The Secret Accountant: What does the 2018 budget mean for you?
Following the chancellor's budget this week, there are, of course, many aspects worth mentioning. I will focus on a few of the key ones:
The government had promised that the tax-free personal allowance would increase to £12,500 and the higher rate threshold to £50,000 in April 2020.
Philip Hammond said that these rates would come into effect from April 2019, a year earlier than proposed. The changes will reduce income tax for millions. And they are intended to encourage more individuals to enter employment.
Income tax rates remain the same as previous years with the basic rate of 20 per cent, higher rate of 40 per cent, the additional rate stays at 45 per cent on income over £150,000.
The dividend rates also remain the same, and the tax-free dividend allowance is to continue at £2,000 for 2019/20.
IR35 for the private sector
The IR35 changes discussed in my previous article have been confirmed as going ahead. They will be implemented in the private sector in April 2020. This gives contractors a further year of relief and time to prepare for these changes.
However, the rules are only planned to come in to effect for "large and medium businesses" with small companies remaining unaffected for now.
It is not yet clear how HMRC will define which companies classify as small and large for the purposes of this legislation we shall wait for additional guidance over the coming months.
Good news for business owners is that entrepreneurs' relief on qualifying capital gains is staying.
Significant change to this relief
The most significant change is that the qualifying ownership period has increased from 12 months to two years. This, while adding another year to the ownership period, will not affect the more standard business owners who are selling their businesses after years of hard work or are taking retirement.
The aim of this being to restrict the relief to those individuals who have a true material stake in the business rather than those investing in short-term high-risk ventures.
Capital investments
The Annual Investment Allowance (AIA), which allows businesses to write off 100 per cent of the cost of plant and machinery purchased against profits, has been increased temporarily from £200,000 to £1 million for the next two years starting 1 January 2019.
This increase aims to encourage companies to undertake capital investments in new assets such as plan and machinery or commercial vehicles.
Overall this budget feels to be a positive one, with the government in good stead to fulfil their promise of "an end to austerity".
However, we will soon see the outcome of Brexit and it is hard to predict where we will stand following that deal and the financial impact the EU departure will bring.
I hope this is useful and offers some positivity... please look out for the next article, coming soon!
