Budget updates and a new tax year
Apr 15, 2020
Budget & Autumn Statement
The long awaited Budget delivered by new Chancellor Rishi Sunak on 11 March 2020 has been dubbed ‘The coronavirus Budget’. The outbreak of Covid-19 dominated proceedings, as the Chancellor announced a raft of measures to try and soften the economic impact on individuals and businesses.
In amongst the coronavirus-related announcements was confirmation of various other tax updates and changes, many of which came into effect at the start of the new 2020/21 tax year.
The Chancellor announced a 100% business rates discount for 12 months, starting from 1 April 2020. The business rates holiday has been extended to any eligible retail, leisure or hospitality business with a rateable value below £51,000. This now includes museums, art galleries, theatres, caravan parks and B&Bs.
Business rates are administered at local government level, and the Government has promised that local authorities will receive full compensation for any loss of income due to these business rates measures being implemented.
The Chancellor confirmed that a fundamental review of business rates is taking place. The terms of reference have already been published; and the review will report in Autumn 2020.
The Government has announced that it will be extending the ‘soft landing’ introduction of Making Tax Digital for VAT until April 2021. It plans to publish a full evaluation of how Making Tax Digital for VAT has worked before rolling out the initiative to further taxes.
It was announced in the Budget that postponed accounting for VAT will be introduced with effect from 1 January 2021. This should provide a welcome simplification for businesses that import goods into the UK. It means that they will no longer have to pay VAT upfront, and this should assist them with cash flow.
Entrepreneur’s relief is aimed at encouraging entrepreneurial activity, but the Government feels that the benefit is not generating the desired response. It stopped short of scrapping entrepreneur’s relief altogether, but instead announced that the lifetime limit on all disposals made on or after 11 March 2020 is being reduced from £10m to £1m.
According to the Chancellor, over 80% of taxpayers who use the relief will be unaffected and will continue to benefit in full at the reduced cap. The remaining 20% will be charged at the standard rate of capital gains tax of 20% for gains above the lifetime limit, and this is expected to raise over £6.3bn for the Exchequer by 2025.
The savings made as a result of the reform to entrepreneur’s relief will be used to fund three other business tax breaks, in order to boost innovation and enterprise:
- Increase in the Research and Development expenditure credit (RDEC)
The RDEC will be increased from 12 to 13% from 1 April 2020. This is a tax cut worth £2,400 on a typical R&D claim, and is intended to help companies claim a larger corporation tax deduction for relevant research and development spend.
- Increase in the maximum Employment Allowance
The Employment Allowance has increased by £1,000, taking it up to £4,000 from 6 April 2020. This helps businesses by providing relief of up to £4,000 on their employer’s secondary Class 1 National Insurance contributions (NIC) liabilities. It means that for approximately an extra 65,000 businesses, their NIC bill should be reduced to nil, and small enterprises can take on staff without incurring additional NIC liabilities.
- Increase in structures and buildings allowance
From 1 April 2020 (or 6 April 2020 for unincorporated entities) the structures and buildings allowance will be increased from 2% to 3%, meaning that businesses will be able to claim a 3% deduction on qualifying expenditure. This increased rate will apply to both existing qualifying structures (brought into use on or after 29 October 2018) plus any new additions.
As previously announced, the standard rate of corporation tax will remain at 19% for the financial years commencing 1 April 2020 and 2021.
There will be new restrictions in place from 1 April 2020 on how much chargeable gains companies can offset against brought forward capital losses. From that date only 50% of net chargeable gains may be sheltered, subject to the allocation of a company’s (or group’s) £5m annual ‘deductions allowance’.
- Capital Gains Tax
Remember that the deadline to pay CGT after the sale of a residential property in the UK changed on 6 April 2020. As we’ve previously reported, it is now necessary to inform HMRC about the sale of a second home within 30 calendar days, plus make the associated CGT tax payment.
Due to coronavirus, this new 30 day reporting rule is being relaxed for a short period. Property sales which take place between 6 April and 30 June don’t have to be reported to HMRC until 31 July. During this period interest will still be chargeable on the late payment, but no late filing penalties will be owed. After this period property owners need to watch out, as a failure to meet the 30 day deadline will result in a penalty as well as interest on the amount owed.
- Residence nil-rate band
From 6 April 2020, property worth up to £1m can be inherited tax-free as part of the main residence nil-rate band. The additional allowance has risen in stages over the years and now stands at £175,000 for 2020/21, which takes the maximum potential nil rate band to £500,000 for single people and £1m for married couples or civil partners. Above this limit estates are currently taxed at 40%.
The salary threshold at which employed and self-employed workers have to pay national insurance contributions is going up from £8,632 to £9,500. This tax cut is the equivalent of £104 a year for the average employee, and £78 a year for the self employed. However, the NIC level for employers hasn’t increased proportionately, and so the primary and secondary thresholds are no longer aligned.
Providing that an employee earns above the lower earnings limit of £120 per week, they will continue to receive credits towards their state pension.
As announced in January, both the National Living Wage and the National Minimum Wage have now increased, with effect from 6 April 2020. The rise to National Living Wage has risen by £0.51 an hour, adding an extra £930 to pay packets for full-time workers.
If you have any queries about the changes announced in the Budget, or about the rules that took effect in the new tax year, then please get in contact with the PT team and we’ll be happy to help.