Amidst all the Brexit debates, the Chancellor Philip Hammond has presented his second Spring Statement.
In his speech the Chancellor provided an update on the economy and responded to the Office for Budget Responsibility forecasts. In addition he launched consultations on various aspects of the tax system together with updates on earlier consultations.
Hallidays report concentrates on the tax consultations that were announced either at Spring Statement or in recent weeks and progress that has been made in the development of legislation from earlier consultations.
The personal allowance
The personal allowance increases to £12,500 for 2019/20. For 2019/20 there is no personal allowance available where adjusted net income exceeds £125,000.
The marriage allowance
The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.
Tax bands and rates
The basic rate of tax is 20%. In 2019/20 the basic rate band increases to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance.
Individuals pay tax at 45% on their income over £150,000.
Tax on dividends
The first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
Gift Aid – donor benefits
The donor benefits rules that apply to charities who claim Gift Aid tax relief on donations are simplified from 6 April 2019. The benefit threshold for the first £100 of the donation remains at 25% of that amount. For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.
Making Tax Digital for Business: VAT
Businesses with a taxable turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.
The new rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. For some VAT-registered businesses with more complex requirements the rules will not have effect until 1 October 2019. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.
The government has now confirmed that a light touch approach to penalties will be taken in the first year of implementation. Where businesses are doing their best to comply, no filing or record keeping penalties will be issued.
The focus will be on supporting businesses to transition and the government will not be mandating MTD for any new taxes or businesses in 2020.
Corporation tax rates
Corporation tax rates have already been enacted for periods up to 31 March 2021.
The main rate of corporation tax is 19%. The rate will fall to 17% for the Financial Year beginning on 1 April 2020.
Plant and machinery
In the Autumn Budget, the government announced an increase in the Annual Investment Allowance for two years from £200,000 to £1 million in relation to qualifying expenditure incurred from 1 January 2019. Special rules apply to accounting periods which straddle this date.
Other changes made to plant and machinery capital allowances include:
- a reduction in the rate of writing down allowance on the special rate pool from 8% to 6% from April 2019.
- the end of the 100% first year allowance and first year tax credits for products on the Energy Technology List and Water Technology List from April 2020.
Preventing abuse of the R&D tax relief for SMEs
From 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. This is to help prevent abuse of the payable credit system The government has now announced that a consultation will be published and will focus on how the measure will be applied, to minimise any impact on genuine businesses.
Off-payroll working in the private sector
The changes to the off-payroll working rules (commonly known as IR35) that came into effect in April 2017 for the public sector will be extended to the private sector from April 2020.
Only medium and large businesses will be subject to the 2020 rules, so small businesses will not need to determine the status of the off-payroll workers they engage. The government intends to use the Companies Act 2006 definition of a small company which means meeting any two of these criteria: a turnover of £10.2 million or less, having £5.1 million on the balance sheet or less, or having 50 or fewer employees.
Employer provided cars
Most cars are taxed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. The maximum charge is capped at 37% of the list price of the car.
For 2018/19 there was generally a 2% increase in the percentage applied by each band. For 2019/20 the rates will increase by a further 3%.
Exemption for travel expenses
From April 2019, new legislation has been introduced which removes the requirement for employers to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel.
The legislation also allows HMRC to put the existing concessionary accommodation and subsistence overseas scale rates on a statutory basis from 6 April 2019. Like benchmark rates, employers will only be asked to ensure that employees are undertaking qualifying travel.
The Apprenticeship Levy generally applies to employers if their annual ‘paybill’ is over £3 million. A pay bill means the total earnings upon which Class 1 employer NICs are calculated.
Employers that pay the Levy are able to use the funds towards qualifying apprenticeship training costs with a 10% government top up. For other employers, a system of co-investment means that government funding currently meets 90% of the training costs and the employer 10%.
At Budget 2018 the government announced that the co-investment rate would be halved from 10% to 5%, and the amount employers who pay the Levy can transfer to certain other employers would increase from 10% to 25%. The Chancellor has announced that these changes will now take effect from April 2019.