Budget 2018 was introduced as a budget for Britain’s future. In the budget, the Chancellor did recognise that the Brexit negotiations with the EU were at a crucial moment. He introduced a range of measures to boost investment in the UK and ensure the fairness and sustainability of the UK tax system in the future.
This budget will surely keep the conversations going between the accountants. From changes to personal tax measures to a new digital service tax, we have put together 5 important things that you need to take away from this year’s budget. Here are the key tax measures that accountants will be talking about for the rest of the year. Let’s take a look:
1. Increase in Personal Allowance
In Autumn Budget 2018, Philip Hammond MP, Chancellor of the Exchequer announced that the basic tax-free personal allowance will rise to £12,500 and the higher-rate threshold to £50,000 in April 2019.
This means that basic taxpayers will save £130, higher rate taxpayers will save £860 and additional rate taxpayers will save £600 on annual tax. As per the reports, this change will amplify the number of taxpayers taken out of income tax. As per the HMRC analysis of personal income statistics, approximately 32 million people can hope to see a reduction in their tax bills in 2019-20.
This change to the basic rate and increase in the personal allowance will apply to the non-dividend and non-savings income in Wales, Northern Ireland and England and to the dividend and savings income in the UK.
2. MTD and VAT
Making Tax Digital (MTD) is the government’s scheme that needs online tax filing, payment and digital record keeping. The impact of MTD on businesses is likely to be significant. As per the government, MTD will reduce tax error and thereby generating extra revenue in 2019-20.
Applicable from April 2018, all the VAT registered organisations and businesses with taxable turnover above the VAT threshold of £85,000 will need to comply with MTD for VAT. This means that businesses will need to:
- Digitally maintain their accounting record in software or spreadsheet.
- Submit VAT returns to HMRC. This should be done through functional compatible software that can access the API platform of HMRC.
For now, these are not applicable on VAT registered business whose taxable turnover is below the VAT threshold.
3. Contractor Loan Charge
HMRC introduced 2019 Loan Charge in order to recover unpaid taxes by people who were engaged in the disguised remuneration scheme since April 6, 1999.
As the April deadline for the 2019 Loan Charge approaches, people are left will little time to avoid potentially huge tax penalties. As such, it has been heavily criticised by the people describing it as an unbalanced method to an issue which is HMRC’s own making at some extent.
In case, if you were engaged with contractor loan schemes in the past and haven’t yet reconciled your tax affairs, it’s best to contact HMRC at the earliest. This way, you can agree with them what you owe and agree on a payment plan.
Approaching GMRC with the intention to settle the amount also means:
- You will no longer have to pay the 2019 loan charge
- You will have to pay a lower tax rate on your contractor loan
- In case, if the scheme moves to litigation, you can be saved from paying the extra cost.
4. VAT Reverse Charge For Construction Services
Effective from October 1, 2019, a VAT reverse charge will be applicable to supplies of construction services in the UK. This means that approximately 300,000 construction businesses will need to alter their accounting system.
Under the VAT reverse charge, for supplies of certain construction services, instead of the supplier, the customer will be liable to account to HMRC for the VAT in respect of those supplies. However, supplies between group companies are excluded from the reverse charge.
However, the introduction of a reverse charge doesn’t modify the liability of the supply of the specified services. What changes, is the way in which the VAT is accounted for those supplies. Instead of the supplier charging and accounting for the VAT, the receiver of those supplies accounts for the VAT.
The aim of the VAT reverse charge is to tackle missing trader fraud, where VAT charged to a customer is not send to HMRC. By applying a reverse charge for construction services, HMRC is expecting to stop fraud worth £100 million per annum.
5. Preparing Private Sector Procurement For IR35
In Autumn Budget 2018, Chancellor Philip Hammond put an end to longstanding rumours and announced that changes to IR35 will be extended to the private sector.
From April 2020, every large and medium private sector business in the UK will be responsible for setting the tax status of any contract worker they hire. Fortunately, the delayed implementation has given some time to the recruitment agencies and hiring businesses to take necessary steps to ensure that they are in the best position when the off-payroll rules comes into effect in 2020.