Skip to main content Autumn Budget 2018: what’s happened?
Emily Coltman FCA, chief accountant to award-winning online accounting software FreeAgent, summarises the key changes announced in the 2018 Autumn Budget that will affect practices and their small business clients.
IR35 changes in the private sector
At the moment, if a contractor has clients in the private sector, it’s up to the contractor to determine whether they are an employee in all but name and should follow the IR35 rules. From April 2020, however, if the contractor is working for a “medium or large” business, it will be up to that business to assess whether or not the contractor they are using is caught under IR35.
This rollout to the private sector follows controversial changes made to IR35 rules in the public sector in April last year.
The Budget report did not define a “medium or large” business, but my suggestion would be that this will follow the Companies House thresholds. Whether the “number of employees” figure highlighted in these thresholds will also include affected contractors has yet to be determined.
HMRC to be made a preferred creditor in insolvencies
From 6 April 2020, when a business enters insolvency, HMRC will become a preferred creditor for certain taxes, including VAT, PAYE Income Tax, employee NICs, and Construction Industry Scheme deductions. Direct taxes on the company’s profit such as corporation tax and employer NICs remain unchanged.
Immediate restriction to Entrepreneurs’ Relief
In an attempt to “tackle misuse of Entrepreneurs’ Relief”, “in addition to the current requirements on share capital and voting rights, from 29 October 2018 [in other words, immediately] shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company to claim the relief.”
Consultation to re-introduce R&D PAYE tax credit
This measure will be subject to an initial consultation, but from 1 April 2020, the government plans to restrict the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year to three times the company’s total PAYE and NICs liability for that year. At the moment, the restriction is 14.5% of the surrenderable loss.
Employment Allowance restricted to small businesses
The Employment Allowance, which gives many businesses a £3,000 reduction in their employer’s National Insurance (NI) bill, will be available to fewer employers from April 2020.
From that time, it will be limited to employers whose annual employer’s NI bill was under £100,000 in the previous tax year.
Annual Investment Allowance (AIA) increased
At the moment, businesses can claim tax relief on the cost of qualifying capital assets up to a limit of £200,000 a year. From 1st January 2019 to 31st December 2020 that allowance will be increased to £1 million a year.
Digital services tax for large businesses only
From April 2020, a new 2% digital service tax will be introduced on sales made by large, established digital services businesses. There was speculation before the Budget that this new tax could directly impact small digital services businesses; however, it only applies to groups generating over £500 million a year globally from these services.
VAT threshold remains at £85,000
The UK’s VAT threshold (the level of annual VATable sales at which a business must register for VAT) will remain at £85,000 until April 2022. In some ways this is good news, as it could have been reduced; however, in real terms it is a reduction in the threshold as inflation is rising.
No mention of Making Tax Digital (MTD)
There was no mention of MTD in either the speech or the full report, so we have to assume that the current plans are going ahead, with MTD for VAT due to be introduced in April 2019.
Business rates are to be cut for small retail businesses
Business rate bills will be cut by one-third for retail properties with a rateable value below £51,000, for two years from April 2019. The government says this will benefit 90% of retail properties.
Not much good news for small businesses!
Although there are promises of more support available to small businesses, such as a new Small Business Leadership Programme and a pilot in Greater Manchester to test what government training could help the self-employed, sadly this Budget does not contain a lot of good news for the smallest businesses.
The IR35 changes could introduce additional complications in building relationships with clients, while the Annual Investment Allowance increase is unlikely to be very helpful and the Employment Allowance continues for the smallest businesses as it has been.