2018 Budget Review

I was quite relieved in the end that the Budget didn’t end up containing the bad news on VAT and IR35 that had been rumoured. The chancellor left the VAT threshold at it’s current level of £85,000 and said he would consult further on this issue. Presumably he realised how deeply unpopular he would be amongst the millions of small business owners if he went through with a drastic reduction in the threshold. He has therefore kicked this particular tax can of worms down the road again, but I doubt this issue has gone away for good. It’s worth noting that the UK is very unusual in having such a high mandatory registration threshold, practically all other european countries require registration for VAT for all businesses, whatever their size.

On IR35 the expected extension of the off-payroll rules currently in force in the public sector to the private sector were confirmed, though not until April 2020. This means that businesses will be responsible for assessing the employment status of individuals contracting for them through personal service companies. If IR35 rules are found to apply they will need to deduct tax and NI from payments. The one piece of good news on this is that it will only affect large and medium sized businesses, not small ones. The chancellor didn’t define small in the context of this legislation, but the most likely definition is that businesses with less than 50 employees will be exempt.

I’m going to briefly summarise the other key points of relevance to small business owners below –

Business Tax

  • Business rates cut by 1/3 for retailers with a rateable value of £51,000 or less
  • R & D payable tax credit for a loss making company restricted to three times total PAYE and NIC liability for the year
  • Corporation tax remains at 19%
  • Annual investment allowance for capital expenditure increases to £1 million from £250,000
  • Entrepreneurs relief conditions extended from 1 year to 2 years, making it harder to qualify for this generous CGT relief

Personal Tax

  • Personal allowance and higher rate threshold go up to £12,500 and £50,000 from £11,850 and £46,350 respectively from April next year
  • Dividend allowance unchanged at £2,000
  • Changes to lettings relief on CGT on sale of properties, limiting the relief to 9 months (from 18)  and only applying if the owner is in shared occupancy with the tenant
  • Inheritance tax nil rate band remains at £325,000.
  • Interest relief for landlords restricted as follows –

Finance cost allowed in full                                           Finance cost allowed at basic rate

Year to 5 April 2019                50%                                                                 50%

Year to 5 April 2020                25%                                                                 75%

Year to 5 April 2021                0%                                                                   100%