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On Monday 29th October, Chancellor Phillip Hammond delivered the 2018 Autumn Budget.   Confused about how the government’s new tax and spending plans affect you? Here are all the key changes that you need to know…

Personal Taxation

The Government will meet its manifesto pledge of raising the personal tax allowance threshold. This is the rate at which people are required to start paying income tax at 20%. The Income Tax threshold will rise from £11,850 to £12,500 in April 2019.

Equally, the higher rate threshold – when income tax rises from 20 to 40 percent – will move from £46,350 to £50,000 in April 2019.  After this, the two rates will rise in line with inflation.

The tax rates and thresholds are different in Scotland. Scotland’s Finance Secretary Derek Mackay will announce his own plan for Scottish tax payers on 12 December. 

Wages Increase

Around 2.4 million workers are expected to benefit from a rise in National Living Wage. It will rise from £7.83 an hour to £8.21. This takes effect April 2019 and equates to a £690 annual pay rise for the full-time worker.

The hourly rate increases in April 2019 are as follows:

- from £7.83 to £8.21 for workers aged 25 and over (the National Living Wage)

- from £7.38 to £7.70 for 21-24 year olds

- from £5.90 to £6.15 for 18-20 year olds

- from £4.20 to £4.35 for 16-17 year olds

- from £3.70 to £3.90 for apprentices aged under 19 or in the first year of their apprenticeship.

IR35

IR35 off-payroll rules will be introduced to the private sector on the 6th April 2020. This means that private sector contractors working in medium and large sized businesses will need to pay more employment tax and National Insurance. The IR35 rules will affect IT contractors, engineers, consultants and many more.

What is IR35?

IR35 rules have already been introduced to the public sector and is a tax legislation designed to combat tax avoidance. IR35 ensures that companies who use partnerships and intermediary companies (i.e limited companies, contractors, freelancers) pay the necessary PAYE tax, Employee National Insurance Contributions (NICs) and Employer NICs that they are meant to.

Essentially, it stops workers supplying their services to clients via a third party (a limited company) when they are actually performing services in the exact same way as an employee. If you are classified as an employee, you pay more employment taxes.

Should my company be worried about this?

If you start paying employment taxes under IR35 for the first time following the reform, HMRC won’t carry out targeted campaigns or enquiries into earlier years. HMRC will provide support and guidance to medium and large organisations ahead of implementation.

A further consultation outlining the details of the reform will be published in the next few months.

Apprenticeship contributions halved

Good news for small businesses! Phillip Hammond announced that apprenticeship fees and training will be halved to 5% for small businesses. The government will pay the remaining 95%. It is expected that the 5% contribution will only apply to new starters when the change comes into effect.

Annual Investment Allowance

The Government will temporarily boost Annual Investment Allowance (AIA) from £200,000 to a whopping £1 million for two years starting January 2019. This will provide faster tax relief for plant and machinery investments of up to £1 million, helping businesses to invest and grow.

From October 2018, businesses will also be able to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax.

Corporation Tax

The Chancellor confirmed that corporation tax will remain unchanged at 19% at present, and will change to 17% commencing 1st April 2020.

Pensions and Savings

Pension

The lifetime allowance for pension savings will increase in line with the Consumer Prices Index (CPRI), rising to £1,055,000 for 2019/20.

Savings

The 0% band for the starting rate for savings income will remain unchanged at its current level of £5,000 for 2019/20.

Personal savings allowance will remain at £1000 for basic rate taxpayers and £500 for higher rate tax payers.

ISAs

  • Adult ISA annual subscription limit will remain unchanged at £20,000.
  • Junior ISA annual subscription limits 2019/20 will be updated in line with CPI to £4,368 (from £4260 in 2018/19).

Stamp Duty Land Tax Extension

In last year’s Autumn budget, the Chancellor scrapped stamp duty for first time buyers purchasing properties under £300,000. This year, Phillip Hammond has gone one step further by extending the exemption to first-time buyers of shared ownership properties of up to £500,000. The good news is that this relief will be retrospective for anyone who has purchased property since the last budget. 

Crackdown on Lettings Relief

Lettings relief currently provides up to £40,000 of relief (or £80,000 for a couple) to those who let out a property that is or has been their main residence in the past. This means that individuals have previously been able to claim the relief of a property that they have not lived in for a long time.

From April 2020 the government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant.

Capital Gains Tax: annual exempt amount

From 2019/20, the capital gains tax annual exempt amount will rise from:

  • £11,700 to £12,000 for individuals and personal representatives
  • £5,850 TO £6,000 for most trustees of a settlement.

Alcohol, Tobacco and Fuel

Alcohol prices won’t dramatically change as there will be a freeze on beer, cider and spirits. Wine drinkers can expect a slight increase in prices next year though as bottle of wine duty will rise by 8p in line with inflation in February. Tobacco duty will continue to rise by inflation plus 2%.

Many of you will be relieved to hear that fuel duty will be frozen for the ninth year in a row.

The Bigger Picture…

What About Brexit?

The Chancellor announced that £500 million will be kept aside for a Brexit contingency fund in the event of no-deal. A commemorative 50p coin will mark the UK’s departure from the EU.

What About Welfare?

The government is set to allocate £1.7 billion in work allowances for Universal Credit. As a result, working parents and people with disabilities claiming UC should be £630 a year better off. An extra £1bn will be spent helping welfare claimants transfer from their existing benefits to UC.

What About Those Pesky Potholes?

Those who have had their tyres damaged by potholes will welcome the Chancellor’s decision to spend £30bn on England’s roads. This includes repairs to motorways and potholes.

What About Health Services?

In a move that has long been called for, the government will spend an extra £20.5bn on the NHS over the next five years. The government has also recognised the need for greater mental health services, which will now receive a boost of £2bn a year.

An extra £700m will also be provided to councils for care of the elderly and those with disabilities.

Will Tech Companies Be Taxed?

Digital-only tech companies such as Google and Facebook will finally be subject to a ‘digital services tax’ from April 2020. This will see tech giants being taxed 2% of the money they make from UK users, which is expected to make around £400m a year for the government.