Budget 2020 - Headline Announcements
In the first Budget since October 2018, the new Chancellor Rishi Sunak focussed his attention on supporting both businesses and individuals through the coronavirus crisis and set out a comprehensive set of measures to combat this most pressing issue.
Mr Sunak has pledged to spend £7bn to support British businesses and households through the crisis, as well as earmarking a £5bn emergency fund for the NHS.
The Chancellor said the government would tackle the issues facing the British public with a three-step plan, with the Bank of England getting the ball rolling with an emergency interest rate cut from 0.75% to 0.25%.
1. Help for the NHS
- The NHS will be provided with whatever extra resources it requires to cope with coronavirus.
2. Help for workers
- Statutory Sick Pay (“SSP”) will be available from day one for all those who are told to self-isolate (even when those individuals are asymptomatic).
- Employees will be able to obtain a sick note by contacting 111 rather than going to a GP.
- For those who are self-employed or work in the gig economy, Mr Sunak advised that the government plan to make it quicker to access benefits.
- Those on contributory employment and support allowance will be able to claim from day one instead of day eight.
3. Help for businesses
- For businesses with fewer than 250 employees, the government will refund the cost of providing their employees with SSP for up to 14 days where the absence is due to the coronavirus.
- HMRC will scale up their “time to pay” service to provide business owners with more flexibility to defer their tax payments.
- Banks are to offer loans of up to £1.2m to support small to medium-sized businesses.
- The Chancellor has pledged to scrap business rates for the entire year for those businesses with a rateable value of below £51,000.
- The smallest businesses (those who do not currently pay any business rates) will be eligible for a £3,000 cash grant to ease their cashflow fears.
Mr Sunak impressed upon parliament that, although the coronavirus is the key challenge facing our country today, it is not the only challenge. The Chancellor
professed that this Budget plans for the prosperity of tomorrow, as well as securing the security of the economy today.
Corporation Tax Rate
As previously announced, the main rate of corporation tax for the financial year beginning 1 April 2020 will remain at 19% rather than being reduced to 17%.
The main rate of corporation tax will also be set at 19% for the financial year beginning 1 April 2021.
Corporate Capital Loss Restriction
Changes to the corporate capital loss relief rules in 2017 restricted the use of carried forward losses for larger companies with profits in excess of
£5m (the deductions allowance) so that only 50% of profits above the deductions allowance could be offset by carry forward losses. Capital losses were
not included in the new rules, so that there was no restriction on the amount of brought forward capital losses that could be set against capital gains.
With effect from 1 April 2020, capital losses are brought into line with the corporate income loss regime. For gains arising on or after 1 April 2020 the
loss restriction with have the effect that only 50% of chargeable gains can be relieved by carried forward capital losses. Companies will be able to
allocate the £5m deductions allowance to capital gains.
The full £5m deductions allowance will be available to companies which have one day accounting periods purely as a result of chargeable gains, in addition
in these circumstances to being able to offset other losses arising during the same accounting period without restriction.
Corporation Tax Treatment of Intangible Fixed Assets
The corporate intangible fixed asset regime (the IFA regime) applies to intangible assets created on or after 1 April 2002 or that were acquired from an
unrelated party on or after 1 April 2002. The IFA regime allows a corporation tax deduction for amortisation of qualifying assets.
Intangible assets created before 1 April 2002 (pre-FA 2002 assets) do not fall within the IFA regime and continue to be treated for corporation tax purposes
under the capital gains regime. Typically this would apply to goodwill acquired on the incorporation of a business created prior to 1 April 2002.
With effect from 1 July 2020, the IFA regime is amended to allow companies to claim corporation tax relief for pre-FA 2002 intangible assets acquired from
Increase in the rate of Structures and Buildings Allowances
Businesses incurring expenditure on the construction, renovation or conversion of non-residential properties on or after 29 October 2018 may claim Structures
and Buildings Allowances (SBA). With effect from 1 April 2020 for corporation tax purposes and from 6 April 2020 for income tax purposes the rate of
annual allowance increases from 2% to 3%.
Businesses whose chargeable period spans 1 April (corporation tax) or 6 April (income tax) may claim 2% per annum for days up to the operative date and
3% for days after the operative date.
Research & Development
The rate of the Research and Development Expenditure Credit, claimed by large companies and SMEs that undertake funded or sub-contracted R&D, will
increase from 12% to 13% for expenditure incurred on or after 1 April 2020. This increases the net cash tax benefit of the relief from 9.7% to 10.5%.
Relief for Acquisition of Business Vehicles
For businesses incurring expenditure from April 2021 on the acquisition of cars, zero-emission goods vehicles or equipment for gas refuelling stations
for use in their business, the period for which 100% relief is available on such expenditure will be extended from April 2021 to April 2025.
In addition, HMRC are also reducing the CO2 emission thresholds which are used to determine the rate of capital allowances available for business cars.
Currently, capital allowances allow businesses to write down their qualifying capital expenditure on plant or machinery against their taxable income. Where
100% relief is available, the entire expenditure can be fully written down against taxable income in the tax period in which the expenditure is incurred.
From April 2021, business cars acquired with CO2 emissions of 0g/km will be eligible for 100% relief in the year of acquisition, while those business cars
with CO2 emissions not exceeding 50g/km will be eligible for WDAs at the main rate (18%) while such cars with CO2 emissions exceeding 50g/km will be
eligible for WDAs at the special rate (6%).
Relief for Lease Cars
Currently, where a business hires a car with emissions exceeding 110 grams per kilometre (g/km) and it is hired for more than 45 consecutive days, the
deduction allowable for tax purposes (for the expense of hiring the car) is restricted by 15%. From April 2021, the threshold for determining the lease
rental restriction will be reduced to 50g/km.
Rates and allowances
There will be no change to the income tax rates for 2020/21 and the Personal Tax Allowance will be frozen at £12,500.
Also frozen is the £50,000 threshold at which people start to pay the higher 40% rate of income tax.
National Insurance (NIC)
From 6 April 2020 the threshold at which employees and the self-employed start to pay contributions will rise from £8,632 to £9,500.
Class 2 NIC will increase from £3 to £3.05 per week.
National Minimum Wage
From 1 April 2020, the new rates are:
- The National Living Wage for ages 25 and above - up 6.2% to £8.72
- The National Minimum Wage for 21 to 24-year-olds - up 6.5% to £8.20
- For 18 to 20-year-olds - up 4.9% to £6.45
- For under-18s - up 4.6% to £4.55
- For apprentices - up 6.4% to £4.15
The Employment Allowance reduces an employer’s Class 1 NIC liability by up to £3,000 each tax year. From 6 April 2020, this will be increased to £4,000,
however this will only be available for employers whose Class 1 NIC bill was below £100,000 in the previous tax year.
Employers can claim the Employment Allowance if they are a business or charity (including community amateur sports clubs) paying employers’ Class 1 NIC.
It is not available for companies where the director is the only employee for whom employers NIC is due, or if the company is a service company working
under ‘IR35 rules’ and the only income is the earnings of the intermediary (such as your personal service company, limited company or partnership).
Changes to the tapering of the pension annual allowance
The government introduced the tapered annual allowance with effect from 6 April 2016 for those with income of over £150,000. The tapered annual allowance is triggered when both the threshold income and the adjusted income exceeds their designated limits.
The standard annual allowance is currently £40,000 and any unused annual allowance from the three previous tax years for the individual can be carried forward and added to the current annual allowance. If the individuals’ pension savings for the tax year exceed this total, the annual allowance charge is applied to the excess.
From 6 April 2020 the income limits used in calculating the tapered annual allowance will be increased as follows:
- The threshold income, which is broadly net income before tax (excluding pension contributions), is increased from £110,000 to £200,000.
- The adjusted income, which is broadly net income plus pension accrual, is increased from £150,000 to £240,000.
Therefore, from 6 April 2020, the £40,000 annual allowance will now be reduced by £1 for every £2 that the adjusted income exceeds £240,000.
Previously the tapering was to a minimum annual allowance of £10,000, however the budget announced that this is being reduced to £4,000 from 6 April 2020.
With effect from 11 March 2020, the lifetime limit for gains qualifying for Entrepreneurs’ Relief has been reduced from £10m to £1m. This revision will
increase the Capital Gains Tax exposure on future chargeable disposals by up to £900,000 per individual.
The reduction to the lifetime limit is also extended to catch certain disposals made between 6 April 2019 and 11 March 2020 where the “share for share
exchange” rules applied. In these cases, where specific conditions are met, taxpayers will not be eligible to disapply the “share for share exchange”
rules as a way of benefiting from the historic £10m lifetime limit.
Capital Gains Tax Annual Exemption
The Capital Gains Tax Annual Exemption has increased from £12,000 to £12,300 for disposals made during the 2020/21 tax year.
Changes to Top-Slicing Relief on Life Insurance Policy Gains
Gains on certain life insurance policies are subject to Income Tax when withdrawals are made or all or part of the policy is surrendered. Top-slicing relief
exists to recognise that such gains are the product of many years of investment and so should not suffer higher rates of tax simply because the gain
is being taxed all in one particular tax year.
The relief currently provides relief from the higher and additional rates of tax in such circumstances by dividing the gain by the number of years over
which it has accrued and seeing, when added to the taxpayer’s other income, what rate of tax would be payable on that smaller amount. However, for
the purposes of calculating entitlement to the personal allowance for Income tax purposes the full amount of the gain is currently used, which if that
causes the taxpayer’s total income to exceed £100k will cause them to lose all or part of their personal allowance.
However with effect from 11 March 2020 the calculation will ensure that the relief also compensates taxpayers for any loss of personal allowance caused
by policy gains being taxed all in one particular tax year, as well as ensuring that any allowances and reliefs are set as far as possible against
the taxpayer’s other income in the calculation rather than against the gain.
If you would like to discuss any of these matters or talk to us about your tax affairs in general, please contact our Tax Partners, Steve Crompton or Lucy
Williams on the details below: