Friday, March 27th, 2020
Welcome to Copia Wealth & Tax Limited’s digest on the recent Budget. Here your local accountants break down some of the main highlights that could affect either you and/or your business.
It was Rishi Sunak’s first budget and marked a significant change in strategy from the previous Conservative regime – plenty of spending, a limited amount of bad news, help with the Coronavirus outbreak, together with multiple references to “getting it done”, presumably in order to reinforce their original manifesto message.
Please note that some of the announcements below have been superseded by subsequent actions surrounding the Coronavirus crisis so please refer to our separate articles on this topic on our website to ensure you are fully up to speed.
Up to 20% of the workforce may be unable to work due to the virus at any one time. It had already been announced that employees would be entitled to SSP from day 1, not day 4. Now the Government will fully reimburse employers with fewer than 250 employees the SSP paid for the first 14 days of absence caused by Coronavirus, equivalent to the self-isolation period.
The Chancellor announced a long-term review of the future of business rates, as well as some welcome measures to assist small businesses. The 100% business rates retail discount will be extended to the leisure and hospitality sectors where the rateable value is no more than £51,000.
In addition, very small businesses who already pay no business rates at all will be able to claim a £3,000 cash grant – further details to follow no doubt. (Note that additional rates relief was subsequently announced due to the Coronavirus crisis and the grant funding raised to £10,000).
The personal allowance for 2020/21 has been frozen at 2019/20 level of £12,500. The higher rate tax threshold has also been frozen at £50,000.
The basic and higher rates of income tax remain at 20% and 40% respectively, whilst the 45% additional rate is still applicable to income in excess of £150,000.
Rumours abounded that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. The first £2,000 of dividend income continues to be tax-free.
The annual ISA investment limit remains at £20,000. There will be a significant increase in the Junior ISA limit to £9,000 for 2020/21.
Despite a thorough review of all tax reliefs by the Treasury, the much-rumoured restrictions in pension tax relief again failed to materialise.
To especially assist hospital consultants and GPs, there was an increase in the threshold at which the pension annual allowance starts being tapered. From 2020/21, the adjusted income limit will increase from £150,000 to £240,000 which means that most doctors will not be caught by the restriction.
Despite considerable opposition, new rules for workers providing their services through personal service companies will apply from 6 April 2020 (note now deferred for 12 months due to Coronavirus crisis). Large and medium-sized businesses will be required to decide whether the rules apply to payments to workers supplying their services through personal service companies, a process that without doubt represents a significant and additional administrative burden. If the new rules apply, then income tax and national insurance contributions (NIC) will need to be deducted from payments to the personal service company. If an end user gets an assessment of IR35 requirement wrong, they will become liable for the tax that should have been deducted.
Employees and the self-employed will not pay NIC on the first £9,500 of earnings from 2020/21, a significant increase from the £8,632 limit in 2019/20.
However, employers will be required to pay 13.8% on earnings over £169 per week or £8,788 per annum.
The employment allowance that can be set against employers’ NIC increases to £4,000 from 2020/21 but will not be available to employers with total employer’s NIC liabilities in excess of £100,000 p.a.
After years of benefit freezes, the Government has decided to increase many State Benefits from 2020/21, including Child Benefit. The amount payable in respect of the oldest child has been increased to £21.05 and £13.95 for each subsequent child. Remember that you may have to pay a tax charge if one of the parents has an annual income in excess of £50,000.
Rumour had it that Capital Gains Tax Entrepreneurs Relief that allows certain business owners to pay just 10% tax on disposal would be completely abolished. However, the Chancellor has announced that from 11 March 2020 onwards the relief will only be available against the first £1 million of lifetime gains instead of the previous £10 million limit so small business owners will still benefit to some degree.
As previously announced, the Corporation tax rate is to remain at 19% after previous plans to reduce to 17% from 1 April 2020 were scrapped.
In the October 2018 Budget, new tax relief was introduced for the cost of construction or renovation of commercial buildings and structures. The original 2% straight line allowance is to be increased to 3% from 1 April 2020 for companies or 6 April 2020 for unincorporated businesses.
The Conservative Party manifesto promise to increase R&D expenditure relief for non-SMEs from 12% to 13% was confirmed. However, there is now a limit to the amount of repayable R&D tax credit for SMEs to three times the company’s total PAYE and NIC payments for the period.
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