2020 Budget Update
The Chancellor’s first Budget was overshadowed by the Covid-19 crisis and was lighter on tax changes than we might have expected. Nonetheless, some significant announcements were made, particularly in relation to Capital Gains Tax, and we have gathered below some of the key points as they relate to our clients and their businesses. The details are necessarily brief, and in some circumstances still unknown, but should you have any specific queries please do not hesitate to contact us.
HEADLINE RATES & ALLOWANCES
The personal allowance remains at £12,500. The basic rate band remains at £37,500, thus giving a higher rate tax threshold of £50,000 for 2020/21. Additional rates will apply from £150,000.
The basic, higher and additional rates of tax will remain at 20%, 40% and 45% respectively. Rates for dividends remain at 7.5%, 32.5% and 38.1%.
The income limit for married couple’s allowance will increase to £30,200
Blind person’s allowance will increase to £2,500
Capital Gains Tax
The annual capital gains exemption will increase to £12,300 (from £12,000) from 6 April 2020 and £6,150 for Trustees
National Insurance Contributions
The Primary Threshold and lower profits limit for Class 1 and Class 4 National Insurance Contributions (NIC) will increase to £8,632 and £9,500 respectively.
The ISA annual subscription limit remains at £20,000 per annum.
The annual subscription limits for Junior ISAs and child trust funds are to be increased to £9,000 per year
The headline rate of Corporation Tax will remain at 19% from 1 April 2020
SPECIFIC MEASURES IN RESPONSE TO THE COVID-19 CRISIS
HMRC have set up a dedicated helpline to support businesses and self-employed people affected financially by Covid -19 and, if deemed appropriate, may assist with time to pay arrangements.
The government has confirmed that, if a business has administrative difficulties in contacting HMRC or paying tax, late payment penalties and interest will be waived.
Statutory Sick Pay will be paid to all those advised to self-isolate even if they do not have symptoms. The government will refund this cost for businesses employing fewer than 250 people. (The position for self-employed people is less clear, given the well documented delays in obtaining Universal credit or appropriate benefits support)
There will be a £5bn emergency response fund to support the NHS and other public services.
Business rates in England will be suspended for retail, leisure and hospitality sectors with a rateable value below £51,000, for 2020-2021.
A £5,000 business rate discount will be given to pubs with a rateable value below £100,000 for one year from 1 April 2020.
A company in England that is eligible for small business rates relief will also be eligible for a £10,000 cash grant (increased from £3000 on 17th March). At the time of writing, the mechanism for applying for the grant is not yet clear.
The point at which employees and self- employed people begin to pay, respectively, Class 1 and Class 4 National Insurance contributions, has increased to £9,500.
Thresholds for tapered Pensions Annual Allowance will be increased to £200,000. However, the minimum Annual Allowance for those with adjusted income and threshold income in excess of this will be reduced to £4,000. The pension system is hugely complex to understand and administer and it is disappointing not to see a wider review promised.
The Government are also to review the mechanism for basic rate tax payers to claim tax relief on their contributions.
The pensions Lifetime Allowance has increased in line with CPI to £1,073,100.
Legislation is proposed that will allow for personal allowances to be taken into account when calculating Top Slicing Relief on life insurance chargeable event gains.
EMPLOYERS AND EMPLOYEES
The NIC Employment allowance, available to smaller businesses, is to increase from £3,000 to £4,000 with effect from 6 April 2020.
The extended off-payroll working rules (IR35) will come into force on 6 April 2020 as expected. However, following the recent consultation, the Government have given some clarity including confirmation that;
o The rules apply to services provided from 6 April 2020 but not to payments made after this date that related to pre-6 April 2020 services.
o HMRC are to take a lenient approach on penalties for inaccuracies for the first 12 months providing reasonable care has been taken
SUBSEQUENTLY POSTPONED UNTIL 2021 ACCORDING TO HOUSE OF COMMONS STATEMENT 17 MARCH
It was announced that the Construction Industry Scheme will be simplified, but this will be accompanied by a tightening of the rules requiring evidence of CIS deductions to be provided before a repayment will be given.
The 100% first year allowances (FYA) for low emission vehicles will be extended from 1 April 2021 to 31 March 2025. The qualifying threshold for a low emission vehicles will reduce from 50g/km to 0g/km. The main rate (18%) threshold has been reduced from 110g/km to 50g/km. Expenditure on vehicles with emissions in excess of 50g/km will now attract special rate writing down allowances (6%)
The van benefit charge will increase from 6 April 2020 to £3,490 in line with CPI. The van fuel benefit charge will rise to £24,500.
The Government intend to legislate for a zero benefit charge for vans which produce no carbon emissions, but that would not be in place until at least 6 April 2021.
The Government announced that they intend to review the legislation around Enterprise Management Schemes to ensure that those companies can “recruit and retain the best talent” and to “examine whether more companies should be able to access the scheme”.
This sounds like a positive step toward the beneficial tax treatment afforded by these employee share option schemes being extended to a broader range of companies.
The rate of Research and Development (R & D) expenditure credit is to increase from 12% to 13% for expenditure incurred from 1 April 2020. The government will consult on whether expenditure on data and cloud computing should qualify as R & D expenditure.
A previously announced measure to restrict the availability of carried forward capital losses in Companies will take effect from 1 April 2020. This means that brought forward capital losses can relieve only 50% of chargeable gains arising in the period. However, it was indicated that the restriction will not apply for the first £5 million brought forward capital or income losses. The legislation will be implemented in Finance Bill 2020. Certain companies in liquidation will be excluded from the scope of the restriction.
As previously announced, the UK will introduce a Digital Services Tax. This will impose a 2% tax on specific revenue in large companies when derived from social media platforms, search engines and online ‘marketplaces’. It is stated that this will be a temporary measure until a comprehensive global solution is found.
A review of business rates will be launched and the results will be published in the Autumn. Immediate reliefs for some sectors have been announced, see ‘ Response to Covid-19’ above.
CAPITAL GAINS TAX (CGT) AND INHERITANCE TAX (IHT)
A fundamental change to the Entrepreneur’s Relief (ER) system has been imposed with immediate effect (11 March 2020). The lifetime limit on capital gains which can qualify for ER has been slashed from £10,000,000 to £1,000,000. There are also going to be some anti-avoidance measures to scupper attempts that might have been made to ‘bank’ ER in anticipation of the budget.
Changes on the rules for disposal of residential property had already been announced and these will be relevant where an exchange of contracts occurs after 5 April 2020. (See Property summary for details)
No changes were announced in relation to Inheritance Tax, although given the Office of Tax Simplifications review of IHT last year, it is unlikely that IHT is completely off the agenda and we might anticipate further news in the Autumn Statement.
Previously announced measures to take effect from 6 April 2020 include;
• changes to private residence relief, reducing the final allowable ‘deemed occupancy’ period from 18 months to 9 months
• the abolition of lettings relief (except in a very distinct set of circumstances)
• an extension to the rules already in place for non UK resident taxpayers, to all taxpayers disposing of residential property with potential capital gains tax to pay.
Details of the disposal and an estimated capital gains tax computation must be submitted online within 30 days of completion. The estimated tax must also be paid within that timescale.
• Non UK resident companies that have a UK property business will be within the UK Corporation tax regime with effect from 6 April 2020. Some additional rules were published 11 March 2020 to assist the transition process.
A new, but not entirely unexpected, announcement was that Non UK Residents purchasing residential property in England and Northern Ireland will be subject to an additional Stamp Duty Land Tax (SDLT) charge of 2%, taking the top slice rate of SDLT for non-residents to 17%. There is currently some uncertainty as to how ‘non-resident ‘ is to be defined for these purposes and a consultation is to be published shortly.
The Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation and from 1 April 2020 rates will start at £3,700 for a property valued at £500,000 rising to £236,250 for the most expensive properties. This applies to residential property, valued over £500,000, which is completely or partly owned by a Company.
Following the UK’s exit from the European Union, Women’s sanitary products are to become free of VAT with effect from 1 January 2021.
VAT on e-publishing is expected to be abolished later this year, to bring treatment in line with traditional paper reading material, but a consultation will take place to decide how this is best implemented.
‘Postponed accounting’ for VAT registered businesses that import goods. From 21 January 2020, a business will be able to account for import VAT on the VAT return as opposed to paying VAT at the time of importation.
A specific agricultural flat rate scheme will apply for agricultural business with a turnover under £150,000.
From April 2021 Large businesses will be required to notify HMRC when they take a tax position which HMRC ‘is likely to challenge’. No further details were given, but alongside this HMRC will publish a ‘new strategy’ for tackling promoters of tax avoidance schemes. Draft legislation is expected in July 2020.
There will also be measures to request evidence of the standards of tax advice being offered in the market. Additional funds have been earmarked for tackling tax abuse generally, but particularly targets were stated as the construction industry and the hidden economy.
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