What 2018 Budget means for business
The final Budget before the UK leaves the EU has been announced by UK Chancellor Philip Hammond. There were a number of measures detailed in the Budget which will affect businesses and the personal tax of business owners in Scotland.
This includes the temporary increase in the Annual Investment Allowance threshold from £200,000 per annum to £1 million from 1 January 2019 to 31 December 2020. This has been introduced to help stimulate business investment in capital expenditure. Capital allowances give tax relief against trading profits for expenditure on capital assets. This means that a business can spend up to £1 million on qualifying expenditure and get 100% tax relief in the year of the expenditure. The timing of any investment decisions should be considered to ensure the expenditure can benefit from the full £1 million allowance.
Another welcome measure is the introduction of new capital allowances for non-residential structures and buildings. This new Structures and Buildings Allowance (SBA) will give tax relief at two per cent per annum on the expenditure over 50 years on qualifying costs for new commercial buildings which do not include residential buildings. The SBA will also apply to agricultural buildings. There was much talk pre-Budget around the future of Entrepreneurs’ Relief (ER). This relief applies a 10% rate of capital gains tax on the gain on the sale of a business or shares in a personal company by an individual. The changes announced in the Budget tighten the rules for ER such that the individual must be entitled to five per cent of the ordinary share capital, five per cent of the voting rights, five per cent of the distributable profits and five per cent of the assets available for distribution to qualify for the relief. In addition, with effect from April 6, 2019, the minimum qualifying holding period is increased from 12 to 24 months. The rules have been changed to ensure that the relief is only being claimed by individuals with a real stake in the business. The Chancellor detailed that availability of ER supports enterprise in the UK and therefore it appears he is minded to tweak the conditions rather than abolish the relief altogether.
The setting of income tax rates was devolved to the Scottish Government from 2016/17 onwards and therefore the personal taxation of the individual Scottish business owner is unclear following the Budget. The announcement that the 40 per cent tax rate will only to apply to individuals on salaries over £50,000 in 2019/20 tax year will not apply in Scotland. As a result of the changes to the higher rate band unveiled in the UK Budget, middle-earners in Scotland face a growing tax burden compared with their counterparts elsewhere in the UK. The Scottish Finance Secretary Derek Mackay publishes his draft budget for Scotland on December 12. It remains to be seen as to whether the income tax rates and thresholds in Scotland will be adjusted following the UK Budget changes announced.
Overall the Budget appears to have been largely positive for business with additional tax relief for capital expenditure, however as always the devil may well be in the detail.
•John Gold is a Tax and Business Advisory Services Director at Campbell Dallas.
To discuss any Budget implications for you and your business, please contact John. Gold@campbelldallas.co.uk or call 01786 460 030.
Overall the Budget appears to have been largely positive for business... however the devil may well be in the detail