Investing for the future

The Government encourages individuals to make high-risk investments in small trading companies or charities by providing Income Tax relief for investors in the following schemes (limits for 2018/19):

  • Social Investment Tax Relief (SITR): 30% relief on up to £1 million
  • Enterprise Investment Scheme (EIS): 30% relief on up to £2 million
  • Seed Enterprise Investment Scheme (SEIS): 50% relief on up to £100,000
  • Venture Capital Trust (VCT): 30% relief on up to £200,000

If you invest above £1 million under the EIS, the additional investment must be in knowledge-intensive companies. The amounts invested under EIS, SEIS or SITR can be treated as made in the previous tax year if the investment limit for the earlier year has not been reached.

When you dispose of shares acquired under these schemes, any capital gains you realise will be free of Capital Gains Tax (CGT), if you’ve held the investment for at least three years (except VCTs, where there is no minimum period).

Tax due on capital gains made from selling other assets can be deferred by reinvesting under the EIS or SITR within three years of making the gain. Reinvesting the gain in SEIS shares will halve the tax on that gain if the investment limits and conditions are not breached.

These tax reliefs won’t turn a bad investment into a good one, but they will make a good one better and will reduce the risk involved in investing.

There is now another CGT relief for certain unquoted shares. Shares acquired on or after 17 March 2016 that qualify for Investors Relief are free of CGT if they are held for at least three years and disposed of after 5 April 2019.

You should take advice from a qualified financial adviser on where to put your money, as well as understanding how it will reduce your tax bill. If you are thinking of investing in one of these schemes, you may want to do so before 6 April 2019 to maximise the benefit.

Action Point!
Are tax-favoured investments worth discussing with your advisers?

 

Planning gains

Everyone has an annual exemption for Capital Gains Tax (CGT) of £11,700 for 2018/19. This is wasted if you don’t make capital gains in the tax year. You can’t carry forward any unused exemption to a different tax year, or transfer the exemption to another person.

If you are planning to dispose of assets which will create capital gains, you can save tax if the disposals are spread over several tax years. This is easy to do if your assets can be split into separate chunks, like shares. Each sale can then be calculated to produce a gain of less than £11,700.

If the asset must be sold in one go, you could reinvest part or all of the gain in Enterprise Investment Scheme (EIS) shares (if you are prepared to take a risk). This will defer the gain until the EIS shares are sold. You can sell sufficient EIS shares in later years, so the gain is covered by your annual exemptions.

When you give a valuable asset to a relative, the disposal is treated like an open market sale, and the deemed gain is taxable. However, gifts to your spouse or civil partner don’t create immediate taxable gains, as the recipient takes over the transferors CGT cost. You can use this transfer to share the ownership of a property, and hence the gain, between two people and thus use two annual exemptions in one tax year.

Legal advice should always be taken when giving away land or buildings, or a share in such property. Stamp duty land tax (or similar taxes in Scotland or Wales) may be payable if the property is mortgaged.

Action Point!
Are you taking full advantage of the CGT exemption?

 

Planning to sell

For many people the New Year prompts a review of their life goals. If you are wondering whether, or when, you should sell your business, a sensible first step is to form an outline plan for its disposal.

The sale of a successful trading company will generate a capital gain, which would normally be taxed at 20% after deduction of your annual exemption (currently £11,700, increasing to £12,000 for 2019/20).

Entrepreneurs™ Relief can reduce your tax rate to 10% on a gain of up to £10m. But there are now five conditions which you must meet for at least 12 months ending with the date of the sale:

  • hold at least 5% of the ordinary share capital of the company
  • hold at least 5% of the voting rights of the company
  • be entitled to at least 5% of the distributable profits available to the equity holders
  • be entitled to at least 5% of the assets available for distribution to equity holders on the winding up of the company
  • be an employee, director or company secretary of the company or of another company in the same trading group

If you plan to sell your company after 5 April 2019 the above conditions will have to be met for at least 24 months ending with the date of sale.

When you step back gradually from your company, retiring from your role as director before you sell your shares, you may miss out on this valuable tax relief. Also, a plan to sell your company and carry on the business on a smaller scale as an individual or partnership can be caught by anti-avoidance legislation.

Action Point!
Allow at least 12 months to prepare to sell your company.

 

National Insurance Contributions

National Insurance Contributions (Table D)

Class 1 (Employees) Employee Employer
Main NIC rate 12% 13.8%
No NIC on first £166pw £166pw
Main rate* charged up to £962pw no limit
2% rate on earnings above £962pw N/A
Employment allowance per qualifying business N/A £3,000

*Nil rate of employer NIC for employees under the age of 21 and apprentices under 25, up to £962pw.

Employer contributions (at 13.8%) are also due on most taxable benefits (Class 1A) and on tax paid on an employees behalf under a PAYE settlement agreement (Class 1B).

Class 2 (Self-employed)

Flat rate per week £3
Small profits threshold £6,365

Class 3 (Voluntary)

Flat rate per week £15

Class 4 (Self-employed)

On profits £8,632 to £50,000 9.0%
On profits over £50,000 2.0%
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Income Tax Rates and Allowances

Income Tax Rates and Allowances (Table A)

Main allowances 2019/20 2018/19
Personal Allowance (PA) £12,500 £11,850
Blind Person’s Allowance 2,450 2,390
Rent a room relief 7,500 7,500
Trading income 1,000 1,000
Property income 1,000 1,000

*PA will be withdrawn at £1 for every £2 by which adjusted income exceeds £100,000. There will therefore be no allowance given if adjusted income is £125,000 or more (2018/19: £123,700).

£1,250 of the PA (2018/19: £1,190) can be transferred to a spouse or civil partner who is no more than a basic rate taxpayer, where both spouses were born after 5 April 1935.

If gross income exceeds it, the limit may be deducted instead of actual expenses.

Rate Bands 2019/20 2018/19
Basic Rate Band (BRB) £37,500 £34,500
Higher Rate Band (HRB) 37,501-150,000 34,501-150,000
Additional rate over 150,000 over 150,000
Personal Savings Allowance (PSA)
Basic rate taxpayer 1,000 1,000
Higher rate taxpayer 500 500
Dividend Allowance (DA) 2,000 2,000

BRB and additional rate threshold are increased by personal pension contributions (up to permitted limit) and Gift Aid donations.

Tax Rates 2019/20 and 2018/19
Rates differ for General, Savings and Dividend income within each band:
G S D
Basic 20% 20% 7.5%
Higher 40% 40% 32.5%
Additional 45% 45% 38.1%

General income (salary, pensions, business profits, rent) usually uses personal allowance, basic rate and higher rate bands before savings income (interest). To the extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.

The PSA will tax interest at nil, where it would otherwise be taxable at 20% or 40%.

Dividends are normally taxed as the top slice of income. The DA taxes the first £2,000 of dividend income at nil, rather than the rate that would otherwise apply.

High Income Child Benefit Charge (HICBC)

1% of child benefit for each £100 of adjusted net income between £50,000 and £60,000.

Income Tax Scotland 2018/19 Band Rate
The 2019/20 tax rates and bands for Scottish Taxpayers have not yet been announced.
Starter Rate £2,000 19%
Basic Rate 2,001 12,150 20%
Intermediate Rate 12,151 31,580 21%
Higher Rate 31,581 150,000 41%
Top Rate over 150,000 46%

The Scottish rates and bands do not apply for savings and dividend income, which are taxed at normal UK rates.

The 2019/20 tax rates and bands for Scottish Taxpayers have not yet been announced.

Remittance basis charge 2019/20 2018/19
For non-UK domiciled individuals who have been
UK resident in at least:
7 of the preceding 9 tax years £30,000 £30,000
12 of the preceding 14 tax years 60,000 60,000
15 of the preceding 20 tax years Deemed to be UK domiciled for tax purposes

 

Registered Pensions (Table B)

2019/20 2018/19
Lifetime allowance (LA) £1,055,000 £1,030,000
Annual allowance (AA) 40,000 40,000

Annual relievable pension inputs are the higher of earnings (capped at AA) or £3,600.

The AA is usually reduced by £1 for every £2 by which relevant income exceeds £150,000, down to a minimum AA of £10,000. The AA can be reduced to £4,000, where certain pension drawings have been made.

Car and Fuel Benefits (Table C)

Cars

Taxable benefit: Chargeable value multiplied by chargeable percentage.

Chargeable value: Initial list price of car (including most accessories), reduced by any capital contribution (maximum £5,000) by employee when the car is first made available.

Chargeable percentage:

CO2 emissions (g/km) Petrol Diesel
0-50 16% 20%
51-75 19% 23%
76-94 22% 26%
Above 94 Add 1% for every 5g/km
Above 164 (petrol)/144 (diesel) 37% maximum

Car Fuel

Where employer provides fuel for private motoring in an employer-owned car, CO2-based percentage from above table multiplied by £24,100 (2018/19 £23,400).

Employee contributions for fuel do not reduce taxable figure unless all private fuel is paid for by the employee (in which case there is no benefit charge).

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Tax Administration

Making Tax Digital for VAT

The majority of businesses with VATable turnover above the £85,000 registration threshold will be required to maintain their VAT records using functional compatible software from the first VAT return period starting on or after 1 April 2019. It was announced during October that a limited range of more complex businesses will not be required to comply with the new rules until 1 October 2019. Concern has been expressed by Parliamentary committees and professional bodies that full-scale testing of the system has only recently started and awareness of the requirement among businesses is still patchy, but the Chancellor has not made any further announcements on the subject. It must therefore be assumed that the rules will be implemented as planned, another significant change to VAT three days after the UK leaves the EU.

Avoidance and evasion

There are as usual measures in the Budget to try to close loopholes. These include legislation targeted at businesses attempting to avoid UK tax by arranging for their UK business profits to accrue to entities resident in lower-tax territories (profit fragmentation). The UK profits will be increased to the commercial level for tax purposes.

From April 2020, the amount of payable Research & Development tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the companys total PAYE and NIC liability for that year. This is described as a measure to prevent abusive and fraudulent claims.

The time limit for assessing unpaid tax involving offshore non-compliance (concealing undeclared income and gains, and amounts chargeable to Inheritance Tax, outside the UK) is to be increased to 12 years in cases not involving deliberate errors by the taxpayers. This is not retrospective in effect: the present four year time limit is not extended back to 2006. However, amounts undeclared from 2015 will be assessable until 2027.

Charities

Charities are exempt from tax on the profits of a trade if carrying on that activity is the purpose of the charity (e.g. fees at a charitable school). There is also an exemption for profits of a small-scale non-purpose trading activity to allow charities to make some money without falling into the charge to tax. The exemptions are currently £5,000 where turnover is up to £20,000, 25% of income where turnover is between £20,000 and £200,000, and £50,000 where turnover is over £200,000. From April 2019, the limits are increased to £8,000 on turnover up to £32,000 and £80,000 on turnover over £320,000 respectively. In between these limits, the 25% test still applies.

The limit for the Gift Aid Small Donations Scheme, which allows charities to claim Gift Aid on small amounts without requiring the donor to fill in a form, will be increased from £20 to £30 from 6 April 2019.

The 2017 Budget included an announcement of plans to simplify and clarify some of the conditions for Gift Aid relief to be claimed by charities from April 2019, where a benefit is provided to the donor. At the moment there are three monetary limits on such benefits that must be considered, and a number of extra-statutory concessions that allow the harsher effects of the law to be ignored. The limits will be simplified from three to two, and the concessions will be enacted in the law to provide certainty.

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Stamp Duty Land Tax

First-time buyers

A relief from SDLT was introduced in the November 2017 Budget to exempt purchases by first-time buyers of properties costing up to £300,000. This is being extended to shared ownership properties valued at up to £500,000. The exemption will apply to the initial share purchased up to £300,000 (any excess over that figure will be charged at 5%). Further shares will not qualify for the exemption. This relief is being backdated to the introduction of the original first-time buyers relief on 22 November 2017.

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Property

Landlords

Income Tax relief for interest against rental income is being restricted to the basic rate of tax, with the restriction phased in over four years. This began in 2017/18; in the third year of the new rules, 2019/20, only 25% of interest paid will be allowed as a deductible expense. The remainder will be eligible for a reduction in tax liability at 20%. The rules are complicated and can produce unexpected results.

Annual Tax on Enveloped Dwellings

The annual tax charges on residential properties worth more than £500,000 that are owned through companies and other envelope arrangements will go up for 2019/20 in line with inflation. The charge on a dwelling worth between £500,000 and £1 million will be £3,650 (up from £3,600); the maximum charge on a dwelling worth over £20 million will be £232,350 (up from £226,950).

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VAT

Registration threshold

Last year the Chancellor announced that the VAT registration threshold will remain frozen at £85,000 until 5 April 2020. He has now confirmed that it will stay unchanged for a further two years after that, until 5 April 2022. The deregistration limit (£83,000) will also stay unchanged. The Budget releases note that the Office of Tax Simplification has recommended a reduction in the threshold because it distorts the behaviour of businesses: they may be restricted from growing by fear of exceeding the limit. The Government prefers to keep a large number of businesses out of VAT altogether by maintaining the threshold at its current level, but will look again at the question once the terms of the UKs exit from the EU have become clear.

International trade

The Government has already published a number of statements about the possible VAT and customs consequences of a no-deal Brexit, while negotiations continue in the hope of a favourable agreement. There is nothing in the Budget about international trade at all, presumably because it is all too uncertain or sensitive for any meaningful statements to be made.

Vouchers

Significant changes will be made to the VAT treatment of face value vouchers that are issued on or after 1 January 2019. Single purpose vouchers, which can only be used to buy a single category of goods or services (standard rated, lower rated, zero rated or exempt) will be treated as the underlying item when bought and sold. Multi-purpose vouchers, where the liability of the supply on redemption is uncertain, will be outside the scope of VAT until they are redeemed, when in most cases the face value will be used by the retailer to calculate the output tax. This is a big change from the existing rules for anyone who issues and redeems vouchers, and also for intermediaries who market and distribute them.

VAT grouping

The right of companies and Limited Liability Partnerships under common control to join in a single VAT registration will be extended to non-corporates including individuals, partnerships and trusts, under conditions set out in the Finance Bill. Grouping will remain optional.

Online marketplaces

A new system of registration and regulation of online marketplaces has been put in place over the last year, and comes fully into force in April 2019. Anyone operating an online marketplace should be taking steps to comply with the new requirements.

Construction industry fraud

Measures to counter missing trader fraud in the construction industry have also been developed over the last year, in consultation with stakeholders. A reverse charge mechanism will apply to supplies of construction services to VAT-registered customers from 1 October 2019. The supplier will no longer charge VAT on specified supplies, but instead the customer will put the VAT on purchases as output tax on the VAT return (and recover it as input tax if eligible). This will require a significant change of systems for those affected, both as suppliers and customers. The Budget included an announcement of further technical changes to these rules to make them work as intended.

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Business Tax

Corporation Tax rates

There are no changes to the Corporation Tax rates previously announced: the present 19% rate continues for the year commencing 1 April 2019, then will fall to 17% from 1 April 2020.

Capital Allowances on plant

The Annual Investment Allowance, on which a business can claim 100% relief on the cost of purchasing plant and machinery, will increase to £1 million from its current £200,000 for two years from 1 January 2019. There are complex rules where a period of account straddles the change of AIA rate, so those planning to spend more than £200,000 per year on plant should take advice to make sure that they qualify for the best relief.

The rate of writing down allowance on the special rate pool (mainly long life assets, integral fixtures in buildings and cars with emissions ratings over 110g/km purchased since April 2018) will be reduced from 8% to 6% from April 2019. The main rate of writing down allowance remains 18%

Enhanced Capital Allowances (currently 100% First Year Allowances) were introduced in 2001 for expenditure on qualifying plant which uses energy efficiently or is environmentally beneficial. As is common, the list of qualifying technologies is being updated for 2019/20; however, the scheme is being abolished with effect from 1 April 2020 for companies and 6 April 2020 for unincorporated businesses. It will clearly be beneficial to consider advancing planned expenditure before those dates, if total expenditure on plant would otherwise exceed the Annual Investment Allowance for the period. However, Enhanced Capital Allowances for electric vehicle charge points will continue to 31 March 2023.

Capital Allowances on buildings

A new Structures and Buildings Allowance is to be introduced for expenditure on new non-residential structures and buildings where the contracts for the construction works are entered into on or after 29 October 2018. Relief will not be available for the cost of land or dwellings. The allowance will be 2% on a flat rate basis to write off the cost of construction (including demolition and land alterations necessary for construction) over 50 years. There will be no balancing adjustment on a sale “ the purchaser will take over the remainder of the allowances and the writing down period.

Expenditure on integral features and fittings of a building that currently qualify for allowances on plant and machinery will continue to qualify in the same way, including being eligible for the Annual Investment Allowance up to its annual limit.

Capital losses

New rules will apply from April 2020 to restrict the offset of companies brought forward capital losses in a similar way to the recently-introduced treatment of trading (and some other) losses. Only 50% of gains will be eligible to be relieved by brought forward losses, but there will be unrestricted use of the first £5 million of income or capital losses each year, which means that 99% of companies will not be affected.

Intangible assets

The Government intends to introduce a targeted relief for the cost of goodwill in the acquisition of businesses with eligible intellectual property from April 2019. With effect from 7 November 2018, the Government will also reform the de-grouping charge rules which apply when a group sells a company that owns intangibles, so that if the share sale is exempt the de-grouping gain on the intangibles will also be exempt.

Offshore receipts in respect of intangible property

To address the avoidance of UK tax by multinational groups paying royalties on UK sales – a deductible expense for UK Corporation Tax “ to group companies based in low-tax jurisdictions, a new tax charge will be introduced. Following consultation, the original proposal has been considerably amended, in particular imposing a direct charge on the recipient rather than a withholding tax on the payer. The introduction of the measure has been confirmed with a threshold for UK sales of £10 million, an exemption for income that is taxed at appropriate levels, and an exemption for income relating to intangible property that is supported by sufficient local substance. It will apply from 6 April 2019, with anti-avoidance provisions operating from 29 October 2018.

Digital Services Tax

To address the perceived avoidance of profit taxes by multinational technology companies, the Government proposes to introduce a 2% tax on the revenues of certain digital businesses that derive value from their UK users. The tax will target search engines, social media platforms and online marketplaces. It will only apply to revenue above £25 million per year in businesses with global revenues above £500 million, and there will be rules to protect businesses with very low profit margins or losses.

Business rates

The Chancellor announced a number of measures to extend further the relief from business rates for struggling retailers. The most significant of these is that, for the two years until the next revaluation in April 2021, retailers who operate from premises with a rateable value of up to £51,000 will be entitled to a one-third cut in their rates.

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