In today’s blog, here at Tulip Thistle Accountancy, we are going to take a closer look at some of the key highlights of Yesterday’s Autumn 2018 Budget for both individuals and businesses.
Firstly it is important to realise that not all the measures announced in Yesterday’s Budget by Chancellor of the Exchequer Philip Hammond, apply to Scotland due to the devolved powers of the Scottish Parliament. The Scottish (Draft) Budget will be unveiled on 12 December 2018 by Derek Mackay. Of course I will write a further blog on the Draft Scottish Budget shortly after its presentation.
The economic context for the Autumn Budget 2018 remains challenging with economic growth forecast for 2018 reduced by the Office for Budget Responsibility (OBR) to 1.3% (down from 1.5% due to bad spring weather). Forecast for 2019 was raised slightly from 1.3% to 1.6% and annual forecasts raised to 1.4%, 1.4%, 1.5% and 1.6% in 2020, 2021, 2022 and 2023 respectively. These revised growth numbers compared to the last budget are mainly due to lower levels of unemployment & higher participation rates assumptions by the OBR. Productivity growth remains poor and well below historical averages.
The Scottish Government’s resource block grant from Westminster will increase marginally in real terms in 2019/20 compared to 2018/19.
The increase in funding for the NHS is expected to generate associated increases for the Scottish budget of around £600m in 2019/2020. There were other, smaller announcements too which will also have implications for the Scottish budget. The 2018/19 capital budget will be higher by around £80m as a result of announcements of additional funding for fixing pot-holes and supporting schools maintenance. There will also be modest increases to the 2018/19 resource budget resulting from increases in social care spending. In addition new reliefs in English business rates (in particular for smaller retailers) will result in small funding increases to the Scottish budget in 2019/2020. However, how the Scottish Government chooses to distribute these real increases in the budget in 2019/20 and beyond will be set out in the 2019/2020 Scottish Draft Budget due on 12 December 2018.
Beyond 2019/20, Phillip Hammond said that resource spending would increase by 1.2% in real terms in the next spending review period, and this level of increase will be expected to feed through – more or less – to the Scottish block grant.
Whilst the Personal Allowance increase to £12,500 will apply in Scotland, rates & tax bands are set by the Scottish Parliament so the increase of the Higher Rate Threshold to £50,000 does not. For the 2018/2019 tax year the Scottish Higher Rate Tax threshold is at £43,430, so if no changes are made to this rate in the Scottish Draft Budget, a wide gap will open up to the remainder of the UK. In addition Scottish taxpayers would face a very high marginal tax rate of 53% over an increasingly large proportion of income (as the National Insurance contributions for employees only drop to 2% above the new £50,000 Higher Rate Threshold, employees with income between the Scottish Higher Rate Threshold and the rest of UK Higher Rate Threshold, are taxed at 41% by the Scottish Government plus 12% for National Insurance Contributions). How this aspect of taxation is addressed, will be a key issue for the 2018/2019 Scottish Draft Budget on 12 December 2018.
Some good news for Pension Tax relief as the Annual Allowance (permitting individuals to contribute up to £40,000 into a pension and receive income tax relief on those contributions) was kept unchanged and anticipated changes introducing restrictions on tax relief for higher & additional rate tax payers, did not materialise.
Autumn Budget 2018 – Key points for Individuals:
- Personal Tax Allowance: increase to £12,500 in 2019/2020 (£11,850 in 2018/2019)Scottish Tax Bands: will be set by Scottish Government in its budget on 12 December 2018 (any changes to Tax Bands announced apply to England, Northern Ireland & Wales only)
- National Living Wage changes (all increases apply from April 2019):
- £8.21/hour (up 38p) for over 25s
- £7.70/hour (up 32p) for 21 – 24 year olds
- £6.15/hour (up 25p) for 18 – 20 year olds
- £4.35/hour (up 15p) for 16 – 17 year olds
- £3.90/hour (up 20p) for apprentices
- Basic State Pension will increase by 2.6% to £129.20 per week. Those who are entitled to the full new single-tier state pension will see their payments increase to £168.60/week.
- Starting rate for Savings income will remain at £5,000 (assuming total income does not exceed £17,500 in 2019/2020, up to £5,000 in interest income is tax free)
- Dividend allowance remains at £2,000
- Standard ISA annual subscription limit will remain at £20,000 per person, but limits for Junior ISAs and Child Trust funds will increase to £4,368/year from April 2019
- The Lifetime allowance for Pensions will rise in line with inflation (consumer price index) to £1,055,000 from next April
- Capital Gains Tax: the capital gains tax annual allowance will increase to £12,000 (up £300) for individuals
- Private Residence Relief:
- there will be a tightening of the private residence relief rules from April 2020. The private residence relief rules exempt all or part of a gain arising on a property that has been the owner’s main residence. Currently if you vacate your main residence within 18 months of selling it, that final period of ownership still qualifies for the full exemption. That final period exemption will be shortened to 9 months
- From April 2020 lettings relief will only be available when the owner is in shared occupancy with the tenant
- Stamp Duty reliefs for first time buyers have been marginally extended for Rest of the UK, but will not apply to Scotland’s Land and Buildings Transactions Tax
- Fuel duty to be frozen for the ninth year in a row
- Beer, cider and spirits duties to be frozen
- Cost of a bottle of wine duty to rise by 8p, in line with inflation, in February
- Tobacco rate increases will apply that will see costs increase by 2% above Retail Price Index (RPI) inflation
- Air Passenger Duty: Short-haul rates for 2020/21 will not be increased. However, long-haul rates will be increased in line with RPI. The rates for long-haul economy will increase by £2, and the rates for those travelling in premium economy, business and first class will increase by £4
Autumn Budget 2018 – Key Points for Businesses:
- VAT: the current VAT registration threshold of £85,000 and the deregistration threshold of £83,000 will be maintained until April 2022
- Business Rates: announcements made are valid for Rest of UK only and do not apply in Scotland. Any changes for Scotland will be included in the 2019/2020 Scottish Draft Budget on 12 December 2018
- Entrepreneur’s relief: when selling all or part of your business (or shares or securities in your personal company) the capital gains tax rate is reduced to 10%. From April 2019 the minimum ownership period throughout which all other conditions (and these are complex!) have to be met is being extended from 12 to 24 months. In addition changes to the definition of a personal company (applicable from 29 Oct 2018) have been introduced in the budget
- Annual investment allowance (AIA) to be increased from £200,000 to £1m for two years (available to businesses for investments in qualifying plant and machinery)
- Off Payroll Working in the Private Sector: in order to bring the private sector in line with the public sector and agencies, the government will reform the off-payroll working rules (known as IR35) in the private sector. Responsibility for operating the off-payroll working rules will move from individuals (including those contracting via personal service companies) to the organisation, agency or other third party engaging the worker. To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt from the implementation of the new legislation
- Employment Allowance: most employers can currently claim an employment allowance of up to £3,000 to offset against their liability to employer Class 1 NICs.
The Government are to restrict the allowance to employers with an employer NICs liability of less than £100,000 in the preceding tax year
- Company Van & Fuel benefit changes: from 6 April 2019, the van benefit charge will increase from £3,350 to £3,430 and the van fuel benefit charge will increase from £633 to £655.
If you would like to discuss any of the above in relation to your own circumstances, or require professional advice on how the Autumn Budget 2018 will impact your business, please get in touch with us at Tulip Thistle Accountancy.
Until the next time!
Charles Donkers (ACMA), Tulip Thistle Accountancy
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