devolved governments, big cities, northern powerhouse and a new special economic area for south Tees.
Overall, it seems quite a positive budget for business with the exception of contractors, however, please note that this blog post is based on the immediate announcements in the budget. Inevitably, as analysts pore over the small print in the next few days things will emerge that were not mentioned and we will update the blog accordingly
If you would like to see how this budget might affect you personally, there is a handy calculator available here.