I was quite relieved in the end that the Budget didn’t end up containing the bad news on VAT and IR35 that had been rumoured. The chancellor left the VAT threshold at it’s current level of £85,000 and said he would consult further on this issue. Presumably he realised how deeply unpopular he would be amongst the millions of small business owners if he went through with a drastic reduction in the threshold. He has therefore kicked this particular tax can of worms down the road again, but I doubt this issue has gone away for good. It’s worth noting that the UK is very unusual in having such a high mandatory registration threshold, practically all other european countries require registration for VAT for all businesses, whatever their size.
On IR35 the expected extension of the off-payroll rules currently in force in the public sector to the private sector were confirmed, though not until April 2020. This means that businesses will be responsible for assessing the employment status of individuals contracting for them through personal service companies. If IR35 rules are found to apply they will need to deduct tax and NI from payments. The one piece of good news on this is that it will only affect large and medium sized businesses, not small ones. The chancellor didn’t define small in the context of this legislation, but the most likely definition is that businesses with less than 50 employees will be exempt.
I’m going to briefly summarise the other key points of relevance to small business owners below –
Finance cost allowed in full Finance cost allowed at basic rate
Year to 5 April 2019 50% 50%
Year to 5 April 2020 25% 75%
Year to 5 April 2021 0% 100%