The 2019 Budget – what we know so far
On 25 October, the Chancellor of the Exchequer, Sajid Javid, confirmed to the Treasury Select Committee that the budget will not be taking place on Wednesday 6 November 2019, as previously announced.
In the short letter, he wrote “Parliament has voted for a delay to the UK’s withdrawal from the European Union, so the Government is now calling for a General Election. I can therefore confirm that I have decided not to bring forward the Budget on 6 November.” You can read the announcement here.
In his previous budget announcement, he said: “This will be the first Budget after leaving the EU. I will be setting out our plan to shape the economy for the future and triggering the start of our infrastructure revolution.
He went on to comment “In the event of no deal, the government would act quickly to outline our approach and take early action to support the economy, businesses and households. This would be followed by a Budget in the weeks thereafter.”
We will update this article, once we have a clearer understanding of whether a general election will take place, which will impact this Budget.
On 5th September (2019), the official consultation period for the Draft 2019-20 Finance Bill ended. With the focus largely on Brexit, you may have missed the announcement of this bill and the subsequent consultations. This provides draft clauses intended to be included in Finance Bill 2019-20 along with related consultations and response documents. This is subject to confirmation at Budget 2019.
It is also worth noting that this Draft Finance Bill was published whilst Philip Hammond was the Chancellor of the Exchequer. As we now have a new prime minister and cabinet, including a new chancellor, Sajid Javid, this could lead to parts of the draft legislation being abandoned or amended. Furthermore, if a general election is called before Spring 2020, this could result in the entire bill being scrapped and replaced.
Some of the proposals in the bill will affect you directly, while others may have little to no impact at all. At the very least, you will want to be aware of them. With that in mind, here is our run-through of some of the key proposals in the draft bill that could make it through to the budget:
Off-payroll working from April 2020 – IR35
The government proposes reforms to off-payroll working rules for medium and large businesses which would largely bring them in line with the public sector. This means that all organisations must be responsible for determining if their existing rules and regulations apply to the contractors they hire. All organisations must be compliant and should ensure that all employment taxes are paid.
This will have a significant impact on many sectors, including recruiters, as well as the manufacturing & engineering and property & construction sectors, who rely heavily on recruiting or supplying contractors.
You are likely to be affected by these rules, if you fall into any of the following categories:
- A worker who provides their services through their intermediary
- A client who receives services from a worker through their intermediary
- An agency providing workers’ services through their intermediary
Digital services tax
A new tax of 2% on the revenues of search engines, social media platforms and online marketplaces that derive value from UK users. For these organisations, if the annual revenue exceeds £500m and more than £25m of that was generated in the UK, then this tax will apply.
From 1st April 2020, these revenues will be taxed under DST. By 31st December 2025, DST will be reviewed for its effectiveness.
The draft of the finance bill includes new measures to tackle tax avoidance. It proposes an anti-avoidance rule that tackles insolvency processes and the ways in which tax can be avoided after directors leave a company. The new bill will state that all directors (and anyone connected to a company) may be made jointly and severally liable for any tax debts owed by a company going through an insolvency procedure. However, the following conditions must apply:
- The company in question must have engaged in tax avoidance/evasion
- The person in question was responsible for the company’s conduct (the person must have enabled or facilitated the tax avoidance or benefited from it)
- There is likely to be a tax liability that arises from the tax avoidance
- There is a serious possibility that some or all the tax liability may not be paid
Changes to capital gains tax relief are proposed. Lettings Relief is largely being scrapped and Private Residence Relief is radically reduced. If you are letting out a property that was once your only or main residence and are considering disposing of this asset at some point in the future, it may be prudent to consider doing so before April 2020, should these changes become law.
Private Residence Relief (PRR), which allows an additional grace period of the last 18 months of ownership, is being halved to nine months, whilst Lettings Relief is being withdrawn completely (unless you share your home with a tenant). If your property has increased in value since purchase, this could have a significant impact on your capital gains tax bill if you sell the property after 5 April 2020. You can find out more about this in our recently published article here.
Corporate capital losses
One of the more interesting changes on the new proposed finance bill is the corporate capital loss changes. Usually, capital losses can be carried forward by a company and set against gains that arise in the following year. From 1 April 2020, only 50% of those gains will be available to set against losses. This will affect large companies and unincorporated associations that pay Corporation Tax and have carried-forward capital losses.
A corporate income loss restriction for carried forward income losses was introduced in 2017 which included an allowance such that the first £5 million of profits could be offset with carried forward losses before the 50% restriction is applied.
The deductions allowance can be set against capital gains. This will ensure that over 99% of companies are unaffected by the restriction.
Are you prepared for the new bill?
To ensure you’re up-to-date and compliant with the upcoming finance bill, preparation is key. Our team of experienced tax accountants can advise you on each and every area of your business’ finances.
In the meantime, take a look at our blog section which has plenty of insights that will benefit you and your company.