Thresholds and rates (Table D)
From 6 April 2019, the National Insurance Contributions (NIC) thresholds for employers and employees rise from £162 to £166 per week (£8,632 per year). The Upper Earnings Limit will increase to £962 per week (£50,024 per year, or Â£50,000 where a single annual calculation is carried out) in line with the threshold for 40% Income Tax.
Two years ago it was announced that Class 2 NIC would be abolished in April 2018, and entitlement to the State Pension would be built up by paying Class 4 NIC. Increases in the rate of Class 4 NIC were proposed at the March 2017 Budget but were withdrawn following protests; as a result the abolition of Class 2 NIC was deferred to April 2019, and in September it was announced that it will remain in force during the life of the current Parliament. Class 2 NIC rises from £2.95 to £3 per week for 2019/20.
Company cars and fuel (Table C)
The basis for taxing company cars and fuel provided for private use is set out in the Table. The rates and thresholds continue to change each year as the Government acts to encourage people to make greener choices.
Off payroll working
HMRC has been concerned about individuals working through personal service companies (PSCs) and similar arrangements for two decades: they regard this as a way of avoiding PAYE and Class 1 NIC where in reality (in HMRCs view) the individual is acting as an employee. HMRC estimates that the cost to the Exchequer could reach £1.3 billion a year by 2023/24.
The IR35 rules required PSCs to pay PAYE and NIC on income from engagements that were effectively employments. From 6 April 2017, where the individual behind the PSC works in the public sector, the responsibility for paying this tax was transferred to the person making the payment to the PSC, and the responsibility for deciding what is effectively employment was imposed on the public sector engager. HMRC is convinced that this has reduced non-compliance, and has been consulting about extending the same rules to the private sector. Representative and professional bodies have protested that the rules are unclear and complicated, and increase cost and uncertainty for all parts of the professional flexible labour market.
The Chancellor announced that the rules will be extended to the private sector, but he has taken account of representations made. The change will not apply until April 2020, and only large and medium-sized engagers will be affected, excluding the smallest 1.5 million businesses. A further consultation will be carried out during 2019 to clarify how the rules should be introduced in detail.
This is the largest single revenue-raising measure in the Budget, expected to bring in well over £1 billion in 2020/21 when the public sector rules are extended to contracts undertaken in the private sector.
The Chancellors most dramatic rabbit out of the hat was the announcement of increases in the Personal Allowance and higher rate threshold to meet a manifesto commitment a year early. For the tax year 2019/20, the main taxfree Personal Allowance rises to £12,500 (up from £11,850), and the basic rate of tax applies “ in England, Wales and Northern Ireland “ to the next £37,500 of income (up from £34,500). This means that the threshold for 40% tax will be £50,000 for 2019/20 (up from £46,350). These figures will remain the same for 2020/21, after which the intention is to increase them in line with inflation.
The level of income at which the Personal Allowance is withdrawn remains £100,000; the withdrawal of £1 for every £2 of income means that there is an effective marginal rate of tax of 60% in the band of income up to £125,000 in 2019/20, above which the taxpayer will have no Personal Allowance.
The Scottish Parliament has set different tax rates and thresholds for Scottish taxpayers since 2017/18, and the details are yet to be confirmed for 2019/20. From April 2019 the Welsh Government has the power to set a Welsh rate of Income Tax for non-savings, non-dividend income for Welsh taxpayers, but has announced that it will not vary the UK rates.
There were no other significant changes to Income Tax rates and allowances, which are now extremely complicated (see the Table). An individuals total tax liability on any given amount of income will vary considerably depending on the components of that income (for example, salary, profits, rent, interest, dividends). On a simple salary of £50,000, the Income Tax payable will be £860 less in 2019/20 than in 2018/19. However, the upper limit for 12% National Insurance also increases, so there will be an extra employees NIC bill of approximately £340 to offset the tax reduction.
Philip Hammond joked that he had avoided giving his speech on Halloween night itself because it would have been simply too tempting for the caption writers, and had avoided Christmas because he did not want to appear in cartoons disguised as Santa Claus. Even so, he was determined to honour the Prime Ministers recent declaration that austerity was over. He repeated again and again that the British peoples hard work has paid off and the fiscal rigour of the past eight years has allowed him at last to share out some of the benefits.
Mrs May had already committed £20 billion of spending to the NHS, but Mr Hammond still managed to raise tax allowances to the level promised for 2020 in the election manifesto a year early, a tax giveaway of nearly £3 billion next year. Other big figures include the freeze on fuel duty for the ninth successive year, help for the transition to Universal Credit, a temporary increase for tax allowances on plant and machinery, and extra relief from business rates for small retailers. Very few tax raising measures were announced, even in the small print of the mass of information that is released on the internet when the Chancellor sits down. There really has not been a Budget like this in recent years.
The great unknown, of course “not quite an elephant in the room, because the Chancellor did refer to it” is the outcome of the negotiations with the EU on the terms of our leaving. If we get a good trade deal, as the Chancellor confidently expects, there will be a double dividend “an end of uncertainty, and no more need for the reserves he has been holding back in case we do not reach agreement. If no deal is the outcome, he hinted that the outlook would then be so different that it might be necessary to upgrade the Spring Statement to a full fiscal event“ another Budget with a different plan.
An opposition MP shouted that Mr Hammond wont be here next year. He affably responded that she had made the same interjection during his previous two Budgets as well. He clearly expects to implement the plans that are summarised in this booklet. In the meantime, we will be happy to discuss the impact of his proposals on you and your finances.
Businesses that sell digital services (eg, ebooks) to non-business customers in other EU countries need to account for the VAT due at the rate applicable in the country where the customer belongs. This rule currently applies to any amount of digital sales made, there is no de minimis threshold.
The VAT charged to those overseas customers must be reported through the VAT MOSS system for each calendar quarter, unless the business is going to register for VAT in each separate jurisdiction that is sells within.
The good news is that a minimum sales threshold of €10,000 (£8,818) is being introduced from 1 January 2019 for digital services sold to consumers into other EU countries. A business can ignore the VAT MOSS rules if the value of its digital services sold to overseas customers in the calendar year is below that threshold, and the sales for the preceding year were also under that threshold. The business will have to apply the VAT rules of its home country to any sales it makes.
The bad news is that this de-minimis sales threshold only applies to businesses which are located within an EU country. When the UK leaves the EU on 29 March 2019, unless the VAT MOSS rules are covered in the EU withdrawal agreement, the new sales threshold will disappear for UK businesses. UK businesses will then have to register for the VAT MOSS non-EU scheme in an EU member state.
When you import from, or export to, countries in the EU, you generally don’t have to worry about VAT or customs duties. That may change when the UK leaves the EU at 11pm on 29 March 2019.
It’s possible that the UK will leave the EU automatically by operation of the law (having triggered Article 50) with no withdrawal agreement in place. In that case the UK will immediately be treated as a third country in relation to the EU for all trading purposes, including for customs duties and VAT.
For imports, the VAT will have to be paid at the border before the goods can enter the UK. Similarly, your EU customers will have to pay VAT at the border when they buy goods from your company which is based in the UK.
Exporting is more complicated. For example, to ship goods into the EU your business will need an EORI number, and the commodity code for the goods. You may also need a special licence to move the goods, particularly for food or animal products, and tariffs may be imposed under world trade organisation (WTO) rules.
If all your overseas business is currently done with customers or suppliers in other EU countries, you will need to quickly get to grips with VAT on imports and exports and the customs procedures required. HMRC has recently written to businesses in your position, with advice on where to look for guidance on those issues. There are nine detailed Gorvernment guides on importing and exporting procedures that will come into force if there is no deal on the withdrawal from the EU which you can read here: https://tinyurl.com/NodealBRImEx
HMRC has long seen the construction industry as an area where tax avoidance is rife. The construction industry scheme (CIS) was imposed as a means to prevent labourers dodging tax on cash-in-hand payments.
The latest dodge concerns VAT charged by labour suppliers to their customers, who are normally larger builders. The customer pays the VAT on the supply of labour, and reclaims the VAT as input tax on its VAT return. However, the labour supplier never pays the VAT over to HMRC, and often disappears before the taxman can catch up with them.
To counter this VAT avoidance, HMRC will introduce a reverse charge for VAT on labour supplies, with effect from 1 October 2019. This change is a year away, but it will take time to adjust your systems to the new rules.
Under the reverse charge, the customer (the large building company) will account for the VAT on labour supplies to HMRC, rather than the labour supplier. So the building company pays the VAT to HMRC (output tax) and reclaims that same VAT as input tax. The labour supplier issues an invoice which indicates that the supplies it has made are subject to the reverse charge.
The types of businesses affected by this new reverse charge include those involved in all aspects of construction of buildings or structures, including decoration and cleaning during construction. It won’t cover the work of architects or surveyors. The reverse charge will apply up through the supply chain until the point where the customer is not making a supply of relevant services on to another business.
If you have owned your commercial building for 20 years or more, you should review its VAT status. Such older buildings won’t have VAT attached to their sale or rent, unless the owner or leaseholder has opted to apply VAT, the so-called “option to tax”.
So ask yourself these questions about your commercial property:
- Have you ever made an option to tax on this property?
- If you opted to tax, can you prove that? The evidence would be a copy of form VAT1614 and acknowledgment from HMRC.
- If you opted to tax the building more than 20 years ago, is it now appropriate to revoke that election?
You will need quick answers to all of these questions if you want to sell the property, as the buyer’s legal team will certainly ask for evidence that VAT on the sale is being correctly charged. Not all businesses can recover VAT, so some purchasers will want to buy or lease a building which doesn’t have VAT added to the price.
If you think an option to tax is in place, but you don’t hold the evidence, you could write to HMRC asking for a copy of the election. However, HMRC will take weeks to reply, and when the election was made many years ago they may not have the paperwork either.
If you have never let the property, and it was acquired with no VAT charged on the purchase, it’s probably safe to assume that an option to tax has never been made.
A common misunderstanding is that once a property is the subject of an option to tax it remains an “opted property” when it is sold. This is not the case. Each subsequent owner can make an independent decision as to whether to opt to tax the building or not.
Self-employed individuals pay two types of national insurance contributions (NIC); class 2 at a flat rate of £153.40 per year if annual profits are at least £6,205, and class 4 which is calculated as 9% of profits above £8,424, reducing to 2% of profits above £46,350.
Class 2 NIC buys entitlement to the state pension and certain other benefits; class 4 NIC buys no such entitlements.
The Government had proposed merging classes 2 and 4 NIC. The self-employed would pay one class of NIC, which would provide state benefit entitlements, and a NIC credit given for profits between £6,205 and £8,484. However, it has now decided not to go ahead with that merger.
This is good news for those with profits of less than £6,205, as they can continue to pay class 2 NIC voluntarily at £153.40 per year, to accrue state pension entitlements. The alternative for those with very low profits would be to pay class 3 NIC of £761.80 per year, but class 3 NIC doesn’t provide entitlement to other state benefits.
Non-resident individuals, who previously lived in the UK for at least three years and paid NIC during that time, will be able to pay class 2 NIC on a voluntarily basis to build entitlement towards the UK state pension and other benefits.
Employees who drive electric company cars can feel short-changed, as they charge-up at home, but don’t get reimbursed for the power used on business journeys. Now employers can reimburse drivers of electric company cars up to 4p per mile for each business mile driven since 1 September 2018, with no tax implications.
What’s more, the company can allow employees to charge company or privately owned electric vehicles at the company’s premises for free, without incurring a taxable benefit.
The downside of having an electric company car is the high taxable benefit, currently calculated as 13% of the vehicle’s list price when new. This is due to rise to 16% of the list price for 2019/20, but strangely will drop back to 2% from 6 April 2020. If you are thinking of taking on an electric company car, you will save tax if you wait until 2020.
When you change your company car for a different model you should report this to HMRC through your online personal tax account (www.gov.uk/personal-tax-account). The employer is only required to inform HMRC when the employee is provided with a company car for the first time, or the car is withdrawn.
If you are provided with an electric van by your employer, you will be taxed on £1,340 for using the van on private journeys, other than commuting. This taxable benefit is likely to rise to around £2,000 for 2019/20, which is considerably less than the taxable benefit for having an electric car.