Spring Budget 2020

Collier-Marsh Accountancy

Chartered Accountants


Sunak delivers Budget to meet ‘challenging times’


Chancellor Rishi Sunak delivered his first Budget, and the first since the UK’s departure from the European Union, against the backdrop of the coronavirus outbreak.


The Chancellor announced a £30 billion stimulus package to support the economy through coronavirus contagion and pledged to give the NHS whatever extra resources are needed to cope. 


Following the news that the Bank of England had reduced interest rates to 0.25%, in an emergency response to the coronavirus, Mr Sunak put further measures in place. 


These include Statutory Sick Pay (SSP) for employees who are advised to self-isolate, even if they are displaying no symptoms. The government will also meet some SSP costs for businesses.


In addition, business rates for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000 have been suspended for a year. This tax holiday will be worth up to £25,000 to thousands of businesses across the retail, leisure and hospitality sectors. 


Citing the latest economic forecasts from the Office for Budget Responsibility, Mr Sunak said the economy is predicted to grow by 1.1% this year. However, the GDP forecast does not fully account for the impact of coronavirus. 


Turning to duties, tax on beer, wine, cider and spirits have been frozen while tobacco duty will continue to rise by inflation plus 2%. Fuel duty will also remain frozen, for a tenth consecutive year, despite widespread speculation that it would rise. However, Mr Sunak introduced other green measures including a new tax on plastic packaging and freezing the climate change levy on electricity while raising it on gas. The Chancellor also promised to spend £500 million to support the rollout of new rapid charging hubs for electric cars.


In addition, Mr Sunak resisted calls to end Entrepreneurs' Relief, although the lifetime allowance will be reduced from £10 million to £1 million. The Chancellor will abolish the so-called ‘tampon tax’, reducing the VAT rate on sanitary products to zero from 1 January 2021, as well as scrapping VAT on digital e-publications, including e-books, e-newspapers, e-magazines and academic e-journals, from 1 December 2020.


The Budget confirmed increased spending on infrastructure projects including broadband, railway and roads. £5 billion was promised to get gigabit-capable broadband into the hardest to reach places and £510 million of new investment into the shared rural mobile phone network.


Budget Highlights

  • A reduction in the Entrepreneurs' Relief lifetime limit
  • An increase in the Employment Allowance
  • An increase in the rate of Structures and Buildings Allowance
  • An increase and extension of business rates discounts
  • Extended access to Statutory Sick Pay due to coronavirus
  • An increase to the National Insurance thresholds
  • Fuel duty to be frozen for the 10th consecutive year

PERSONAL TAX


Pensions changes 

The pensions annual allowance (currently £40,000) is the maximum amount of tax-relieved pension savings that can be accrued in a year. However, for those on higher incomes, the annual allowance is reduced by £1 for every £2 that an individual’s ‘adjusted income’ exceeds £150,000, to a minimum annual allowance of £10,000. Adjusted income is broadly net income before tax with the addition of any pension accrual. The taper potentially applies to an individual with income before tax, without the addition of the pension accrual, above £110,000. This is known as the ‘threshold income’.


Adjusted income and threshold income will each be raised by £90,000 for 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. The annual allowance will begin to taper down for individuals who also have an adjusted income above £240,000.

There is also a change to the minimum annual allowance. The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from 6 April 2020. This reduction will only affect individuals with adjusted income over £300,000. 


Support during the coronavirus

The Prime Minister previously announced that the forthcoming COVID-19 Bill will temporarily allow Statutory Sick Pay (SSP) to be paid from the first day of sickness absence, rather than the fourth day, for people who have COVID-19 or have to self-isolate in accordance with government guidelines. The Budget sets out a further package to widen the scope of SSP and make it more accessible. The government will temporarily extend SSP to cover:

  • individuals who are unable to work because they have been advised to self-isolate
  • people caring for those within the same household who display COVID-19 symptoms and have been told to self-isolate. 


Support for those ineligible for SSP  

The government recognises that self-employed people and employees earning below the National Insurance Lower Earnings Limit are not entitled to SSP and will offer financial support to these individuals through a ‘new style’ Employment and Support Allowance and Universal Credit. 


Please see the Covid-19 section of our website for more up to date guidance and information regarding government support during the Covid-19  crisis.


Child Trust Funds (CTFs)

Junior ISAs and its precursor CTFs allow tax free savings to be made for children under 18. There is no access to the investments until the child is 18. CTF accounts will start to mature in September 2020 when the first children reach 18. Without regulatory change the investments would lose their tax advantaged status. CTF and ISA regulations have therefore recently been made which: 

  • make sure that investments in CTF accounts retain their tax advantaged status post maturity, pending instructions from the account holder
  • allow savings transferred from a matured CTF to be disregarded for the annual ISA subscription limit.


Junior ISA and CTF annual subscription limits

The annual subscription limit for Junior ISAs and CTFs will be increased from £4,368 to £9,000 for 2020/21.

 

 EMPLOYMENT TAXES


National Insurance thresholds

The government has recently announced National Insurance thresholds for 2020/21. Most thresholds will rise with inflation. Two thresholds, however, will rise by 10% from £8,632 to £9,500:

  • the primary threshold - which sets the level at which employees start to pay Class 1 National Insurance contributions (NICs)
  • the lower profits limit - which sets the level at which the self-employed start to pay Class 4 NICs.


The upper thresholds which apply to these two classes of NICs remain at £50,000.


Note: The secondary threshold, which sets the level at which employers pay the main rate of NICs, only rises in line with inflation.


Employer provided cars

The scale of charges for calculating the taxable benefit for an employee who has use of an employer provided car is computed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. The maximum charge is capped at 37% of the list price of the car.


For 2019/20 the rates increased by 3% from the rates applying for 2018/19.


The government announced in Budget 2017 that CO2 emissions for cars registered from April 2020 will be based on the Worldwide Harmonised Light Vehicles Test Procedure (WLTP). Draft legislation has been issued to amend the previously planned benefit percentages for 2020/21 through to 2022/23: 

  • All zero emission cars will attract a reduced percentage of 0% in 2020/21 and 1% in 2021/22, before returning to the planned 2% rate in 2022/23. 
  • For cars registered before 6 April 2020, the current test procedure will continue to apply and there are no further changes to percentages previously set for 2020/21. These rates will be frozen at the 2020/21 level for 2021/22 and 2022/23.
  • For cars first registered from 6 April 2020 most rates will reduce by 2% in 2020/21 before returning to planned rates over the following two years, increasing by 1% in 2021/22 and 1% in 2022/23.


Employment Allowance

The Employment Allowance provides businesses and charities with relief from their employer NICs bill. Regulations have been issued to restrict the Employment Allowance, from 6 April 2020, to those employers whose employer NICs bill was below £100,000 in the previous tax year. Employers who are connected to other employers (such as companies within a group) will need to add together all of their employer Class 1 NICs liabilities incurred in the tax year prior to the year of claim to determine eligibility. 


The maximum Employment Allowance will be increased from £3,000 to £4,000 with effect from 6 April 2020.

From 6 April 2020 the Employment Allowance will operate as de minimis State aid. This means it will count towards the total aid a business is entitled to under the relevant de minimis State aid cap. 

 

Note: De minimis State aid rules apply if a business engages in economic activity, providing goods or services to the market. Most businesses will not have received de minimis State aid before so will not need to do further checks to determine if they are eligible for the Employment Allowance.

 

National insurance

2020/21 Class 1 (employed) rates










Entitlement to contribution-based benefits for employees retained for earnings between £120 and £183 per week.
The employer rate is 0% for employees under 21 and apprentices under 25 on earnings up to £962 per week.


















 

Minimum wage

Increases in the National Minimum Wage and National Living Wage rates now occur in April each year. 
















Apprentice rates apply to those under 19, or 19 or over and in the first year of their apprenticeship. National Living Wage applies to those aged 25 and over.

 

 BUSINESS TAX

 

Corporation tax rates

The main rate of corporation tax is 19%. The rate for the Financial Year beginning on 1 April 2020 was due to fall to 17% but the Chancellor has announced the rate will remain at 19%.


Capital Allowances: Structures and Buildings Allowance

The annual rate of capital allowances available for qualifying investments to construct new, or renovate old, non-residential structures and buildings will increase from 2% to 3%. The change will take effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax. 


Enhanced Capital Allowances in Enterprise Zones

The government has announced the 100% first year allowance for investment in new plant and machinery within designated assisted areas within Enterprise Zones will remain available for expenditure incurred in relation to all areas, whenever designated, until at least 31 March 2021.


First year allowances for business cars from April 2021

The government has announced an extension to 100% first year allowances for zero-emission cars, zero-emission goods vehicles and equipment for gas refuelling stations by four years from April 2021. CO2 emission thresholds will also be amended from April 2021. These determine the rate of capital allowances available through which the capital expenditure for business cars can be written down. The thresholds will be reduced from 50g/km to 0g/km for the purpose of the first year allowances for low CO2 emission cars and from 110g/km to 50g/km for the purpose of WDAs for business cars.


Note: the reduction in thresholds will mean that only business cars acquired with CO2 emissions of 0g/km will be eligible for first year allowances. Ultra-low emission vehicles which currently qualify for first year allowances if 50g/km or less will no longer qualify. They will be eligible for WDAs at the main rate (18%). Cars with CO2 emissions exceeding 50g/km will be eligible for WDAs at the special rate (6%).

 

Research and Development (R&D) tax relief

The rate of tax credit for companies falling within the Research and Development Expenditure Credit (RDEC) scheme will rise by 1% to 13% from 1 April 2020. This relief is given as an above the line credit for companies undertaking qualifying R&D. 


Budget 2018 announced that, from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. The government has now announced the implementation of the restriction will be delayed to 1 April 2021.


Corporation tax loss relief

Draft legislation has been issued to extend the rules that potentially limit the use of brought forward losses to include brought forward capital losses. Companies (and corporate groups) will continue to have a £5 million ‘deductions allowance’ before restrictions apply.


The changes will have effect where carried forward capital losses are used to offset chargeable gains accruing from 1 April 2020.


Digital Services Tax

The government has confirmed a new 2% tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users. The tax only applies when the group’s worldwide revenues from these digital activities are more than £500 million and more than £25 million of these revenues are derived from UK users.


The tax will apply from 1 April 2020.


Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The government has already announced that, for one year from 1 April 2020, the business rates retail discount for properties with a rateable value below £51,000 in England will increase from one third to 50% and will be expanded to include cinemas and music venues. To support small businesses in response to COVID-19, the retail discount will be increased to 100% and expanded to include hospitality and leisure businesses for 2021.


The government previously committed to introducing a £1,000 business rates discount for pubs with a rateable value below £100,000 in England for one year from 1 April 2020. To further support pubs, in response to COVID-19 the discount for pubs will be increased to £5,000.


The government is launching a fundamental review of business rates to report in the autumn. A call for evidence will be published in the spring.


CAPITAL TAXES


Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for Private Residence Relief.


There are two specific types of disposal which potentially qualify for a 10% rate up to a lifetime limit for each individual:

  • Entrepreneurs’ Relief (ER). This is targeted at directors and employees of companies who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met, and the owners of unincorporated businesses.
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.


Investors’ Relief has a lifetime limit of £10 million, however the lifetime limit position for ER has been changed in the Budget and is considered further below.


CGT annual exemption

The CGT annual exemption is £12,000 for 2019/20 and £12,300 for 2020/21.


Entrepreneurs’ Relief (ER)

The lifetime limit is reduced from £10 million to £1 million for ER 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.


Private Residence Relief (PRR)

Draft legislation has been issued to make changes to the PRR regime from 6 April 2020. For properties that have not been occupied throughout the period of ownership, available deductions for capital gains tax purposes will be amended as follows:

  • the final period exemption will be reduced from 18 months to nine months (there are no changes to the 36 months that are available to disabled persons or those in a care home)
  • lettings relief will be reformed so that it only applies in those circumstances where the owner of the property is in shared occupancy with a tenant.


Note: At present, lettings relief gives up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was the former main residence at some point in their period of ownership. Despite concerns raised during the consultation about periods of letting prior to April 2020 and whether the current rules should be allowed to apply, the government is proceeding as planned and lettings reliefs will be abolished except in very limited circumstances of co-occupation with a tenant. The changes apply for disposals on or after 6 April 2020, regardless of when the period of letting took place.


Payments on account and 30 day returns

Legislation has been enacted to change reporting obligations for residential property gains chargeable on UK resident individuals, trustees and personal representatives. Also introduced is a requirement to make a payment on account of the associated CGT liability. For disposals made on or after 6 April 2020:

  • a tax return is required if there is a disposal of UK land on which a residential property gain accrues 
  • CGT is required to be computed on the reported gain in the tax return.


The return needs to be filed and the CGT paid within 30 days of the completion date of the property disposal.


The new requirements do not apply if a chargeable gain does not arise, for example where the gains are covered by PRR.


Inheritance tax (IHT) nil rate bands

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021. An additional nil rate band, called the ‘residence nil rate band’ (RNRB), continues to be phased in. For deaths in 2019/20 it is £150,000 rising to £175,000 for deaths in 2020/21. Thereafter it will rise in line with CPI.


Note: The RNRB was introduced in April 2017 to allow the family home to be passed more easily to direct descendants on death without incurring a charge to IHT. There are, however, a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.


Stamp Duty Land Tax (SDLT) surcharge 

A SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland is to go ahead. The 2% surcharge is to take effect from 1 April 2021. Where contracts are exchanged before 11 March 2020 but complete or are substantially performed after 1 April 2021, transitional rules may apply.





This budget report was prepared immediately following the Chancellor’s Spring Statement based on official press releases and supporting documentation.

The Budget proposals are subject to amendment before the Finance Act receives Royal Assent. This Report is for guidance only, and professional advice should be obtained before acting on any information contained herein. No responsibility can be accepted by the publishers or the distributors for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Employee

Employer


Earning per week

%

Earning per week

%

Up to £183

0

Up to £169

0

£183.01 - £962

12

Over £169

13.8

Over £962

2

Class 1A (employers)

On employee taxable benefits

13.8%

Class 1B (employers)

On PAYE Settlement Agreements

13.8%

Class 2 (self employed)

Flat rate per week

Small profits threshold

£3.05

£6,475 per annum

Class 3 (voluntary)

Flat rate per week

£15.30

Class 4 (self employed)

On profits between £9,500 and £50,000

Excess over £50,000

9%


2%

Age

From 1 April 2020

From 1 April 2019

NLW

£8.72

£8.21

21-24

£8.20

£7.70

18-20

£6.45

£6.15

16 and 17

£4.55

£4.35

Apprentices

£4.15

£3.90

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