The Chancellor included a number of tax changes in his Budget that directly affect self employed taxpayers and they will be implemented as we enter the new tax year this April. How do they affect you and your business?
It is important to remind yourself of the facts now, so that you don’t have any nasty financial surprises during the year. We’ve highlighted five of the scheduled tax changes that we think will affect the majority of our clients. None of the changes directly affect the R&D tax credits scheme however there were some tweaks made in the budget relating to loss making companies.
You will now have to wait two years before you can sell your business, or shares in your company and benefit from Entrepreneurs’ Relief. An increase of one entire year. You still get the half rate of 10% on your first £10 million gains, potentially saving you £1 million in capital gains tax. But you just need to wait for the extended minimum time to qualify.
2.Capital Gains Tax free allowance
The new rates of Capital Gains Tax (CGT) to be paid on property are 28% if you are a Higher Rate taxpayers and 18% if you are a Basic Rate taxpayer. The CGT rates on shares and assets are 20% for Higher Rate Taxpayers and 10% for those paying the Basic Rate of tax.
The good news is that the Capital Gains Tax free allowance is going up to £12,000, from £11,700 in the previous tax year. This means that you are entitled to earn up to £12,000 in profit from selling property, shares and/or assets before you pay any Capital Gains Tax at all.
3.Making Tax Digital
We’ve all seen the adverts for the government’s Making Tax Digital roll out. You need to really pay attention if you have a turnover of £85,000 or more. As of this month, you are required to report your VAT using the new Making Tax Digital software. You’ll be one of around 1.2 million businesses doing the same thing at the same time.
The concerns over HMRC’s IT capacity are understandable. But as long as you’re doing everything you should, using the approved software, you should avoid any penalties for mis-filing. Concerns have been voiced about SMEs being able to withstand the cost of both the software and time necessary to implement such a big administration change. Hopefully it will simplify things into the future.
You don’t need to worry about that 2020 deadline for getting all the income tax paid this way, that deadline has been shelved for now. A wise move by HMRC, who are having to divert staff away from pre-planned work in order to prepare for leaving the EU.
4.National Insurance Contributions increase for self employed
This isn’t such good news. Both Class two NICs rates are going up, as is the threshold for paying the 9% Class 4 NICs liability.
NICs class and rate
NICs class and rate
|Up to £6,205||0% No NICs||Up to £6,365||0% No NICs|
|£6,205 – £8,424||Class 2 £2.95 per week||£6,366 – £8,362||Class 2 £3.00 per week|
£156 per year
|£8,424 – £46,350||Class 4 9% + £2.95 per week||£8,632 – £50,000||Class 4 9% + £3 per week|
|£46,350+||2% + £2.95 per week||£50,000 +||2% + £3 per week|
So, if you are in the higher earner category, you will be paying 9% on more of your earnings than you would have been last year. And, across the board, the Class 2 NICs liability amount is up by 5p per week.
5.Personal Allowance increase
This is generally good news for everyone (if the Personal Allowance goes up), you can earn more before you have to pay any tax at all. And this tax year, it’s up by a substantial 5.5%. From £11,850 in the last tax year, to £12,500 from April 6th 2019.
Tied into this are the tax brackets that define what rate of tax you pay. And this year, one million fewer people will be paying the 40% Higher Rate of tax because the threshold is being raised to £50,000. This compares with £46,350 in the last tax year. So, if you’re in that £46,350 to £50,000 range of earnings, you will no longer lose the extra 20% tax until you go over the £50,000 mark.
As a higher earner with a net profits of £100,000 or more, you do start to lose out on your Personal Allowance. Your Personal Allowance decreases in increments the more you earn. For every £1 you earn over £100,000, you lose £2 of your Personal Allowance entitlement. This means that it is effectively void by the time you hit £124,000 net profit and you are taxed on the lot.
What should I do now?
Once you’ve skimmed this article and sussed out which of the new tax changes affect you and your business, make sure you delve into the detail. Don’t wait until a deadline appears on the horizon, figure out if you need to do anything and talk to your accountant if you need to, to make sure the transitions have as little impact on your business as possible. If you need any support with your R&D tax relief claim give us a call on 0330 053 9112 or fill in our easy contact form at the bottom of this page.