After a series of consultations and fundamental changes to the taxation of LLPs and partnerships since April 2014 and the announcement in September that Class 2 National Insurance Contributions for self-employed individuals will no longer be abolished during this Parliament, this was a quiet Budget for the professional practices sector, with announcements targeted at encouraging investment within UK business.
Several changes to the capital allowances rates have been announced with a notable significant temporary increase in the annual investment allowance (AIA) from £200,000 to £1m to help stimulate business investment. These changes will take effect from 1 January 2019 to 31 December 2020, with a hybrid allowance available where accounting periods straddle these dates. However, the AIA continues to be available only to LLPs and partnerships consisting wholly of individual partners. There is, therefore, the opportunity to consider the timing of any new capital expenditure. Firms may wish to review their budgeted capital expenditure with immediate effect.
From April 2020, the new off-payroll regime (otherwise known as IR35) will be extended to private sector organisations, including LLPs and partnerships, which will see the responsibility for correctly operating PAYE and accounting for NICs moving from the ‘contractor’ to the engaging organisation. This could present an increased risk for professional practices potentially becoming liable for PAYE and employer NICs in respect of payments to contractors engaged through an intermediary company or a personal service company. Such arrangements can commonly be used where professional practices retain the services of retiring partners as consultants.
While many partners may not benefit from the accelerated increase in the personal allowance, they may still see a rise in their ‘net of tax’ income as a consequence of the increase in the higher rate threshold. For partners with taxable income between £100,000 and £125,000, the importance of pension and tax planning will become even more important.
Although there were no changes to the amount of Entrepreneurs’ Relief an individual is able to claim, to encourage longer-term business investment there was a subtle extension in the minimum period throughout which the qualifying conditions for relief must be met, increasing from 12 months to 24 months.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.