Do you believe Fiscal Phil AKA Chancellor Hammond
Budget opinion from Anytime
Who do you believe and how does this Budget affect YOU
The Chancellor said on Monday that “….the era of austerity [is] finally coming to an end”
Only days earlier the Prime Minister told us “Austerity is over”
Is either correct? How will the measures that were announced on Monday and some earlier, impact you, your business and all of us collectively. We have reviewed the Budget to try and determine what all this means.
This article is NOT about changes in duty and other things you will have already heard or read in the news.
The B word
Firstly there is a BIG caveat to anything that was announced this week. And of course it hangs around that other B word. If the economic or fiscal outlook changes materially in year Fiscal Phil “…. will take whatever action is appropriate, including if necessary reserving the right to upgrade the Spring Statement to a full Fiscal Event.” The way I read that is that if there is a No deal Brexit – all bets are off. If there is no deal and we suddenly face extra fiscal demands – where is the money coming from.
For example, we were promised increased personal allowances at £12,500 and an increased higher rate tax band kicking in at income over £50,000. Very welcome, a year early. But will that get deferred if we need the money to fund Brexit?
How austere?
How do you measure “austerity”? Well I started by looking at how we are growing the economy. The OBR forecasts that global growth will be 3.7% in 2018 and in 2019. By comparison the OBR expects UK annual GDP growth of 1.3% in 2018 and 1.6% in 2019, then dipping slightly. As David Laws commented in The Times earlier this week, Hammond is no longer looking to balance the books and meet the remaining £20b deficit. He has relaxed spending, particularly in the NHS. He also points out that “the squeeze on the lowest income groups….has got considerably worse” and that what Hammond means is that …”he is going to stop squeezing us all further”. So will we actually feel better off?
Well the release of public funding should be of general benefit. If nothing else maybe there will be less potholes on our roads! But what of the tax changes
The much heralded early hike in tax allowances is designed to ensure that 32 million tax payers see their tax bill reduced in 2019-20 (compared to 2015-16) and over the same period 1 million tax payers will have been taken out of higher rate tax. A “typical” basic rate taxpayer will pay £130 less tax next year than this year.
Off payroll working (IR35)
Then there is off payroll working also referred to colloquially as IR35. New measures were applied last year in the public sector, with very mixed results. Government has wanted for some time to apply this in the private sector too – despite the current problems reported. I don’t think anybody has much doubt that this will happen because the Government need the money and there is so much political wrangling around the gig economy which has confused the issue. It was widely expected this would take effect in April but this has been delayed until April 2020. The cynic in me says that this is because with other projects coming up (making tax digital and Brexit) that they don’t have the resource to implement this. Also for the first time the Budget announcement added that “Small organisations will be exempt, minimising administrative burdens for the vast majority of engagers, and HMRC will provide support and guidance to medium and large organisations ahead of implementation”.
What this means is firstly that contract workers still have to consider whether IR35 applies to them, as they should have been doing all along. Nothing else changes until April 2020. Engagers of contract workers, including employment businesses are unaffected until 2020. After that date larger businesses (to be defined) will be in the same position as the public sector and it appears will therefore have to assess whether contract workers they engage are truly self employed. Watch this space.
Measures to stimulate business and investment
There will be an increase in the Annual Investment Allowance from £200,000 to £1 million for all qualifying investment in plant and machinery made on or after 1 January 2019 until 31 December 2020. The AIA allows a 100% write off against tax for most equipment purchases (the main exception is cars). If you are thinking of buying new plant or equipment in excess of £200k it may be sensible to wait until 2019, depending on your circumstances. You should obtain individual advice to maximise relief.
There will be a new non-residential structures and buildings allowance. Buildings will be eligible for a 2% capital allowance where all the contracts for the physical construction works are entered into on or after 29 October 2018.
Partly to cover the cost of the above, from April 2019, the capital allowances special rate for qualifying plant and machinery assets will be reduced from 8% to 6% “….to more closely match average accounts depreciation”. This applies to long life assets and also cars with higher CO2 emissions.
Many had thought that Entrepreneurs’ Relief would be scrapped or severely cut back. The “only” change is that to encourage longer-term business investments the minimum qualifying period throughout which shares or business assets have been owned will be extended from 12 months to 24 months from 6 April 2019. This is a complicated but valuable relief for business owners.
Business Rates
According to The Times, business rates now account for nearly 19% of tax paid by large companies, but 40% for retailers. Therefore any announcement to cut rates, especially for small retailers, is very welcome. In headline terms, the government is cutting bills by one-third for retail properties with a rateable value below £51,000, benefiting up to 90% of retail properties, for 2 years from April 2019.
Tax abuse
From 6 April 2020, when a business enters insolvency, more of the taxes paid in good faith by its employees and customers, and temporarily held in trust by the business, will go to fund public services rather than being distributed to other creditors. This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE Income Tax, employee NICs, and Construction Industry Scheme deductions). The rules will remain unchanged for taxes owed by businesses themselves, such as Corporation Tax and employer NICs.
And following Royal Assent of Finance Bill 2019-20, directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.
And – charity
The Gift Aid Small Donations Scheme allows small donations to be made by contactless payments and on small cash donations made under this scheme. The limit for individual donations under GASDS is now increased to £30. So if you make donations or are involved in a small charity this should make gift aid relief simpler and more beneficial for the charity.
Those are some of the salient measures in this year’s Budget. As I say above – watch out, there may be more in March (and don’t mention the other B word). I have tried to focus on things that impact you as well as giving a general flavour. I am not sure how many people actually watch the Budget let alone read the speech. The speech is actually the tip of the iceberg, and as we always say the devil is in the detail. Believe me there is plenty of detail – if you want to dig deeper, be my guest at Treasury Budget 2018
If you did listen to Fiscal Phil, you will know that he fancies himself as something of a comedian. I’ll let others be the judge of his comic skills. The electorate will ultimately judge whether he is the Chancellor we want or not.
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