Last week, Chancellor Philip Hammond gave a speech going over the changes to the Budget for Autumn of 2018. It was delivered earlier than usual, owing mainly to an effort to avoid any conflicts with budgets or regulations expected as part of Brexit on March 29th, 2019.
The topics touched upon in the budget have a broad range - affecting both large and small businesses based in the UK. While small businesses are already expecting changes thanks to Making Tax Digital for business (expected April, 2019), a new set of figures from the budget generally give a little more breathing room.
The new budget numbers
With Brexit on the way, businesses working across borders might be feeling the stresses of an uncertain future. The numbers presented in the new budget seem aimed at alleviating some of the financial difficulties encountered by UK businesses.
Mr Hammond’s stance on the UK economy was largely positive, stating a higher than predicted growth rate of 1.6% (as opposed to 1.3%), with a considerably lower borrowing rate than previously predicted (approximately £11.6bn lower).
His speech assured UK individuals and businesses that the period of austerity the country has been experiencing is coming to an end.
The budget and small businesses
Many of the budget changes will have a direct impact on small businesses. To highlight a few of the main ones:
- Rates relief for retail properties valued at less than £51,000 (rates cut by ⅓ for two years).
- Personal allowance increased from £11,850 to £12,500 in 2019 (moved up a year)
- Extension of ‘Entrepreneur’s Relief’ from 1 year to 2 years starting April, 2019 for businesses ceased by October 29th, 2018 or later.
- Digital Services tax of 2% being added as of 2020
- Tax on non-recycled plastic will be introduced
- No change in VAT registration threshold until 2022
These updates can spell changes for some small businesses in the UK, good to know before the arrival of Brexit.
The budget and your employees
For businesses with employees, there are also a few changes that you should be aware of moving forward in 2019. For Off-Payroll workers (IR35) (small enterprises will be exempt from the following):
- Deduction of tax and NI will be the responsibility of the employer for personal service companies
This change promises to be one of the major revenue-generating measures in the Autumn Budget.
Investment allowances 2019
The budget clearly has UK business growth in mind with the five-fold increase of the maximum Annual Investment Allowance (AIA) from £200,000 to £1 million.
The AIA is a type tax relief aimed at UK businesses, allowing the deduction of capital spent on business equipment up to a certain amount. This means that of a company’s profits in a year an amount up to the allowance is available to be claimed as deductible from taxation.
Both sole traders and companies are eligible for claiming AIA.
What qualifies for AIA
There are specific assets and expenses that can be claimed under the Annual Investment Allowance. These include:
- Equipment for the business (office furniture, hardware, some software)
- Certain parts of a building that are required for running the business
- Vans and/or lorries that are used for business purposes
- Machines that are necessary for the operation of the business
- Air conditioning, kitchens, bathrooms
- Agricultural machinery
- Entertainment machines (arcade games, for example)
These are the primary categories for the types of expenses that can be claimed under AIA. Learn more on the HMRC AIA page.
Managing your budget
The best way to make sure that your business gets the most out of the new budget changes is to keep your finances in order. This is where accounting and invoicing software comes in - creating and sending invoices, entering incoming payments, recording expenses and VAT becomes easier, faster, and more convenient with the right software.
In addition, MTDfb means that all UK businesses over the VAT threshold will need to use accounting software to report VAT as of April 2019.