Budget 2020 - How Does it Affect You?

rishi-sunak-budget-2020

As expected, Chancellor Rishi Sunak's first budget was heavily focused on the issues and worries around Coronavirus, and started by outlining measures to help both individuals and businesses promising to "get through this together".

He announced a fiscal stimulus of £30bn, including £7bn for businesses and families, and £5bn for the NHS.

Help for Individuals

SSP will be available from day 1 (rather than day 4) for those individuals who have been advised to self-isolate, and sick notes will be available by calling NHS 111.

For those that do not qualify for SSP, for example the self-employed and gig-workers, the government have promised to make it quicker and easier for them to access benefits. Contributory based Employment and Support Allowance (ESA) will be claimable from day 1 (rather than currently day 8).

People will be able to claim Universal Credit and access advance payments where they are directly affected by the virus, without the need to attend a job centre.

Also, whilst the outbreak is in existence, the "minimum income floor" for Universal Credits will be temporarily relaxed.

Business Support

For employers with fewer than 250 (as at 28 February 2020) employees, SSP will be reclaimable by the employer for 14 days for each employee. Employers should of course maintain records of staff absences, but should not require employees to provide a GP sick note.

The repayment mechanism will be determined over the coming months.

Various business rates relief have been announced to help businesses, details of which can be read in the Business Rates section of this post below.

The government will also launch a new, temporary "Coronavirus Business Interruption Loan Scheme" to support businesses to access bank lending and overdrafts. The government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to businesses. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £1.2 million in value.

So, what were the main Tax announcements?Off-payroll workers (IR35)

At Budget 2018 the government announced that it would reform the off-payroll working rules in the private and third sectors from April 2020. The government has recently concluded a review of the reform, and is making a number of changes to support its smooth and successful implementation. The government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in Finance Bill 2020 and implemented on 6 April 2020, as previously announced.

Income Tax / National Insurance Personal Allowance

The personal allowance will remain at £12,500 in April 2020, and the higher rate threshold at £50,000.

Those with earnings over £100,000 will continue to lose £1 of their personal allowance for every £2 of earnings over £100,000 (effectively taxing the income at 60%).

Scottish Tax Rates

The main 20%/40%/45% bands are increased by 1% to 21%/41%/46% in Scotland. There are also small bands of 19% and 20% in Scotland before the 21% band kicks in at £25,158 of income.

The level at which the higher rate tax begins in Scotland this starts on income over £43,430 from April 2020 whereas those in the rest of the UK will not pay higher rate tax until they hit £50,000. This band of income between £43,430 and £50,000 is therefore taxed at 41% in Scotland but only 20% in the rest of the UK. This results in extra tax of £1,380 in this band.

National Insurance

The Primary Threshold and Lower Profits Limit, for the employed and self-employed respectively, will be increased to £9,500 from April 2020. This is the next step in the government's aim to bring the threshold in line with the tax-free allowance of £12,500.

Pension Tax

The pensions annual allowance is the maximum amount of tax-relieved pension savings that can be accrued in a year. For those on the highest incomes, the annual allowance tapers down from £40,000. HM Treasury has reviewed the tapered annual allowance and its impact on the NHS (in particular high-income earning doctors), as well as on public service delivery more widely. To support the delivery of public services, particularly in the NHS, the two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020-21 the "threshold income" will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an "adjusted income" above £240,000

For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.

The lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with CPI for 2020-21, rising to £1,073,100.

Capital Gains TaxResidential Property Reform

Please see our previous post dated 7 November 2019

Annual Exemption

The annual exemption will increase to £12,300 from 6 April 2020.

Entrepreneur's Relief

The lifetime limit on which Entrepreneurs Relief can be claimed will be reduced to £1m, from currently £10m. Although many business sales will still therefore fully qualify, for larger disposals this will result in extra tax of some £900,000.

Corporation Tax

As previously announced, the cut to the corporation tax rate to 17% will not happen, and will remain at its current rate of 19% (the lowest in the G20).

Digital Services Tax

As announced in Budget 2018, as from April 2020, the government will introduce a new 2% tax on the revenues of certain digital businesses, to ensure that the amount of tax paid in the UK reflects the value they derive from the UK people.

The tax will apply to revenues:

  • Generated from the provision of search engines, social media platforms, and online market places.
  • Apply to revenues from those activities, subject to a £25 million per annum allowance
  • Only apply to groups that generate global revenue from these activities in excess of £500m per annum
Corporate Capital Loss Restriction

As announced in Budget 2018, to ensure large companies pay tax when they make significant capital gains, the government will bring the tax treatment of capital losses into line with the treatment of income losses. From 1 April 2020, the government will restrict the proportion of the annual capital gains that can be relieved by brought forward losses to 50% (with an allowance that gives companies unrestricted use of losses up to £5m).

Research & Development

Now coming into force as from 1 April 2021, the amount of R&D tax credit that a loss-making company can receive will be restricted to 3 times the company's total PAYE and NIC liability for the year, effectively capping the potential relief. This is due to the fact HMRC are of the opinion that SME's are abusing the current system, with companies being set up to claim the cash but having no legitimate R&D.

The rate of RDEC will increase from 12% to 13% from 1 April 2020, supporting businesses investing in R&D and helping to drive innovation in the economy.

Intangibles Reform

The government will legislate in Finance Bill 2020 to remove the pre-2002 exclusion from the Intangible Fixed Assets (IFA) regime to support UK investment in intellectual property and other intangible assets. This means tax relief for the cost of acquiring corporate intangible assets on or after 1 July 2020 will be provided under a single regime, subject to restrictions to prevent tax avoidance.

Employment TaxNational Living Wage

The National Minimum and Living wage will increase from April 2020, as follows:

  • £8.72 per hour 25yrs and over
  • £8.20 per hour 21-24 yrs old
  • £6.45 per hour 18-20 yrs old
  • £4.55 per hour 16-17 yrs old
  • £4.15 per hour apprentices under 19, or in first year of employment

Employment Allowance

As from April 2020, the employment allowance will be increased to £4,000. This means that the first £4,000 of employers National Insurance will be exempt for employers with an NIC bill of £100,000 or less.

Van & Car Benefits

The flat-rate van benefit charge will increase to £3,490 as from April 2020.

The flat rate van fuel multiplier will increase to £666.

The multiplier for the car fuel benefit charge will increase to £24,500.

From April 2021, the government will apply a nil rate of tax to zero-emission vans within van benefit charge. This measure will save businesses an estimated £433 per van in tax in 2021-22.

Change to NIC on termination payments from 6 April 2020

As previously announced, National Insurance Contributions (NIC) on termination payments was to introduced, but was delayed until April 2020.

Currently, there is no NIC cost on termination payments. From 6 April 2020, employers will have to pay NIC of 13.8% on any part of an employee's termination payment exceeding £30,000.

Business Rates

The government has announced they will increase the Business Rates retail discount, and expand it to cover the leisure and hospitality sectors. Therefore, if a qualifying property has a Rateable Value of less than £51,000, then no business rates will be payable.

Furthermore, the £1,000 business rate discount for pubs with a RV of less than £100,000 will be increased to £5,000 from April 2020.

The government recognises that many small businesses pay little or no business rates because of Small Business Rate Relief (SBRR). To support those businesses, the government will provide £2.2 billion of funding for Local authorities in England. This will provide £3,000 to businesses currently eligible for SBRR or Rural Rate Relief, to help meet their ongoing business costs.

The government is launching a fundamental review of business rates to report in the autumn. The Terms of Reference for this review are published alongside this Budget and a call for evidence will be published in the spring.

VAT

The VAT registration turnover threshold will remain at £85,000 until April 2022.

The Government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020, to make it clear that e-books, e-newspapers, e-magazines and academic e-journals there are entitled to the same VAT treatment as their physical counterparts.

Domestic Reverse Charge for building and construction services

As announced in September 2019, the implementation of the VAT domestic reverse charge for building and construction services, which prevents losses through so-called 'missing trader' fraud, will be delayed until 1 October 2020.

Capital AllowancesAnnual Investment Allowance

A reminder that the Annual Investment Allowance was increased for 2 years, from £200,000 to £1m, as from 1 January 2019.

Therefore in January 2021 the AIA will decrease back to £200,000, and any claim will be apportioned for accounting periods straddling the 31 December 2020, with possible restrictions that may apply to the unwary.

Structures and Buildings Allowances (SBA)

The annual rate for Structures and Buildings Allowance will be increased to 3%, from the current rate of 2%. New, non-resident structures and buildings will be eligible for this relief (capital allowance) where all the contracts for the construction works are entered into on or after 29 October 2018.

In order to make a claim, the claimant must have an interest in the land on which the structure/building is.

Claims for integral features and fixtures are unaffected and will continue to qualify for AIA.

Business Cars

To support the uptake of zero emission vehicles (ZEVs) and ultra-low emission vehicles (ULEVs), from April 2021, the government will extend first year allowances to ZEVs only and apply the main rate writing down allowance (WDA) of 18% to cars with emissions up to 50g/km. The special rate WDA of 6% will apply to higher polluting cars with emissions above 50g/km. First year allowances for zero emission goods vehicles and natural gas and hydrogen refuelling equipment will also be extended

Stamp Duty Land Tax

The government will introduce a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021. This will help to control house price inflation and to support UK residents to get onto and move up the housing ladder. The money raised from the surcharge will be used to help address rough sleeping.

To make the taxation of housing co-operatives fairer, the government will introduce a relief for qualifying housing co-operatives from the ATED and the 15% flat rates of SDLT on purchases of dwellings over £500,000. The SDLT relief in England and Northern Ireland will take effect from Autumn Budget 2020 and the UK-wide ATED relief from 1 April 2021 with a refund available for 2020-21.

WelfareUniversal Credit / Benefits

The government is ending the benefit freeze, and increasing working age benefits by 1.7% as from April 2020.

The government will also help ensure claimants can repay debts in a more sustainable and manageable way by reducing the maximum rate at which deductions can be made from a UC award from 30% to 25% of the standard allowance and giving claimants up to 24 months to repay advances.

The government will create an entitlement to Neonatal Leave and Pay for employees whose babies spend an extended period of time in neonatal care, providing up to 12 weeks paid leave so that parents do not have to choose between returning to work and taking care of their vulnerable newborn. In addition, the government will consult on the design of a new in-work entitlement for employees with unpaid caring responsibilities, such as for a family member or dependents

Worried how the Budget will affect you? Then why not get in touch with one of our tax specialists?

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Saturday, 27 February 2021

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