BUDGET 2018 PETER HUGHES CHARTERED ACCOUNTANT

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1 This summary outlines the principal tax measures announced in the Budget on 29 October Except where stated, the changes take effect for the 2019/20 tax year. The Saturday money sections of the newspapers concentrate on the following announcements: private sector companies becoming responsible for proving that their contractors are not covered by personal service company rules (Times, Financial Times); a reduction in capital gains tax reliefs for accidental landlords (Financial Times, Guardian, Daily Telegraph); stricter criteria for claiming capital gains tax entrepreneurs relief (Times); and increases in the higher rate income tax threshold and the point at which national insurance contributions drop from 12% to 2% (Daily Telegraph, Independent). Further detail can be found below. Personal tax and national insurance The personal allowance for 2019/20 will be 12,500, an increase from 11,850. The 20% band will be 37,500, meaning that the higher rate threshold (the 20% band plus the personal allowance) will be 50,000 in 2019/20, up from 46,350. Potentially there is an income tax saving of 860, although the thresholds for Scotland for 2019/20 have not yet been announced. The increase in the thresholds is not quite the tax saving it seems. For national insurance, the upper earnings limit (the amount of earnings above which NICs are levied at 2% rather than 12%) is up from 892 per week to 962 per week, or 50,024 a year. As pointed out by the Daily Telegraph, this could cost those earning above 50,024 an extra 364 to offset against the saving of 860 above. Those above the state pension age may benefit in full from the increase in thresholds, as they pay no national insurance. As announced in September, class 2 NICs will not be abolished during this Parliament. Therefore the self-employed whose earnings fall below the small profits threshold ( 6,365, up from 6,205) will be able to continue paying voluntary class 2 NICs ( 3 per week, up from 2.95) rather than the more expensive class 3 NICs (currently per week). Pensions Despite fears that higher rate tax relief on pension contributions would be withdrawn or the annual allowance reduced (the Chancellor had described the cost of pension tax relief as eyewateringly expensive ), pensions tax relief has been left alone. Instead the lifetime allowance increases from 1,030,000 to 1,055,000. The Financial Times recommends that if one spouse does not work, he or she could still consider making a contribution of 3,600 on which basic rate tax relief is available.

2 Personal service companies BUDGET 2018 The PSC rules apply to contractors who provide services to a client through an intermediary company in circumstances in which the contractor would normally be treated as an employee but for the existence of the intermediary. According to The Times, about 600,000 contractors work through PSCs and potentially benefit from more favourable tax rates than those which apply to employees. The rules (known as IR35) already make workers who operate in this way liable to income tax and NICs on deemed employment income, and since 2017, for contractors working in the public sector, the public sector body for which the contractor works has been responsible for determining whether the IR35 rules apply to the PSC. From April 2020, the private sector will be brought into line with the public sector, except that this will only apply where the end user is a large or medium-sized business (as defined in companies legislation). For small companies, the PSC rather than the end user continues to be responsible for determining whether the IR35 legislation applies. The Times quotes contractors saying that their earnings may be reduced by 25 per cent and the insurance protection from working under a PSC will be damaged. Research from Qdos Contractor suggests that as many as 58% of contractors will consider leaving the country when the change takes effect, says the Daily Telegraph. Business tax The annual investment allowance, which is currently 200,000, will increase to 1 million for qualifying expenditure between 1 January 2019 and 31 December There will be a new structures and buildings allowance which is in some ways similar to the old industrial buildings allowance which ceased to be available from It will apply to capital expenditure on new non-residential structures and buildings and is expected to include office accommodation not within a dwelling. The relief will be given on a straight-line basis at 2% a year and will apply to contracts entered into on or after 29 October Capital allowances are currently given at a rate of 8% on the written down value of assets in the special rate pool, which include long-life assets, thermal insulation, integral features and cars with emissions of over 110g/km. This rate will reduce to 6%. From 1 April 2020, only 50% of a capital gain can be relieved by brought forward capital losses. The restriction will not apply to the first 5 million of brought forward capital losses.

3 Capital gains tax BUDGET 2018 The CGT annual exemption rises from 11,700 to 12,000. Entrepreneurs relief enables business owners to pay CGT at a reduced rate of 10% on the first 10 million of lifetime gains, as opposed to the normal 20% where the taxpayer is in the higher or upper rate income tax bands. The taxpayer must have owned the business or shares for a minimum of one year ending with date of disposal. This rises to two years from 6 April Another change is that for disposals on or after 29 October 2018, the taxpayer must be entitled to at least 5% of the distributable profits and net assets of a company to claim the relief, as well as meeting the existing requirements (owning at least 5% of the share capital carrying at least 5% of the voting rights). The Treasury expects the changes to the relief to affect only 1,000 people but The Times suggests that this could be much greater. The phrase accidental landlords has been used to describe people who live in a house for a while but then rent it out. The gain on the property for CGT purposes is time apportioned so that no tax is payable in respect of the period during which the property was the taxpayer s principal private residence, and the last 18 months of ownership are also ignored. This period will reduce to nine months from April Many property owners also benefit from lettings relief which allows a maximum of 40,000 per owner to be exempt from CGT if the property has been let. From April 2020, this relief will only apply where the owner is sharing a home with a tenant. The Guardian gives an example of a taxpayer who has owned a house for twelve years, lived there for six and let it out for six. The gain is 120,000. Private residence relief (six years plus 18 months) currently reduces the gain to 45,000, and lettings relief further reduces it to 5,000. But from April 2020, private residence relief is only available for 6 years plus nine months and there is no lettings relief, so the gain is 52,500. If the gain is taxed at 28%, the additional tax using the new rules is 13,300. Corporation tax As previously announced, the corporation tax rate will reduce from 19% to 17% on 1 April 2020.

4 Charities Where a charity has income from a trade which is not carried on for one of its primary purposes, it may be subject to corporation tax unless the income falls below the lower of 50,000 per year and 25% of the charity s turnover. From April 2019, the limits will be as follows: for charities with an annual income of up to 32,000, the maximum non-primary purpose trading turnover will be 8,000; if annual income is between 32,001 and 320,000, the maximum non-primary purpose trading turnover will be 25% of annual turnover; and for charities with annual income above 320,000, the maximum non-primary purpose trading turnover will be 80,000. Under the gift aid small donations scheme, charities can claim a tax credit of 25% on cash donations up to 20. This will increase to 30 from April The retail gift aid scheme allows charities selling donated goods to claim a tax credit on the sale proceeds. Annual letters must be issued to donors. From April 2019, this requirement will be relaxed so that where a donor s goods have raised less than 20 a year, a letter need only be sent once every three years. VAT The VAT registration threshold will remain at 85,000 at least until 31 March Legislation will be introduced in Finance Bill 2018/19 to bring UK law on vouchers into line with the EU Directive with effect from 1 January As now, there will be a difference between single purpose vouchers (taxed at the time of issue) and multi purpose vouchers (taxed on redemption). A single purpose voucher will be one where, at the time of issue, both the liability to VAT and the place of supply of the underlying goods or services are known. The eligibility to join a VAT group is to be extended to certain non-corporate entities. From 1 March 2019 there will be new rules to bring prepayments for goods and services into the scope of VAT where customers have not collected what they have paid for and have not received a refund.

5 MY PRACTICE AND CONTACT DETAILS I am a chartered accountant practising independently in York but with clients across the UK and a few in other countries. My two areas of specialism are VAT and financial reporting, and I am available for consultancy work, whether it be an answer to a simple question or a more complex request for advice. I can visit your premises if needed. I offer training courses in VAT and financial reporting, principally on an in-house basis, although I am also available to speak at public events. 11 Sails Drive, Heslington, York YO10 3LR Tel ; Mobile P.D. Hughes Consultancy Services Ltd Company No (Registered in England & Wales) peter@pdhughesconsultancy.co.uk Website Twitter 5 November, 2018