Budget 2020
Rishi Sunak has delivered his first Budget speech as Chancellor and the first one for about 17 months. Amid the backdrop of a growing threat to the economy from the global outbreak of Coronavirus, here are the main tax changes announced.
Personal Tax
As we already knew, the personal allowance and basic rate limits will remain at £12,500 and £37,500 respectively for 2020/21. An increase from £12,000 to £12,300 of the annual exemption for capital gains purposes will take effect from 6th April 2020.
£9,500 will be the new threshold for Class 1 primary and the Class 4 lower limits for national insurance contributions. A rise from £8,632.
From 6 April 2020 you will only be able to claim the NIC employment allowance if your Class 1 National Insurance bill was below £100,000 in the previous tax year. The allowance has been increased from £3,000 to £4,000.
In line with what was already planned, the residence nil rate band will increase to £175,000 for IHT purposes from 6 April 2020.
Another confirmed change that we already knew is the increase in National living wage. A more detailed breakdown of this can be found in our article Increased National Minimum Wage rates from April 2020.
There will be legislative changes to the calculation of top slicing relief, which will apply to life assurance gains occurring on or after 11th March 2020. The changes will provide additional relief for taxpayers whose entitlement to the personal allowance has been reduced due to a gain being included as part of their income. The changes will also clarify the treatment of allowances and reliefs within the top slicing calculation by confirming that they must be set, as far as possible, against other income in preference to the life assurance gain.
Entrepreneurs relief will be reduced with the lifetime allowance being cut from £10 million down to £1 million. The reduction has an immediate effect and apply to disposals on or after 11th March 2020.
The Junior ISA allowance has more than doubled from £4,368 to £9,000 per year in a bid to encourage long-term saving by parents for their children.
A 2% surcharge was announced on stamp duty for non-resident buyers.
Pensions
The tapered pension allowance thresholds have also been lifted as expected. This is designed to help, among others, NHS workers who were turning down extra hours as a result of the tax bill they would be landed with as a result of this extra work. The tapering allowance now only kicks in once annual income exceeds £200,000, a £90,0000 increase from the old rules.
The lifetime allowance has been increased in line with inflation to £1,073,100 for 2020/21. The annual allowance and money purchase annual allowance remain unchanged at £40,000 and £4,000 respectively.
The full new state pension will rise by 3.9% to £175.20 per week however most pensioners only receive the old state pension which also rises by 3.9% to £134.25 per week.
Employment Tax
The taxable benefit value applied to the appropriate percentage for company car fuel is £24,500 for 2020/21 (up from £24,100 for 2019/20). A value of £3,490 will be applied for a company van during 2020/21 with a fuel value of £666.
By 6 April 2021 the government plans to reduce the van benefit charge to zero for zero emission vans.
An increase from £4 to £6 to cover additional household expenses will take effect from 6 April 2020. The flat rate income tax deduction is available to employees where they work at home under homeworking arrangements.
Employers of veterans will receive an NIC holiday for the first year they are employed. Starting in 2021/22, employers will be exempt from NIC liabilities on the veteran’s salary up to the upper earnings limit.
Business and Corporation Tax
Corporation tax will remain at 19% as announced in the conservative manifesto.
An increase from 2% to 3% from 1 April 2020 will be applied to the Structures and Buildings Allowance (SBA) allowance (6 April 2020 for income tax purposes). The SBA provides relief on eligible expenditure on a straight-line basis for non-residential structures and buildings.
The Digital service tax (DST) announced at Budget 2018 take applies from 1 April 2020. DST is a 2% tax on revenues generated from search engines, social media platforms and online marketplaces. An allowance of £25m is available and the tax will only apply to groups with global yearly revenues of over £500m.
Corporate capital losses will be brought inline with corporate income losses. Capital losses will now be included in the £5m allowance and the brought forward capital losses can only be utilised up to 50% of the annual capital gains.
Several announcements were made in relation to the R&D regime with the Research and Development Expenditure Credit (RDEC) rate will be increasing from 12% to 13%. The PAYE cap on the payable tax credit for the SME R&D scheme will be delayed until April 2021, There will be a consultation on extending the scope of the R&D scheme to include expenditure on data and cloud computing
Relief on pre 2002 intangible assets from 1 July 2020 for corporation tax purposes.
VAT and Indirect Tax
A zero rate of VAT will be introduced for e-books, e-newspapers & e-magazines, this till take effect from 1st December 2020 which will bring the VAT treatment inline with physical versions.
The 5% VAT rate on sanitary products will be abolished from January 2021.
For a 10th straight year fuel (petrol and diesel) duties will remain frozen. The government has announced that red diesel subsidies will be scrapped but there will be exemptions for agriculture, rail and heating.
Duties on all alcoholic products have been frozen meaning that there will be no additional tax paid on any alcohol for at least a year.
Tax Administration
Limited Liability Partnerships (LLP’s) that operate without a view to profit, will have a new legislation brought in to allow HMRC to amend the LLP member’s returns, this legislation will also act retrospectively.
HMRC will be allowed to use automated processes to issue notices to file a return to taxpayers. The change comes after a number of tax tribunal cases where taxpayer had challenged the use of automated processes. Following varying degrees of success whether the notice to file needed to be issued by an individual officer, HMRC have decided in favour of automated processes. Again this legislation will be applied retrospectively.
The changes in rules effecting businesses entering insolvency have been pushed from April 2020 to December 2020. The rules will seek to ensure that more taxes paid in good faith by employees and customers go to fund public services instead of to creditors. These rules will only apply to taxes that have been collected and held by the businesses on behalf of other taxpayers for example VAT and PAYE.
Tax Avoidance
A clamp down on promoters of tax avoidance arrangements was also announced with HMRC set to publish a new strategy looking to deal with promoters of these avoidance schemes. Following the review into the highly controversial loan charge HMRC have also announced that further measures to tackle marketed tax avoidance will be announced in July 2020.
Large businesses will be required to notify HMRC when they ‘take a position which HMRC is likely to challenge’. This idea is in fact a re-emergence of an old idea from 1986 in which it was sought for taxpayers to have to notify the revenue when they had taken a benefit of the doubt in their tax return. At the time the idea was rejected and this appears to be a re-branding of this idea.
From 2022, businesses in the scrap metal and private hire sectors will only be able to renew or obtain a licence to operate if they can prove that they are property registered for tax.
The government announced that funds will be allocated to HMRC in aid of tackling all avenues of tax avoidance in order to secure £4.4 billion of additional revenue.
