Philip Hammond has delivered his third Budget as chancellor and the last one before Brexit. In his speech he described it as a Budget for "the strivers, the grafters and the carers," promising them a "brighter future" after years of constraint. Businesses generally could gain, here are some of the announcements from the Budget that will impact UK companies.
UK growth forecast
The UK growth forecast has been upgraded from 1.3% to 1.6% for 2019, while public borrowing in 2018/19 is set to be £11.6bn lower than previously forecast in the Spring Statement.
National living wage to increase
This is set to increase by 4.95%, from £7.83 to £8.21 an hour from April 2019.
Personal tax allowance
It was announced that personal tax allowance will be raised from £11,850 to £12,500 for basic rate tax payers. The threshold at which you start paying the higher rate tax will increase from £46,350 to £50,000 in 2019.
Self-employed workers
From 2020 self-employed workers will see their tax bills increase as the government has expanded the off payroll working rules. IR35 is tax legislation aimed at combatting tax avoidance by workers who supply their services to clients via an intermediary, for example, management consultants working for their own company, but in practice are employed by a third party must pay the right tax as an employee. The IR35 legislation requires the worker to decide whether or not they should be regarded as employed or self-employed, but compliance has been low, with only 10% paying the right tax.
To address this, the way IR35 operates will change, with the responsibility for determining whether IR35 applies will transfer from the individual to the organisation using their services. This was previously applied to the public sector, but from April 2020 will include the private sector, applying to large and medium size businesses.
This could reduce a self-employed workers net income by up to 25%, costing them thousands of pounds in additional income tax and national insurance contributions.
Cutting business rates for small businesses
Another key announcement was that business rates bill for firms with a rateable value of £51,000 or less will be cut by a third over two years. This could really benefit our struggling high streets and its small retailers, which The Chancellor claimed would save up to £8,000 a year for up to 90% of independent shops, pubs and restaurants. He also announced with £900m in business rates relief a £650m fund to help rejuvenate high streets.
New digital services tax
It was announced there will be a 2% digital services tax on UK revenues from April 2020, it will apply to businesses that generate at least £500m a year in global sales and so will affect the big technology companies rather than start-ups. It remains to be seen if this will impact smaller businesses that sell through larger sites such as Ebay and Amazon.
Environmental taxes
Whilst Mr Hammond had considered a plastic cup tax he has not imposed this as he doesn’t think it will make a significant change, however, he will monitor the progress and may consider another tax in the future.
He did announce that companies manufacturing plastic that is less than 30% recycled material will face a levy.
Apprenticeship levy to be reduced for smaller businesses
The amount that small and medium sized businesses will have to contribute towards apprenticeships will be reduced from 10% to 5%.
PFI abolished for future projects
Private finance initiative (PFI) is a method of providing funds for major capital investments, where private firms are contracted to complete and manage public projects, handling the up-front costs instead of the government. These have been met with much controversy due to the expensive cost to the tax payer and creating deals that tie the public sector in to expensive contracts for cleaning, maintenance and so on. The government will not enter into further PFI projects however, they will honour those that are underway.
Investment allowance will be increased
The investment allowance lets a business deduct qualifying capital expenditure from its taxable profits to spend on business equipment and tools. The allowance is to be increased in January 2019 from £200,000 to £1m to stimulate business investment.
Brexit
There will be an extra £500m for preparations for leaving the EU. In the Spring Statement next March could be upgraded to full Budget if needed. There will be a commemorative 50p coin to mark the UK’s departure from the EU.
There is always a chance that when the Brexit deal is announced we will have a mini-Budget or major financial statement of some kind.
If you would like any advice on how this Autumn's Budget 2018 will impact your business, then please contact us. For the Budget in full please visit GOV.UK