Top ten budget takeaways for SMEs
Chancellor of the Exchequer Phillip Hammond delivered his third budget earlier this week. Tom Bowen from Sussex accountants Hilton Sharp & Clarke highlights the key aspects impacting SMEs.
PERSONAL ALLOWANCE AND HIGHER RATE LIMIT INCREASED EARLY
The Government’s manifesto pledge back in 2015 was that the personal allowance would rise to £12,500 in 2020 and the higher rate tax threshold to £50,000. However, the Chancellor has decided to bring forward these increases one year early from 2019/20, taking an estimated 1 million taxpayers out of higher rate tax.
This should be well received by SMEs – in the majority of cases, it will mean their workforce will have more money in their pocket at the end of each pay period.
SME’s should also note that up to 10% of the personal allowance (£1,250 from 6 April 2019) may be transferred from one spouse or civil partner to the other if unused and the transferee is a basic rate taxpayer. If one member of a couple is a non-earner or low earner, this is another way of increasing the family’s net income.
NO CHANGES IN TAX RATES
The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.
There had been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1% depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate. Note that only the first £2,000 of dividend income is now tax free.
SME owners who operate via Limited Companies will normally draw part of their remuneration via a dividend. Over recent years dividends have been hit hard in the Budget
, it is good news that there are no further changes.
The much-rumoured further restriction in pension tax relief failed to materialise. Pensions remain the most tax efficient way for individuals to save for their retirement.
COMPANY TAX TO REDUCE TO 17%
As previously announced the current 19% rate is scheduled to reduce to 17% from 1 April 2020 for all Limited Companies, no matter what size they are.
VAT REGISTRATION LIMIT CONTINUES TO BE FROZEN
The VAT registration limit normally increases in line with inflation each year. However, It was announced last year that the limit would be frozen at £85,000 until 1 April 2020. It has now been announced that the limit will now remain at the same level until 2022.
In recent years it had been rumoured the VAT registration threshold would reduce dramatically to around £20,000 to mirror that of other EU countries. It is good news for the smaller businesses with a turnover of under £85,000 that they are not going to be brought into the VAT regime and the administration burden this brings. This will allow them to focus their time and resource into what they do best.
CAPITAL GAINS ENTREPRENEURS’ RELIEF CHANGES
The Chancellor has announced that the minimum qualifying period for CGT entrepreneurs’ relief will be increased from 12 months to 24 months for disposals on or after 6 April 2019.
Any SME business owner looking to dispose of their business after 6 April 2019 should take advice around the new rules to ensure they will qualify for CGT entrepreneurs’ relief under the new rules.
ANNUAL INVESTMENT ALLOWANCE INCREASED TO £1m
The Annual Investment Allowance (AIA) which provides businesses with a 100% write off against profits when they acquire plant and machinery has been temporarily increased from £200,000 to £1 million for two years from 1 January 2019. This will again mean that the timing of expenditure will be critical. It may be advantageous to delay expenditure until after 1 January 2019 to get full benefit in certain circumstances.
Many SMEs will not get close to utilising the old AIA rate of £200,000 let along the £1million, however, this is still a positive tax change from the Chancellor and is evidence that he is supporting investment into business.
NEW CAPITAL ALLOWANCE FOR COMMERCIAL BUILDINGS
A new 2% straight line tax deduction is being introduced for the cost of construction or renovation of commercial buildings and structures.
This tax break will apply to eligible construction costs incurred on or after budget day and will be available to commercial property landlords as well as trading businesses. The cost of the land is specifically excluded.
R&D TAX CREDIT RESTRICTED
The amount of repayable R&D tax credit for Small and Medium Sized Enterprises (SMEs) will again be restricted by the amount of the claimant company’s PAYE and NIC liability from April 2020.
The new limit will be set at three times the company’s total PAYE and National Insurance contribution (NICs) payment for the period.
MORE RATES RELIEF FOR SMALL BUSINESSES
There has been much lobbying from the small business sector to reduce business rates to enable traditional retailers, in particular, to compete with internet traders.
The Chancellor has announced a one third reduction in business rates for small businesses with premises with a rateable value up to £51,000.
IR35 “OFF-PAYROLL” RULES TO BE EXTENDED TO PRIVATE SECTOR
Very controversially, the Government has decided to extend the rules for personal service companies in the public sector to workers in the private sector from April 2020.
There will be a further consolidation on how this will operate in practice. Any SME who is reliant on the “contractor” market should pay close attention to this consolidation, together with contractors themselves.
If you require any further information on any of the above please do contact Tom on 01273 324163 or email@example.com
Thanks to Tom Bowen at Hilton, Sharp & Clarke for writing this blog.