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ONLINE ACCOUNTANTS & TAX ADVISERS

Budget 2019



Summaries of the main announcements following the Chancellor of the Exchequer presentation of his Budget to Parliament which affect Small businesses, Contractors / Freelancers, Private individuals and Landlords are outlined below.


All applicable clients will automatically receive an expert and bespoke review (not a standard mail shot) of their tax affairs to identify any specific and relevant tax planning opportunities or restrictions arising from the legislative changes.


The proposals below are subject to change upon passing of the actual legislation.


Rate and threshold changes


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For 2019/20 there will be no personal allowance available where adjusted net income exceeds £125,000.


Corporation tax rate


The CT rate will be reduced from 19% to 17% from 01/04/20.


Making Tax Digital for Business: VAT


Businesses with a turnover above the VAT threshold must maintain digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.


The new rules have effect from 1st April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, and otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1st April 2019.


IR35 - Private sector


From 6th April 2020, medium and large businesses will need to decide whether the IR35 rules apply to an engagement with individuals who work through their own company. If IR35 applies the business, agency or third party that pays the individual’s company will need to deduct income tax, employee NICs, and also pay employer NICs.


For small businesses (as defined under Companies Act), the existing IR35 rules will continue and individual contractors will be responsible for deciding whether IR35 applies and accounting for any PAYE/NIC due.


Entrepreneurs’ relief


From 6th April 2019, the minimum period throughout which the qualifying conditions for the relief must be met will increase from 12 to 24 months.


An individual must also satisfy either of the following (on top of existing conditions):


Distribution tests which require the individual, by virtue of that holding, to be entitled to at least 5% of the company’s profits available for distribution to ‘equity holders’ and 5% of the assets available for distribution to ‘equity holders’ in a winding up; or


A proceeds test which requires the individual, in the event of a disposal of the whole of the ordinary share capital of the company, to be beneficially entitled to at least 5% of the proceeds.


Individuals can qualify for entrepreneurs’ relief where their shareholding is diluted below the 5% qualifying threshold by fund-raising events after 5th April 2019.


CGT payment date on sale of residential property


From 6th April 2020, all CGT due on UK residences will become payable within 30 days of completion (UK or foreign resident individuals). The requirements will apply to Individuals whether or not already within the Self Assessment system.


This ‘payment on account of CGT will only apply if a chargeable gain arises and will not affect the sale of an exempt main residence.


Pensions Auto enrolment


From 6th April 2019, the employer contribution towards an employee’s workplace pension will increase from 2% to 3%.


Student Loan threshold increases


From 6th April 2019, the earnings thresholds for repaying student loans will increase as follows:


Plan 1 threshold increases to £18,924

Plan 2 threshold increases to £25,716

Post graduate loan increases to £21,000


Introduction of payslip changes


From 6th April 2019, all 'workers', including casual and zero hour workers have the right to receive itemised payslips. Payslips will have to include information about the number of paid hours the employee has worked but only in situations where “the amount of wages or salary varies by reference to time worked”.


Private resident relief


From April 2020 it is proposed that lettings relief will only apply where the owner of the property is in shared occupancy with the tenant. As a result of the proposed changes, the relief currently worth up to £11,200 of CGT, would be lost unless the individual selling the property lived in the home at the time it was let out.


The government proposes that the final period exemption will be reduced from 18 months to 9 months. There will be no changes to the 36 month final period exemption available to disabled individuals or to those in a care home.


R&D tax relief


From 1st April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.


Employers - The National Living Wage


The National Living Wage applies to all working people aged 25 and over. From April 2019 the rate will increase to £8.21.


Termination payments


From 2020/21, termination payments in excess of the £30,000 exemption will be subject to employer’s national insurance contributions (NIC).


If a termination payment is paid with no contractual PILON (payment in lieu in notice) new rules will operate by deeming a proportion of the termination payment to be salary, which will be subject to income tax and NIC, and the £30,000 income tax and NIC exemption can apply to the balance remaining.


Foreign service relief will also be removed but if the employment to which the termination payment relates was not taxable as employment income in the UK, the termination payment will not be chargeable to tax in the UK.


Gift aid donor benefits


There are currently monetary thresholds for determining the level of benefit that can be supplied to donors in consequence of a donation on which gift aid can be claimed.


These will be replaced by two percentage thresholds from 6th April 2019.


The benefit threshold for the first £100 of the donation will remain at 25% of the amount of the donation and charities will be able to offer an additional benefit to donors up to 5% of the amount of the donation that exceeds £100.


The maximum value of the benefit that a donor will be able to receive remains at £2,500.


Charities with trading activities


The upper limit for trading that charities can carry out without incurring a tax liability will rise from £5,000 to £8,000 where turnover is under £20,000 and from £50,000 to £80,000 where turnover exceeds £200,000.


Royalties payments


With effect from 6th April 2019, withholding tax will apply to royalty payments and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers (No UK presence is required for these rules to apply).


Annual investment allowance


The AIA will be increased from £200K to £1M for all qualifying investments in plant and machinery from 1st January 2019 until 31st December 2020.


Special rate writing down allowance


The capital allowances special rate for qualifying plant and machinery will be reduced from 8% to 6% from April 2019. Special rate expenditure includes that qualifying as a long life asset, thermal insulation, integral features, and expenditure on cars with CO2 emissions of more than 110 grams per kilometre.


For businesses with a chargeable period spanning April 2019, a hybrid rate will have effect for unrelieved expenditure in the special rate pool.


The availability of a 100% first-year allowance will end for energy and water-efficient plant and machinery from April 2020 onwards.


Structures and buildings allowance


A new Structures and Buildings Allowance (SBA) is now available on the eligible construction costs of new commercial structures and buildings. The allowance will provide tax relief over a period of time for the construction costs of buildings intended for commercial use, for the costs of improvement of existing structures, and buildings including the cost of converting existing premises for use in a qualifying activity. If the structure or building is of mixed use (i.e. it has some residential element) then the relief will be apportioned accordingly. It is not available for workspaces within a domestic dwelling (e.g. a home office). The relief will be limited to the original construction or renovation costs over a fixed period of 50 years at a rate of 2% per year. This will be granted irrespective of changes of ownership.


Labour provision in the construction sector


From 1st October 2019, a person supplying certain construction industry services to a VAT-registered customer will no longer be required to account for VAT.  Instead the customer will account for VAT under a “reverse charge” arrangement.


Tax abuse and insolvency


The government will introduce legislation so that directors and other persons involved in tax avoidance, evasion or phoenixing will be jointly and severally liable for company tax liabilities where there is a risk that the company may deliberately enter insolvency.


From 6th April 2020, HMRC will move its VAT, PAYE, Income Tax, employee National Insurance and Construction Industry deductions to preferential status. Currently, these taxes rank as unsecured creditors in insolvency proceedings meaning that all creditors of the company will rank equally and most probably only receive a small proportion of their outstanding debt. Employer’s National Insurance and Corporation Tax will still rank as unsecured claims.


Non-residents and UK property


New legislation for disposals from 6th April 2019, will result in tax being imposed on all non UK resident persons on gains for disposals of interests in any type of UK land, whether residential or non-residential. All non-UK resident persons will also be taxable on indirect disposals of UK land. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest. All non-UK resident companies will be charged to corporation tax rather than CGT on their gains. There are options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019.


From 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to corporation tax rather than being charged to income tax.


Company vehicle benefit


From 2020/21, a new range of bands will be introduced with appropriate percentages ranging from 2%-19% for ultra-low emission vehicles (ULEVs) emitting less than 75 g/km of CO2.


Annual Tax on Enveloped Dwellings


The annual tax charges on residential properties worth more than £500,000 that are owned through companies and other ‘envelope’ arrangements will go up for 2019/20 in line with inflation. For example, the charge on a dwelling worth between £500,000 and £1 million will be £3,650 (up from £3,600).


Marriage Allowance


The marriage allowance is increased to £1,250 from 6th April 2019.


VAT


The VAT registration threshold will remain frozen at £85,000 until 2022 (the deregistration threshold will remain at £83,000).


VAT group registration changes


From 1st April 2019, VAT grouping will not be restricted to incorporated entities. An individual or a partnership will be allowed to join a VAT group provided it controls the companies it is grouped with and is entitled to register for VAT in its own right (This condition does not apply to companies who are dormant or wholly exempt).


VAT grouping can provide cash flow and administrative benefits by allowing entities under common control to register for VAT under a single VAT registration number, account for VAT on a single VAT return, and not charge VAT on supplies between group members.


Goodwill and intangible assets

A new fixed rate amortisation relief of 6.5% has been introduced for goodwill and similar intangible assets acquired after 1st April 2019.


In brief terms, the relief will be:




Goodwill acquired prior to 1 April 2019 will continue to be subject to the tax law prevailing at the time it was acquired.