The Spring Budget 2020 - A Pandemic Beating Budget

In a ‘giveaway Budget’ with measures to help tackle Coronavirus and climate change, Chancellor Rishi Sunak said ‘We will get this done’. Sunak delivered his first Budget this week with a message of ‘Security today, prosperity tomorrow’.

Let’s weigh up the pros and cons of the 2020 Budget and look at the main business and tax implications for you.

Income tax 

• The National Insurance primary earnings threshold will increase to £9,500 from 6 April 2020.  This will save employees an annual amount of £104.  Note that the most tax efficient salary for a sole director to take in 2020/21 is typically going to be £8,788, in line with the secondary earnings threshold.

•  From 6 April 2020 the Employment Allowance will increase from a maximum of £3,000 to £4,000.  This reduces employers annual secondary Class 1 National Insurance (NIC) liabilities. The allowance is restricted to employers who paid less than £100,000 in NIC in the previous tax year and is not available to companies with only one director.

•  The Junior ISA limit will increase from £4,368 to £9,000 on 6 April 2020.  This is a good way for parents to save for their children’s futures, as the income and capital gains generated are tax free.  The parental settlement rules still apply to non ISA accounts where the funds are gifted by a parent, whereby interest received in excess of £100 is taxed on the parent and not the child. This rule does not apply to cash gifts from grandparents and others.

Capital gains tax

• The lifetime limit for Entrepreneurs’ Relief has reduced from £10m to £1m as at 11 March 2020 with no transitional rules.  The relief provides a reduced rate of tax of 10% on qualifying business disposals, such as shares from a personal trading company where an individual owns as least 5% of the company’s ordinary share capital and voting rights or the disposal of an interest in a partnership.  

Pensions tax relief

• Each tax year an individual is able to obtain tax relief for pension contributions up to their annual allowance. The current annual allowance of £40,000 is reduced for high earners. From 6 April 2020 the tapered annual allowance thresholds have increased by £90,000 to ‘threshold income’ of £200,000 and ‘adjusted income’ of £240,000.  Currently the rules affect individual’s with ‘threshold income’ (taxable earnings minus personal pension contributions) above £110,000 and ‘adjusted income’ (taxable earnings plus employer contributions) above £150,000. Where both limits are breached, the annual allowance is reduced by £1 for every £2 of income above £150,000.  Hence, the new rules mean that only those with total income in excess of £240,000 will be subject to the tapered annual allowance.

•  The minimum level to which the annual allowance can be tapered will reduce to £4,000 from £10,000 on 6 April 2020.  This will impact those with total annual income of £300,000 or more.  Therefore, high earners may wish to maximise their pension contributions in the current tax year, but this will still depend on earnings and any unused relief available from earlier years.

Corporation tax

• For 2020/21 the main rate of corporation tax will remain at 19% and will also stay at this rate for the next year.

•  The Structures and Building Allowance (SBA) will increase to 3% from 1 April 2020.  SBA enables capital expenditure on non-residential structures and buildings otherwise precluded from receiving capital allowances to qualify for some tax relief.

• From 1 April 2020 the research and development expenditure credit (RDEC) will increase from 12% to 13%.  SMEs can claim RDEC on subsidised expenditure and expenditure subcontracted from a large company. The tax relief received will amount to 10.53% of the qualifying expenditure.

VAT

• From 1 December 2020 no VAT will be charged on supplies of e-books and online newspapers, magazines and journals, bringing this in line with printed materials.

•  From 1 January 2021 VAT on sanitary products will be abolished.

• The Reverse Charge rules for the construction industry that were postponed from October 2019 will be introduced from 1 October 2020.

•  There is no change to the current VAT registration threshold. Although not mentioned in the Budget, Making Tax Digital will apply for all VAT registered businesses from 1 April 2020.

Stamp Duty Land Tax

• From 1 April 2021 a 2% surcharge will apply to non UK residents who purchase residential property in the UK. This is in addition to the 3% surcharge for second homes, making the possible top rate of SDLT 17% for overseas buyers.

COVID-19

As a result of the current pandemic and the impact on businesses, the Chancellor announced various measures to aid small business;

• From 1 April 2020, businesses in retail, leisure and hospitality in premises with a rateable value of less than £51,000 will get an increased 100% relief from business rates for one year. This would apply to music venues, shops, restaurants, cafes, and pubs etc.

• Businesses that qualify for small business rate relief will get a grant of £3,000. This means that businesses with premises with a rateable value of less than £15,000 will be able to apply for a direct cash grant of £3,000..

• From 1 April 2020, pubs with a rateable value below £100,000 will receive a discount of £5,000 on their business rates. This is an increase on the current discount of £1,000.

• The Government will be providing lenders with a guarantee of 80% on each business interruption loan with the intention of giving lenders greater confidence in continuing to provide finance to small businesses struggling as a result of the pandemic.

• Statutory Sick Pay (SSP) will become payable from the first day of illness to include people advised to self-isolate. There is no requirement to go to the doctors for a sick note as this will be made available by the NHS 111 service. Businesses with less than 250 employees will have the cost of SSP reimbursed by the Government for 14 days for any employee off work for coronavirus.

• The Chancellor announced that HMRC are to increase their ‘Time to Pay’ service as a result of the impact of coronavirus, with an additional 2000 staff assigned to the dedicated helpline. The helpline provides help and advice to businesses on spreading their tax liabilities over an agreed period of time.

• 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.

Additional funding was announced in the Budget to support HMRC with tax avoidance. The Treasury is also to probe the quality of tax advice. Thus, all the more reason to appoint an accountant you can trust and depend upon.

On a lighter note, the Government have frozen duty on all alcoholic drinks (only the second time in the last 20 years), and will be providing funding for research and development spending into decarbonising UK distilleries. Thumbs up!

For a more detailed review, please see our website for our Resources pages.

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FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.