Category Archives: Budget 2020

Budget 2020 – Summary

Rishi Sunak presented the (first) 2020 Budget on Wednesday 11 March 2020.

This blog focuses on the direct and indirect tax measures announced, as well as the announcements made previously which affect the 2020-21 tax year and beyond for English tax payers.

It concentrates on the issues likely to affect you, your family and your business.

If you have any questions please do not hesitate to contact me for advice.

COVID-19 Response

Following on from the Bank of England’s reduction in the base rate from 0.75% to 0.25%, Mr Sunak announced a packages of measures aimed to help deal with the disruption likely to be caused by the coronavirus.  These include:

  • Funding to support public services including increased funding for the NHS and other public bodies
  • Support for individuals, including statutory sick pay (SSP) being due from day 1 for those self isolating and relaxation of benefits for the self employed
  • Help for businesses, including:
    • Allowing small and medium sized businesses (with under 250 employees) to reclaim SSP for up to two weeks for employees who have been off work with COVID-19. This will not be an automated refund via the normal PAYE system since the system is no longer set up to refund SSP.
    • Increasing and extending business rates retail/leisure/hospitality discounts
    • The provision of one-off grants of £3,000 to help small businesses currently eligible for small business rate relief.
    • Introducing a temporary loan scheme for businesses
    • Extension of the HMRC time to pay scheme through a new dedicated helpline.

More details of these measures can be found on the government website here.

Main Budget proposals from the Budget

  • The lifetime limit for Entrepreneur’s relief will be reduced from £10,000,000 to £1,000,000 with immediate effect.
  • VAT will be reduced to zero from 1 December 2020 for e-publications and 1 January 2021 for women’s sanitary products.
  • The maximum flat rate Income Tax deduction available to employees to cover additional household expenses will increase from £4 to £6 per week where they work at home under homeworking arrangements from 6 April 2020.
  • Corporation tax rates will remain at 19% rather than falling to 17% from 1 April 2020 as announced in the 2018 Budget.
  • It was confirmed that the new off-payroll working rules for workers in the private sector will come into force from April 2020.

A reminder of key changes announced previously

  • The income tax personal allowance for 2020-21 will remain at £12,500 and the 40% threshold remain at be £50,000.  For subsequent years, increases to the personal allowance and basic rate limit will be indexed with the CPI (The Consumer Price Index).
  • From April 2020, where tax is due, a tax return and payment on account of tax will be due on the sale of residential properties by UK residents.
  • The VAT registration threshold will be frozen at £85,000 until 31 March 2022 and its future will be reviewed once the terms of the EU exit are clear.
  • The changes to interest deduction rules for landlords started in April 2017, and are still being phased in over a 4 year period.  Relief for interest will be limited to basic rate tax.

Budget 2020 – Corporate and Business Tax

Corporation tax rates

The Chancellor confirmed that, as stated in the Conservative manifesto for the election last year, corporation tax will remain at 19% rather than falling to from 1 April 2020 17% as previously announced.  It will remain at 19% for the year beginning 1 April 2021.

National Insurance (NI) for the self employed

Class 2 NI will be £3.05 per week for 2020-21

Dividend tax

The nil rate dividend allowance will remain at £2,000 for 2020-21.

Making Tax Digital

Making Tax Digital (MTD) has been going through consultations over the past few years.   There were no new announcements in the Budget.

A reminder that the plan is that, under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.

From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) have been required to file their VAT returns through compliant software under making tax digital.

Capital Allowances

Businesses can claim an annual investment allowance” (AIA) when they buy plant and machinery for use in the business.  The standard limit is £200,000, which means that businesses can claim an immediate tax write down of the first £200,000 of expenditure every year.  The AIA was temporarily increased to £1,000,000 for two years from 1 January 2019.  It will revert to £200,000 from 1 January 2021.

For asset purchases in excess of the AIA, as well as some non-qualifying expenditure such as cars, expenditure goes into one of two pools – the main rate or the special rate pool, with current writing down allowances of 18% and 6% respectively, on a reducing balance basis.

Cars with emissions of under 50g/km are entitled to a 100% tax write down in the first year, those between 50g and 100g/km currently go into the main (18%) rate pool and those with higher emissions into the special (6%) rate pool.  From April 2020, the threshold for 100% write down will reduce to zero emissions, and the threshold for the main rate will reduce to 50g/km.

From Budget Day, 29 October 2018, a new capital allowance (the Structures and Buildings Allowance) was introduced, at a rate of 2% for new qualifying non-residential structures and buildings on a straight-line basis.  This allowance was increased to 3% in Budget 2020.

Off Payroll Working

The government confirmed that the reform the off-payroll rules in the private sector will come into effect from 6 April 2020.

Budget 2020 – Personal Tax

Tax rates

There were no changes to rates of income tax announced in the Budget.

Allowances and tax bands

The personal allowance for 2019-20 and 2020-21 will be £12,500, with the income on which you start to pay tax at 40% increasing to £50,000.  For subsequent years, increases to the personal allowance and basic rate limit will be indexed with the CPI (The Consumer Price Index)

This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1250L.

Other allowance levels can be found on the HMRC web site here.

ISAs

The ISA limit will remain at £20,000 for 2020-21.

The Junior ISA and Child Trust Fund subscription limits will be increased to £9,000.

The Lifetime ISA

A reminder that the ‘Lifetime ISA’ was introduced from 6 April 2017.  This allow adults under 40 to open a Lifetime ISA and pay in up to £4,000 per annum.  The government will add a 25% bonus to the ISA, so, up to £1,000.

Contributions can continue up to the age of 50.

Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.

Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government, and an additional 5% charge will be applied if the withdrawal is not for the purchase of your first home.

Dividend tax

The nil rate dividend allowance will remain at £2,000 for 2019-20.

Child Benefit

There were no changes announced to child benefit in Budget.  Rates for 2020-21 will increase (for the first time in five years) to £21.05 for the first child and £13.95 for subsequent children.

Don’t forget that there are special rules for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.

Landlords

Capital gains tax

Currently, if an individual sells a property that they have both lived in and rented out during their period of ownership, there is a capital gains tax relief – letting relief – that potentially reduces the taxable gain.  The Chancellor announced in 2018 that letting relief will be reformed so that it only applies when the owner of the property is in shared occupancy with a tenant.  After a consultation, the relief is being abolished from 6 April 2020.

Also, a reminder that, for disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 30 days of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.

Interest deduction

A reminder of the interest restrictions announced in the Summer Budget 2015 that started to come in to effect from April 2017, and are progressing through their transition years:

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

  • in 2017-18 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
  • in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
  • in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
  • from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Making Tax Digital

Making Tax Digital (MTD) has been going through consultations over the past few years.   There were no new announcements in the Budget.

A reminder that the plan is that, under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.

From April 2019, all VAT registered businesses with a turnover in excess of the VAT threshold (£85,000) have been required to file their VAT returns through compliant software under making tax digital.

 

Budget 2020 – Employment Issues

National Insurance Contributions (NI)

No changes to the rates of income based NI contributions on employment were announced in the Budget.

Class 2 NI will increase from £3.00 per week to £3.05 for 2020-21.

The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) will increase to £183 and £169 per week, respectively.  Note that this means that much lauded in increase in the lower NI threshold to £9,500 per annum (£183 per week) only applies to employees and the self employed, not to employers – their threshold increases to £8,788.

This means that company directors paying themselves the national insurance threshold can have an increase in pay from April 2020 to £732.33 per month (from £719.33).  It may be beneficial for some to increase their pay to £9,500 (£791.66 per month) depending on other income.

The upper earnings (or profits for the self employed) limit remains £50,000 (£962 per week), aligned with the point at which 40% tax becomes payable.

Details of the rates of NI can be found here.

Employer’s Employment Allowance

The employment allowance will increase from £3,000 to £4,000 per annum for 2020-21.

A reminder that it was announced in Budget 2018 that, from 2020-21, the allowance will be restricted to companies with employer national insurance bills of less than £100,000.

Statutory Sick Pay

Small and medium sized businesses (with under 250 employees) to reclaim SSP for up to two weeks for employees who have been off work with COVID-19.  This will not be an automated refund via the normal PAYE system since the system is no longer set up to refund SSP.

Minimum wage

The Minimum Wage rates from 1 April 2020 will be:

  • 25+ (National Living Wage) – increases from £8.21 to £8.72 per hour
  • 21 to 24 year olds increases from £7.70 to £8.20 per hour
  • 18 to 20 year olds increases from £6.15 to £6.45 per hour
  • 16 to 17 year olds increases from £4.35 to £4.55 per hour
  • apprentices increases from £3.90 to £4.15 per hour

Home working allowance

The maximum flat rate Income Tax deduction available to employees to cover additional household expenses will increase from £4 to £6 per week where they work at home under homeworking arrangements from 6 April 2020.

Budget 2020 – Pensions

The lifetime allowance will increase in line with the Consumer Prices index to £1,073,100 for 2020-21.

The annual allowance remains at £40,000.  This currently tapers to £10,000 for those earning over £150,000, reducing by £1 for every £2 that income exceeds £150,000.  The chancellor announced that the taper threshold would be increased by £90,000 such that tapering starts at £240,000, however, it will now taper to £4,000 rather than £10,000.

There is a reduced annual allowance for those who have started to draw from a pension. This remains at £4,000 for 2020-21.

 

 

Budget 2020 – VAT

There were no changes announced to the rate of VAT.

The VAT registration and de-registration limits will remain frozen at £85,000 and £83,000 respectively until 31 March 2022.

VAT on e-publications

From 1 December 2020, e-publications (e-books, newspapers, magazines etc) will be entitled to the same, zero rated, VAT treatment as their physical counterparts.

VAT on women’s sanitary products

The rate of VAT on women’s sanitary products will be reduced to zero with effect from 1 January 2021. (Am I the only one asking here why they can reduce e-publications from 1 December, but women have to wait until 1 January?)

Postponed VAT accounting

From 1 January 2021 registered businesses will be able to account for VAT on goods they import from all countries, including the EU, on their periodic VAT return.

VAT fraud in labour provision in the construction sector

As announced in September 2019, the government has delayed the introduction of the VAT domestic reverse charge for building and construction services. The measure will now come into force on 1 October 2020.

The measure will, for certain supplies of construction services and related goods, mean that the customer will be liable to account to HMRC for the VAT in respect of those purchases rather than the supplier.

 

Budget 2020 – Capital Gains Tax

The capital gains tax (CGT) annual exempt amount will increase from £12,000 to £12,300 from 6 April 2020 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled. The annual exempt amount for most other trustees will be £6,150.

For capital gains above the annual exempt amount the CGT rate for basic and higher rate tax payers will remain at 10 and 20 per cent respectively.

Gains on residential properties (not qualifying as your personal private residence) and carried interest (the share of profits or gains that is paid to asset managers) will remain at the 18 and 28 per cent for basic and higher rate tax payers respectively.

Residential properties

As announced in 2018, a reminder that, currently, if an individual sells a property that they have both lived in and rented out during their period of ownership, there is a capital gains tax relief – letting relief – that potentially reduces the taxable gain.  The Chancellor announced in Budget 2018 that letting relief will be reformed so that it only applies when the owner of the property is in shared occupancy with a tenant.  This change comes into effect from 6 April 2020.

Also, for disposals of residential property by UK residents made on or after 6 April 2020, a return in respect of the disposal must be made to HMRC within 30 days of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.  No return will be required if no tax is due (for example, for disposals covered by private residence relief).

Entrepreneurs’ Relief

Entrepreneurs’ Relief provides for a lower rate of Capital Gains Tax (10%) to be paid when disposing of all or part of a business where certain criteria are met, subject to a lifetime limit of £10 million of qualifying gains.

This measure reduces the lifetime limit from £10 million to £1 million for Entrepreneurs’ Relief qualifying disposals made on or after 11 March 2020.

There are special provisions for disposals entered into before 11 March 2020 that have not been completed

Budget 2020 – Motoring costs

Fuel prices

Fuel duty was frozen again.

Vehicle Excise Duty (VED)

VED (Road Tax) for cars, vans, motorcycles and HGVs will increase in line with the Retail Price Index from 1 April 2020.

The Budget papers also announce that all registered zero-emission light passenger vehicles registered from 1 April 2017 until 31 March 2025 will be exempted from the VED supplement for light passenger vehicles with a list price exceeding £40,000, starting from April 2020.

Business mileage payments

HMRC sets an approved mileage allowance payment (AMAP) rate. This is the rate at which employers may reimburse business mileage tax-free.

The AMAP rate will remain at 45p for the first 10,000 miles per annum and 25p per mile for any excess.

Company Cars

Car benefit

Car benefits are based on a percentage of the list price of the car.  The percentage depends on the CO2 emissions of the vehicle.
It was announced previously that, for cars registered from 6 April 2020, the calculations for CO2 emissions will be based on Worldwide harmonised Light vehicles Test Procedure (WLTP).  WLTP are emissions tests that aim to provide a closer representation of ‘real-world’ fuel consumption and CO2 emissions.  These are generally higher than the old measure (New European Driving Cycle (NEDC)), so there are now different percentage charges for pre-April 2020 (based on NEDC) and post April 2020 (based on WLTP) registered vehicles.
The rates for 2020-21 to 2022-23 can be found on pages 4 and 5 here.
Note that there will be a 0% benefit rate for zero emission cars for 2020-21 (increasing to 1% in 2021-22 and 2% in 2022-23 and returning to ‘normal’ in 2023-24)
Van benefit
The van benefit in kind charge will increased from £3,430 to £3,490 for 2020-21.
The benefit for zero emission vans will be reduced to zero from 6 April 2021.

Fuel benefit

The base figure for calculating the benefit where private fuel is provided alongside a company car will increase to £24,500 (from £24,100) with effect from 6 April 2020.

The van fuel benefit charge will be £666 (increased from £655) for 2020-21.

Budget 2020 – Other matters

Inheritance tax (IHT)

There were no changes to inheritance tax rates.

The standard nil rate band remains at £325,000.

As previously announced, the residence nil rate band increases from £150,000 to £175,000 for 2020-21.  There is a tapered withdrawal (at a rate of rate of £1 for every £2) of the additional nil-rate band for estates with a net value of more than £2m.  It is also available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

Any unused nil rate bands can be transferred to a surviving spouse or civil partner

Stamp Duty Land Tax (SDLT)

A 2% surcharge will be applied for all non-UK residents buying residential property in England and Northern Ireland from 1 April 2021.

Single-use plastics waste

The Chancellor reiterated plans to introduce a tax on the production and import of plastic packaging from April 2022, and launched a consultation.  The tax will apply to plastic packaging which does not contain at least 30% recycled plastic.

VAT and duty on goods carried by passengers

The government is publishing a consultation on the approach to the VAT and excise treatment of goods carried across borders by passengers for their personal use. The consultation will be published on 11 March and run for 10 weeks. It will consider inbound allowances for excise and non-excise goods, outbound duty-free and tax-free sales, and the VAT Retail Export Scheme.

Duty on red diesel

The government is to launch a consultation into the reform of the use of red (reduced duty) diesel.  The Chancellor said that the use within some sectors, such as agriculture and domestic heating, would be protected.