The Chancellor, Rishi Sunak, delivered the 2020 Budget yesterday afternoon. Our specialist Personal and Corporate Tax Teams have summarised the key announcements for both businesses and individuals.
This summary is generally based on Press Releases and Reports issued immediately after the Budget on Wednesday 11 March 2020. These proposals may be amended. Whilst every care has been taken in the preparation of this article, it may contain errors and/or omissions. Some announcement may be subject to state aid approval. Always seek professional advice before taking any action.
Coronavirus
All those advised to self-isolate will be entitled to statutory sick pay, even if they have not presented with symptoms. Self-employed workers who are not eligible will be able to claim contributory Employment Support Allowance. The ESA benefit will be available from day one, not after a week as now.
Firms with fewer than 250 staff will be refunded for sick pay payments for two weeks.
Business rates in England will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000.
Rates and Allowances
The tax-free personal allowance will remain at £12,500 for the 2020/21 tax year throughout the UK. The basic-rate band in England, Northern Ireland and Wales will stay at £37,500 and consequently, the higher-rate threshold will continue to be £50,000. The additional-rate band in those nations will also remain at £150,000. In Scotland, the starter-rate rises to £14,585 and the basic-rate will increase to £25,158. The intermediate-rate will remain at £43,430 and likewise, the higher-rate will stay at £150,000. The top-rate will remain in place for income over £150,000.
National Living Wage
The national living wage applicable to over-25s increases by 6.2% from £8.21 an hour to £8.72 an hour from April 2020.
National Insurance Contributions
The threshold for Class 1 primary contributions paid by employees and the Class 4 National Insurance Contributions (NICs) paid by the self-employed will increase from £8,632 to £9,500 for 2020/21.
From April 2021, employers will pay no secondary Class 1 NICs in relation to veterans they employ that have left regular service. This payment holiday will last for one year from the employment commencement date. The Class 2 NICs rate for the self-employed will increase from £3.00 per week to £3.05 per week from April 2020. Class 2 NIC is payable by 31 January following the end of the tax year.
Pension Lifetime Allowance
The lifetime allowance for pension savings increases for 2020/21 from £1,055,000 to £1,073,100.
Capital Gains Tax
From 6 April 2020, the annual exempt amount for individuals and personal representatives will increase from £12,000 to £12,300. For trustees of settlements, the annual exempt amount will increase to £6,150.
Disposal of UK Residential Property
UK residents who sell a residential property in the UK on or after 6 April 2020 may have to report the gain and pay any capital gains tax owed to HMRC within 30 days of completion.
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Letting Relief
From April 2020, letting relief will only be available in circumstances where the owner of the property is in shared occupancy with the tenant. Private residence relief In most cases, the final-period of exemption will fall from 18 months to nine months from April 2020.
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Stamp duty land tax surcharge on non-UK residents
With effect from 1 April 2021, a 2% stamp duty land tax surcharge will apply to non-UK residents purchasing residential property in England and Northern Ireland.
Residence nil-rate band
The residence nil-rate band for inheritance tax increases from £150,000 to £175,000 from 6 April 2020.
Corporation Tax
The main rate of corporation tax will now remain at 19% from 1 April 2020, despite original plans to reduce this to 17%. This remains the lowest headline rate in the G20.
Additionally, it was announced that the main rate of corporation tax will be set at 19% for the financial year beginning 1 April 2021.
Employment Allowance
With effect from April 2020, the employment allowance will increase from £3,000 to £4,000.
In contrast, access to the employment allowance will be restricted to employers whose national insurance contributions liability in the previous tax year was less than £100,000.
Deduction for home working
From April 2020, the flat-rate expense available to employees to cover additional household expenses, where they are required to work at home, will increase from £4 per week to £6 per week.
Business rates
There were a wide range of changes announced in relation to business rates. It was already announced that from 1 April 2020, for one year, 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. In response to COVID-19, the retail discount will be increased to 100% and expanded to include hospitality and leisure businesses. There will also be an increase from £1,000 to £5,000 in business rates discount for pubs in England with a rateable value below £100,000 for one year from April 2020. The £1,500 business rates discount for office space used by local newspapers in England will be extended for a further five years until 31 March 2025.
Entrepreneurs’ relief
The lifetime limit on qualifying disposals eligible for the 10% tax rate is reduced from £10m to £1m for disposals made on or after 11 March 2020. Any entrepreneurs’ relief claimed on previous qualifying gains must be taken into account when establishing the extent of the lifetime limit still available.
There are special provisions for disposals entered into before 11 March 2020. In such cases, the disposal will be subject to the £1m cap unless it can be demonstrated that the contract was not entered into to obtain a tax advantage and, where the parties are connected, the contract must have been entered into for wholly commercial reasons.
Enterprise management incentive scheme
A review into the Enterprise Management Incentive (EMI) scheme aims to ensure it continues to support high-growth companies to recruit and retain the best talent, and examine whether a wider number of companies should be able to access the scheme.
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Abolition of the ‘tampon tax’
The first headline for VAT in the Chancellor’s speech came when Sunak announced that the UK leaving the EU presents an opportunity to introduce legislation applying the zero-rate of VAT to women’s sanitary products. VAT is currently charged at 5% on these products. This is to be scrapped from 1 January 2021. This has been a controversial area of VAT for a number of years, with the media labelling it the ‘tampon tax’. A growing number of protesters had called for its abolition.
VAT and digital publications
Zero-rate VAT will also apply to digital publications of books, newspapers, magazines or academic journals from 1 December 2020. Unlike the tampon tax, this is not a Brexit-related change. The EU rules in respect of electronic publications were actually relaxed in October 2018 allowing such publications to be treated the same as hard-copy titles. However, the intended change to the UK rules follows the recent relatively high-profile News Corp case, which saw the electronic versions of The Sun and The Times newspapers found to be zero-rated. It also overturns HMRC’s recent Revenue and Customs Brief 1 (2020), which suggested it was of the opinion that other digital publications would remain standard-rated following the case. The new rules should see eBooks, eNewspapers and academic journals having the same VAT treatment as physical copies of the same titles.
Reverse charge VAT in the construction industry
Firms in the construction industry are reminded about the domestic reverse charge, which was initially announced in Budget 2018 and seeks to reduce fraud. It will be similar to the construction industry scheme and will see contractors accounting for VAT on supplies by their subcontractors when those supplies will be recharged on by the contractor. The scheme could require firms in this sector to update their accounting systems and could result in an impact to some businesses’ cashflow position. It was scheduled to be introduced in October 2019, but was postponed at the last minute. It will be introduced on 1 October 2020 and may be very important to a number of businesses in this sector.
Small brewers’ relief
The Chancellor expects the results of the review into small brewers‘ relief will be published in the spring.
Stamp duty and stamp duty reserve tax
On the transfer of unlisted securities to connected companies, the Government previously introduced a targeted market value rule to prevent artificial reduction of the tax due on share acquisitions when listed shares were transferred to a connected company. Spring Budget 2020 announced this rule will be extended to unlisted companies in order to prevent further tax avoidance. As part of this change, legislation will be amended to prevent a double tax charge arising on certain company reorganisations.
