The Chancellor delivered a lot of changes that were relatively favourable to small businesses, but in the background a few important adverse changes were made which seem to be because too much money was leaving the Treasury. This is therefore not a bold post-Brexit Budget.
Relatively favourable to growing businesses:
- Capital allowances of 100% (AIA) will be available on all expenditure up to £1m from 1 January 2019 to 31 December 2020 up from £200k. Even the £200k isn’t spent by most growing business but if you need to invest heavily in capital equipment this is very welcome.
- Research and Development cash repayments will only be available for amounts up to 3x the PAYE/NI bill from April 2020. It will be important to ensure businesses make the maximum claim they can before April 2020.
- A new Structures and Buildings Allowance (SBA) of 2% will be introduced for all new commercial buildings contracts entered into on or after today. This might also be a small boost to the construction sector.
- The £3k Employer Annual Allowance saving Employer’s NI of up to £3k will only be available for employers with an Employer’s NI bill under £100k. So this is still available for most growing businesses.
- The new 2% Digital Service Tax (DST) from April 2020 will apply only to certain revenues over £25m. With corporation tax at 17% from the same date, this may be bearable even if you are affected.
- The £85k VAT threshold remains for now (but you can’t help feel it will go eventually).
- The early increase in the tax free personal allowance to £12,500 and the higher rate threshold to £50,000 a year early will help business owners save dividend tax when taking dividends from their companies. Above that, remember that Child Benefit starts to get taken away so £50,000 may be the threshold to work with for a few years.
Some adverse changes:
- The qualifying period to be eligible for capital gains tax Entrepreneurs Relief of 10% will increase from 12 months to 24 months from 6 April 2019. In practice, this may have limited application but remember to get your spouse in as an owner-officer sooner rather than later.
- IR35 extension to the Private sector from April 2020 might encourage good freelancers/consultants to work for smaller businesses, however, there aren’t so many contracts in that sector. A lot of freelancers will face a very high tax bill. There may be some moves for their clients to take them on as employees, but this doesn’t easily fit in with the idea of a flexible, enterprising Britain. Expect a lot of debate between client and freelancer when a new contract is negotiated!
- The tax treatment of work related training costs will not change. This is a blow for the self employed sole trader who suffers an unfair rule where some training costs are seen to be capital and not tax deductible.
- Many clients also own a property they rent out and the Principal Private Residence changes mean their capital gains tax bill of 18% or 28% when they sell the property will increase. This may bring forward some property disposals to ensure they exchange before April 2020.
With many changes effective from 2020 will the Chancellor prove to have had 2020 vision on the strength of the UK economy?