Last reviewed 12 November 2018
This year’s budget has done little to alleviate uncertainty for the business community. The biggest uncertainty being Brexit, with the Chancellor stating that a further budget may be necessary if there is a no-deal Brexit. In addition, there is uncertainty about growth, both in the UK and worldwide, and the impact of any international trade disputes. Small and medium-sized enterprises (SMEs) may be adversely affected by these uncertainties and action needs to be taken to protect the business. John Davison looks at some of the budget issues that impact SMEs.
Perhaps the most significant issue for pensions is that there were only minor changes — the lifetime allowance for pensions savings was increased to £1,055,000. The current relief against income tax for pension contributions, however, costs the Treasury £23 billion a year. It would not be surprising for this to change in the near future; for example, a restriction on relief for higher rate taxpayers may be introduced. Pension contributions made now will still benefit from full income tax relief.
There is a significant reduction in business rates for smaller retail businesses. For the next two years (until the revaluation in April 2021), retailers operating from premises with a rateable value of up to £51,000, will benefit from a one-third reduction in their rates. To help with competition from online retailers, the Treasury is also giving cash to councils as part of the “Future High Streets Fund” to improve infrastructure, transport and under-used properties. Businesses can contact their local councils to make suggestions on how these funds can be used to improve high-street footfall.
Reforms are being made to the apprenticeship levy to try to encourage the uptake of apprenticeships. SMEs will now only need to pay 5% towards training for apprentices. It was originally planned for this be introduced from April 2019, but the date has not yet been confirmed. Also, this will only apply to new apprenticeships, not existing apprenticeships. A previously announced change is the increase in the annual apprenticeship levy transfer facility from 10% to 25%. This is the amount that larger businesses can transfer to smaller firms within their supply chain.
Although the budget was focused on giving tax reliefs, one tax raising measure is the change to the IR35 rules. This is sometimes called off-payroll working. Individuals that provide their services through a personal services company (PSC) or a similar arrangement often do so to enable them to benefit from a reduction in National Insurance contributions (NICs) and PAYE. As the service provider is not an employee, Class 1 NICs are not payable, there is no PAYE and the individual can claim a greater range of expenses against their tax bill. HMRC estimates that the cost to the Treasury is £1.3 billion. Where the individual working through the PSC is effectively in employment, these tax savings are not available. Since April 2017, where the individual using a PSC is working in the public sector (such as IT consultants working for the NHS), the public sector organisation is responsible for deciding whether the individual is a contractor or an employee and also for paying any tax due. These rules are to be extended to the private sector from April 2020. It is expected that small and micro businesses will be excluded from these rules — so only businesses with more than 50 employees will be impacted. It is expected that the rules will be clarified in 2019, but medium-sized businesses may wish to review how it engages contractors now to prepare for this change.
A new tax is to be introduced to apply to all produced or imported packaging that does not include at least 30% recycled material. This will increase the cost of packaging materials, so businesses are advised to look at suppliers that can provide recycled packaging.
Annual Investment Allowance and Entrepreneurs’ Relief
The Annual Investment Allowance has been increased on a temporary basis from £200,000 to £1 million — effective from 1 April 2019. This is a 100% allowance for qualifying expenditure, but there are some exceptions (mainly for cars). It would be prudent to get advice regarding what assets qualify and the chargeable periods these allowances apply to. There are complex rules for periods that straddle the change of rate.
While Entrepreneurs’ Relief has been retained there has been a tightening of the rules; for example, the holding period for shares has been increased from one year to two years. This relief means that only 10% capital gains tax is due on the disposal of qualifying assets rather than the usual 20% charge for gains above the base rate limit. This is a useful relief, so businesses need to ensure that they meet all conditions in order to benefit from the reduced tax charge.
There are a lot of other changes that businesses need to consider. For example, VAT rules on vouchers are changing, as are VAT grouping rules. In addition, there are changes to accounting rules (such as the IFRS 16 rules that change the way leases are to be accounted for). It may be prudent to have a review of the impacts of the budget and other changes to see how the best advantage can be taken of the reliefs on offer and to ensure that unexpected tax charges do not arise.