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Budget 2018: Key announcements from a Budget to ‘end austerity’…

On Monday 29 October, Philip Hammond (or fiscal Phil as he dubbed himself) delivered his third Budget in front of members of parliament.

The news that this year’s Budget would be presented early, to avoid a clash with Brexit negotiations, was largely unexpected and left much less time for speculation. 

Before rattling off the measures recorded in his red book, Hammond described the Budget as one for the “strivers, grafters and carers”, who are the “backbone of our communities”. He reiterated the need to “focus resolutely on what lies ahead” and build a “brighter future”, upheld by a “high-wage, high-skill economy” that works for everyone.

Hammond assured those watching and listening that “austerity will come to an end, but discipline will remain”.

Here we summarise some of the key announcements affecting you, your family and your business:

The UK economy, public borrowing and Brexit

Throughout his address, which featured some of the biggest financial giveaways since 2010, the Chancellor repeatedly endorsed the idea that austerity is “finally coming to an end”. To illustrate this idea, he pointed to various growth and fiscal forecasts, as follows:

• The growth forecast for 2019 has been raised from 1.3% to 1.6% and annual forecasts for 2020, 2021, 2022 and 2023 have been raised to 1.4%, 1.4%, 1.5% and 1.6% respectively.

• The Office for Budget Responsibility (OBR) predicts 800,000 more jobs by 2023 and sustained real wage growth for the next five years.

• Public borrowing in 2018 to be £11.6bn lower than forecast in March and is estimated to total £31.8bn, £26.7bn, £23.8bn and £19.8bn in the next five years.

However, Hammond also made clear that, for austerity to be over, Britain must sidestep the threat of economic damage associated with a no-deal Brexit. The risk of a no-deal Brexit, though, seems to be increasing as the Chancellor confirmed an additional £500m of funding to help government departments prepare for leaving the EU. He went on to suggest that, if necessary, the next Spring Statement could be upgraded to a full fiscal event.

Wage growth and the Personal Allowance

The Chancellor was keen to make sure that ‘hard-working families’ and ‘strivers’ were adequately rewarded, for their efforts and contributions to the economy, by being able to keep more of what they earned in their pockets.

In an attempt to make this a reality, Hammond confirmed that the Personal Allowance will increase to £12,500, from £11,850, and the higher-rate band from £46,350 to £50,000, from April 2019 – a year earlier than originally planned.

Though not entirely transformational, it is a promise fulfilled as far as the Chancellor is concerned and still a welcome boost for many taxpayers. A basic rate taxpayer can expect to save £130 a year, whilst a higher-rate taxpayer will save £860 a year. For employees the increased band will see an additional £365 National Insurance payable. The limit of £100,000 from which the personal allowance starts to be claw-backed remains unchanged.

In addition, Hammond also announced that the National Living Wage, paid to workers aged 25 or over, will increase from April 2019. Currently £7.83/hour, it will rise by 4.9% to £8.21/hour meaning the UK’s lowest paid workers will see their pay rise above current levels of inflation.

The Government has also accepted the Low Pay Commissions recommendations in respect of increasing the National Minimum Wage rates. These increases will also come into effect from April 2019.

Property tax: First-time buyers vs. Landlords

It’s not often that a Budget goes by without property tax having been tinkered with and this was no exception. Hammond acknowledged that the housing market needs to be fixed, to boost UK productivity and improve living standards.

First-time buyers

In last year’s Autumn Budget, the Chancellor abolished stamp duty land tax – a tax you are required to pay when you buy property or land – for first-time buyers purchasing a property worth up to £300,000.

Now, first-time buyers of shared ownership properties will also be exempt from the tax. Shared ownership refers to instances where between 25% and 75% of a home is purchased and the remainder is rented. The exemption will apply to all shared ownership homes worth up to £500,000. It will also be backdated for those who have purchased a SO home since last year’s Budget.

Though a welcome step towards helping more first-time buyers get onto the property ladder, some experts are concerned that in focusing on this tier of the market, others have been ignored to its detriment.

Landlords

This Budget has been relatively kind to landlords as, for the most part, they appear to have escaped further tightening of restrictions on the private rented sector. However, one change worth mentioning is the restriction of Lettings Relief, which will take effect from April 2020.

This measure will mean that landlords may face additional Capital Gains Tax, when selling a property, now rented out, which had previously been their private residence. The proposal is to restrict Lettings Relief to those in shared occupancy with tenants.

What’s in it for businesses?

VAT registration threshold

Amid uncertainty, one thing that businesses can now be certain about is that the VAT registration threshold, currently £85,000, will remain until April 2022. As always, it’s important for businesses that are near to the VAT registration threshold to monitor their position monthly. Consider that you must also comply with Making Tax Digital, from April 2019, if you are VAT-registered and your turnover exceeds £85,000.

Business rates relief

The Chancellor also sought to appease SMEs struggling because of the business rates debacle; promising to cut bills by a third, over two years, for those with a rateable value of £51,000 or less. Though offering respite to some, many struggling retail chains, freelance ventures and service-based ventures have been left disappointed.

Entrepreneurs’ Relief

Despite speculation, Entrepreneurs’ Relief remains largely unchanged except for the qualifying period, which will increase to two years from April 2019. This decision has been made in the hope that it will promote longer-term investment in British business.

IR35 rules

As predicted, IR35 rules will be extended to large and medium-sized businesses in the private sector, though not until April 2020. Businesses will need to conduct more rigorous employment checks and ensure that contracts accurately represent the nature of engagement. It is important to note that it is the size of the engaging company, not the personal company, that is relevant for the definitions of large and medium–sized.

UK digital services tax

From April 2020, a UK digital services tax will be introduced for digital platform businesses. It is intended that established tech giants will shoulder the burden. The tax will only apply to profitable companies generating at least £500m a year in global revenues. The biggest risk with this decision is that it appears the UK are going it alone with this tax. It is relatively easy for digital companies to shift to jurisdictions with a lower tax base.

How can we help?

At George Hay we provide professional and proactive tax advice, as well as a wide range of other advisory services, to businesses of all sizes and individuals. If you’re concerned about any of the announcements in the Autumn Budget, or have questions about how they might affect you or your business, please do contact us.

More light reading…

The George Hay 2018 Budget Summary, written by our experts, can also be found here.

To read about the announcements in more detail and about those we have not covered, click here.

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