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Budget 2018

Below are the most pertinent posts announced by the Chancellor in his Budget speech yesterday:-

Off-Payroll Working Rules in the Private Sector (“IR35”)

As expected, the chancellor has gone forward with the extension of the off-payroll working rules (IR35) to the private sector with effect from April 2020.

The IR35 rules are as follows:

  • Businesses will be responsible for assessing an individual’s employment status.
  • The reform will not apply to the smallest 1.5 million businesses, and the large and medium businesses to which it will apply will be given longer to adjust, with the changes being introduced in April 2020.
  • From 6 April 2020, medium and large businesses will need to decide whether the IR35 rules apply to an engagement with individuals who work through their own company.
  • Where it is determined that the rules do apply, the business, agency or third party that pays the individual’s company will need to deduct income tax and employee NICs and pay employer NICs.
  • HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform, and businesses’ decisions about whether their workers fall within the IR35 rules will not automatically trigger an enquiry into earlier years.
  • HMRC continues to work with stakeholders to identify improvements to checking employment status for tax and issuing wider guidance to ensure the reform meets the needs of the private sector. Enhancements will be tested with stakeholders, operational and legal experts before implementation.
  • A further consultation on the detailed operation of the reform will be published in the coming months, and will inform the draft Finance Bill legislation that is expected to be published in summer 2019.

 

CGT letting relief and final period exemption 

When someone sells their main residence, and it has been rented out at some time, there have been two reliefs available to reduce the capital gains tax payable – Lettings Relief (worth up to £ 40,000 of the gain being exempt from tax) and Principal Private Residence Relief [PPR] (proportion of the time you lived there plus the last 18 months being exempt from tax).

From April 2020 the government will reform Lettings Relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. The final period exemption [PPR] will also be reduced from 18 months to 9 months.

 

Entrepreneurs’ Relief

This relief is available when someone sells or disposes of all or part of their ‘trading’ business, resulting in a capital gains tax rate of 10% (rather than a mixture of the 10% and the higher 20% tax rate)

Up until now, one of the criteria to qualify for this 10% rate has been that one must have owned the asset for at least one year.

Legislation will be introduced in Finance Bill 2018/19 for disposals made on or after 6 April 2019, to increase this minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs Relief from one year to two years.

 

Personal allowance and higher rate threshold

The commitment to raise the personal allowance and higher rate has been accelerated. These will increase to £12,500 and £50,000 respectively from April 2019 which is one year earlier than expected.

 

Rate of Corporation Tax

The rate of Corporation Tax will fall from 19% to 17% from 1 April 2020.

 

Dividend allowance

The tax-free dividend allowance is unchanged at £2,000.