Budget 2018: What You Need to Know

On 29 October 2018, Chancellor Philip Hammond announced his third budget since taking office, announcing the end to austerity and a turning point in UK economic growth.

In the Spring Statement, GDP growth forecasts were upgraded to 1.5% for 2018. Now on reflection, The Office for Budget Responsibility (OBR), has revised them back down to 1.3%, partly in response to the economic impact of the “Beast from the East” earlier in the year.

However, there is an apparent cause for optimism.

GDP growth in 2019 is projected at 1.6%, with 2020 upgraded to 1.4%, from 1.3% in current projections. Record low levels of unemployment, more tax revenue than expected and higher GDP figures, combined with the chancellor anticipating a “Brexit dividend” are some of the reasons behind the claims that this budget is putting an end to austerity policies of the last ten years.

For the first time in many years, the government is announcing tax cuts and increased spending on public services, alongside more support for businesses. Let’s see what that could mean for you.

Budget 2018 for businesses

Described as a “business-friendly” budget, here are a few of the measures announced that should make a positive impact on your cashflow and personal finances.

  • Being introduced a year earlier than planned, in April 2019, the personal tax allowance will rise from £11,850 to £12,500.

  • At the same time, the higher rate of income tax will rise sooner than expected from £46,350 to £50,000 in April 2019. For those who pay themselves using a combination of PAYE and dividends, this should reduce the amount of personal income tax payable in the year that follows.

  • Beneficial for pub owners, alcohol duty is frozen, which will save pubs and anyone who wants to enjoy a drink before Christmas up to £110 million, whilst also safeguarding 3,000 jobs.

  • Businesses with premises that has a rental value of up to £51,000 will see rates cut by one third. This should reduce costs for 500,000 small businesses, making the high street more competitive against online giants. It is estimated that this tax cut will reduce annual overheads up to £8,000 for 90% of independent shops, pubs and restaurants. A commitment of £650m is going into UK high streets.

  • A digital services tax of 2% on UK sales should generate an extra £400m from companies such as Google and Amazon, when it comes into effect in 2020. This only applies to large corporates generating over £500m in global sales, not UK SMEs that sell goods and services online.

  • Housing continues to be supported by government. With a further £1bn to encourage smaller house builders, plus £500m for the Housing Infrastructure Fund.

  • For the next two years, the government is extending the personal annual investment allowance (SEIS & EIS) from £200,000 to £1m.

  • Businesses that contribute to the apprenticeship levy will see a reduction from 10% to 5%.

  • Self-employment tax is going to change, although this isn’t good news. From April 2020, HMRC is treating anyone self-employed who works as a contractor as an employee. Known as IR35, this will hit IT, engineering and other contractors and consultants in the private and public sector. From next year, this means paying the 12% rate, and companies working with contractors will also need to contribute the employers’ portion of the NI.

  • Another increase that will impact small businesses with employees: A 4.9% increase in the National Living Wage, from £7.83 to £8.21 an hour in April 2019.

What about Brexit?

Although it wasn’t mentioned much in this budget, Brexit was a part of everything the chancellor is promising. IF the economy continues to do well and IF the government - who've struggled so far - can negotiate a smooth transition - then this budget provides a firm foundation for the future. A future of lower taxes and increased public spending, in healthcare, mental health provisions, schools, roads, social and welfare services. All areas badly in need of more government spending.

At this moment, this budget all depends on two areas: continued economic stability and growth, and the Brexit negotiations. Otherwise, we may find ourselves in the Spring talking about a new budget, one that is adjusted for new economic outlooks and projections, in the event of a ‘no-deal.’

Disclaimer: We hope you found the information in this article useful and informative. Please remember that this is an article and is no substitute for professional advice on taxes, your business or personal finances.