2018 autumn Budget – what this means for personal tax
Wednesday, 12 December 2018
This was Philip Hammond’s third Budget as Chancellor and the second autumn one. Unusually, it was presented on a Monday, apparently wishing to avoid any Halloween references had he held it later in the week. He also slipped in a few jokes, as has become his tradition. As usual, there was a lot of detail and additional information; if you’re an insomniac, you might like to read the full version:
The reaction has been mixed from all parties, but there’s no doubt that he was trying to add to the Prime Minister’s recent comments about ending austerity. With half an eye on future general elections, there was a bit of a giveaway with regard to personal allowances and the increase in the higher rate tax limit to the levels promised, in 2020; a year earlier than expected. Trawling through the small print, there were very few tax raising measures announced.
Obviously the elephant in the room was the B* word, and it remains to be seen what effect that will have over the coming few months!
Changes announced for personal tax
- The personal allowance will increase to £12,500 for 2019/20.
- In 2019/20, the basic rate band will rise to £50,000 (from £46,350), ie. £12,500 plus the basic rate band of £37,500 (from £34,500).
- In Scotland, however, the Parliament is setting different tax rates and allowances. These have not yet been confirmed and are quite complicated.
- From April 2019, the Welsh Government has the power to set a Welsh rate of tax, but it has announced that it will not vary the UK rates.
- Capital gains tax annual exempt amount rises from £11,700 to £12,000 in 2019/20. Rates payable remain unchanged.
*BREXIT, in case you were unsure
It was widely predicted that the Chancellor would take steps to reduce personal tax relief, which he recently described as ‘eye wateringly expensive’. However, he did not mention this in his speech and the only change was the annual inflation linked increase in the Lifetime Allowance.
- Lifetime Allowance for tax-advantaged pension funds rises from £1.03 million to £1.055 million.
- The limit on contributions remains at £40,000 per year. For those with income up to £150,000 the amount is tapered away until it is only £10,000 when income reaches £210,000.
- National Insurance
- Abolition of Class 2 NIC for the self-employed had been delayed by a year to 6 April 2019. It has now been announced that it will remain in force during the life of the current parliament.
- Class 4 NIC main rate; no changes. Lower and upper profits limits have been raised to £8,632 (£8,424) and £50,000 (£46,350) respectively.
- The ISA investment limit will remain unchanged at £20,000 from 6 April 2019.
- The Lifetime ISA, (LISA) limit will remain at £4,000 for 2019/20.
- From April 2018, the tax free dividend will be reduced from £5,000 to £2,000. For 2019/20 it will remain at £2,000.
- The rates payable after the Dividend Tax Allowance remain at 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate.
Companies now pay corporation tax at 19%. The Chancellor confirmed that this rate will continue for the year commencing 1 April 2019, then fall to 17% from 1 April 2020.
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, until 5 April 2022.
The Office of Tax Simplification has recommended a reduction in the threshold, but the Government will look again at the question once the terms of the UK’s exit from the EU have become clearer.
Making Tax Digital (MTD)
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 commencing after 1 April 2019.
Parliamentary committees and professional bodies have expressed concern about the lack of testing and businesses’ awareness of these requirements, but the Chancellor made no further announcements on the subject. It must, therefore, be assumed that MTD will be implemented as planned.
Please take professional advice before making any decisions. To downlaod a copy of our full autumn Budget 2018 briefing, please click here.
If you have any queries or would like more information, you can contact me on 01473 833411 or firstname.lastname@example.org