BUDGET 2020 – MEMORABLE BUT FOR THE WRONG REASONS
For those in the profession, no Budget for almost 17 months is highly unusual. Most taxpayers are probably far less likely to have missed them but even now for us tax professionals, the tax elements of the Budget have mostly been overshadowed by the inevitable consequences of trying to shelter the UK economy from the seemingly inevitable havoc that the coronavirus will inflict and it is this factor that we think will make the Budget memorable rather than tax policy.
There will be another Budget later this year and assuming, hopefully, that the worst of the coronavirus is over by then more radical tax plans may take shape.
So, what changes did Wednesday’s Budget actually bring? Summaries of the main subject areas are as follows:
It was confirmed that the personal allowance would remain at £12,500 for the tax year ending 5 April 2021 and will only increase by the consumer price index (CPI) for the following tax years. This applies across both Scotland and the rest of the UK.
National insurance thresholds for employees (not employers) will increase to £183 per week or £9,500 per annum. No changes to the Class 1 or Class 4 Upper limits.
A whopping 50% increase was applied to the standard tax deduction for homeworking. Before anyone gets too excited this increase takes the allowance up to £6 per week from £4.
In response to significant criticism which led to the refusal of doctors and others to undertake additional work because of the tax charges applied to their pension contributions in excess of £10,000 per annum, the threshold at which these new rules start to bite has increased from £150,000 to £200,000. For those earning below this figure contributions of £40,000 will qualify for tax relief in full.
Restrictions do however continue to apply and allowable contributions will be tapered if adjusted income is above £240,000. To pay for this increase, the minimum allowable contribution for those with adjusted of over £240,000 is reduced to only £4,000. This should help most but not all higher earners with some actually being worse off.
A full summary of the rates and bands can be found at this link.
The annual allowance for pension contributions remains at £40,000 for the 2020/21 tax year. The annual allowance will be reduced by £1 for every £2 income over £240,000, the minimum amount this can be reduced to is £4,000.
The lifetime allowance for pension contributions has increased to £1,073,100.
Capital Gains Tax
The capital gains tax annual exemption will be £12,300 for individual for the 2020/21 tax year.
The level of Entrepreneurs’ relief lifetime allowance has reduced from £10,000,000 to £1,000,000 and this is effective from 11 March 2020.
New company car and van benefits will apply from 6 April 2020 and as previously announced will reward drivers of zero or low CO2 emission vehicles. Combined with an extension to capital allowances for zero or low emission vehicles this may represent a window of opportunity, providing of course you can find a suitable vehicle charging point.
A temporary increase in the Statutory Sick Pay (SSP) rules will see employees receive SSP from Day One instead of having to wait until Day Four. It will be extended to those self-isolating in accordance with Government guidelines for the coronavirus and people caring for those within the same household with corona virus symptoms.
Employers with less than 250 employees will receive full reimbursement of SSP, although interestingly there is no timescale or procedures yet agreed for this. Hopefully it will be quicker than the time currently taken to process tax refunds by HMRC which regularly runs to months. An extension of the existing SSP reimbursement procedures would surely have made more sense in our opinion.
The employment allowance available to offset against Employer’s Class 1 NIC will increase from £1,000 to £4,000 from April 2020. In addition to the existing eligibility rules for claiming the allowance, it will now only be available for businesses whose Employer NIC liability in the previous tax year was less than £100,000. For connected companies, the £100,000 limit will be assessed across the group.
Unsurprisingly, despite ‘promising to listen and review’ no changes were made to the Off-Payroll working rules for workers operating through Personal Service Companies and these will apply virtually unchanged from 6 April 2020. Our view remains that these changes are ill-thought and rushed as can be evidenced by the blanket approach already taken to these matters by the large organisations.
Disguised Remuneration (Loan Charge) and the changes proposed by Sir Amyas Morse’s review will be implemented but for many this is not the end of the matter as HMRC have indicated they will pursue other options to try and collect the tax and NIC they believe is due. This is a fight that is far from over.
Originally due to expire next April, increased capital allowances for low emission vehicles are to be extended for a further 4 years although there is a tightening of the CO2 emissions and only cars with 0% emissions will qualify for the 100% First Year Allowance.
After all the headlines, capital gains tax Entrepreneurial Relief remains but now only a £1 million of qualifying gains will receive the benefit of the 10% tax rate rather than £10 million previously. Where there was a shock is that the reduction took immediate effect and as this could be not be deemed an abusive arrangement involving tax saving that does seem unnecessarily harsh.
Structures and Buildings Allowance will increase from 2% per annum to 3% per annum
Again, nothing hugely significant unless you are a Digital Service provider (Facebook, ebay etc) where the proposed new tax, which is effectively a surcharge, will apply at a rate of 2% from 1 April 2020. This will only impact businesses with worldwide revenue of £500 million. The tax will apply in the UK until an internationally agreed version of the tax comes into effect.
The rate of R&D tax credits companies can clam under the Small and Medium Sized Enterprises (SME) scheme is increasing from 12% to 13% from 1 April 2020. These credits are available to claim on enhanced R&D expenditure that creates a loss for the company. The previously proposed cap on R&D tax credits, which would restrict the amount available based on a company’s PAYE liability, has now been delayed until April 2021.
No changes to the rate of corporation tax which remains at 19%
Miscellaneous Tax Changes
No changes to, VAT, capital gains or inheritance rates or thresholds except the capital gains tax annual exemption will increase to £12,300 for the year ending 5 April 2021.
VAT on e-publications to be abolished from 1 December 2020 just in time for Christmas!
In previous years HMRC have used an automated process to issue statutory notices such as penalty notices and requests to complete a tax return, however these have been successfully challenged in the courts as they are not supported by current tax legislation which require an individual officer to use them
After so many defeats, as bullies often do HMRC have announced that, they are changing the rules and they will be introducing new legislation in the Finance Bill that will support the automated use of the statutory notices.
Higher Stamp Duty Land tax is on its way for non-residents. This is an England and Northern Ireland only tax at present but given the copycat nature of the Scottish Government in this area could we see the extra 2% SDLT surcharge on properties bought by non-residents from 1 April 2021 extended to Scotland? Our thoughts are that this is guaranteed so watch this space.
More General Business Matters
Coronavirus business interruption loan scheme
Returning to the Budget’s main theme amongst the package of Budget measures to counteract the potential impact of coronavirus on business activity, Chancellor Rishi Sunak announced the launch a new, temporary coronavirus business interruption loan scheme. The scheme, delivered by the British Business Bank, will support businesses to access bank lending and overdrafts.
The government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs.
The government will not charge businesses or banks for this guarantee, and the scheme will support loans of up to £1.2m in value. The Treasury said this new guarantee will initially support up to £1bn of lending on top of current support offered through the British Business Bank.
Business Rates cut – this applies to certain companies - those with a rateable value of less than £51,000 will be eligible, in sectors that have seen a lot of business failures such as retail restaurants and pubs At present its is England only, will Scotland follow suit?
Zero-emission cars exempt from VED
As a further incentive to encourage greener cars the Chancellor has announced that zero-emission cars registered from 1 April 2017 with a £40k price tag will be exempt from road tax.
This measure will exempt all registered zero-emission light passenger vehicles registered from 1 April 2017 until 31 March 2025 from the vehicle excise duty (VED) supplement.
This affects cars with a list price exceeding £40,000, starting from April 2020; for example a Tesla Model 3 which costs around £39,000 without extras.
The government is also considering the long-term future of incentives for zero emission vehicles alongside the 2040 phase-out date consultation. Until then, the government will provide £403m for the Plug-in Car Grant, extending it to 2022-23.
Alcohol, tobacco and fuel
No change for drivers and those who enjoy the odd tipple but smokers will be hit again.
Fuel duty to be frozen for the 10th consecutive year.
Duties on spirits, beer, cider and wine to be frozen.
Tobacco taxes will continue to rise by 2% above the rate of retail price inflation.
This will add 27 pence to a pack of 20 cigarettes and 14 pence to a packet of cigars.
Environment and energy
Plastic packaging tax to come into force from April 2022. Manufacturers and importers whose products have less than 30% recyclable material will be charged £200 per tonne.
Subsidies for fuel used in off-road vehicles - known as red diesel - will be scrapped "for most sectors" in two years' time however Red diesel subsidies will remain for farmers and rail operators.