Budget Comment March 2020
The March 2017 Budget Report started by saying: ‘This is my last Spring Budget Report’. Think again!
The March 2020 Budget you could say is really the delayed October 2019 Budget. Either way this Budget is dominated by Covid 19 and Brexit taking the gloss off what might have been an innovative first Conservative Budget for some time with a comfortable majority.
There has been little to comment on the main taxes for several years now and this Budget is no exception. It was big on spending announcements but small on tax changes. We pick out four changes:
Pensions
This is an increasingly complex area for which we recommend specialist advice but there are a few things to look out for:
- Personal Pension Annual Allowance continues to be £40,000 (with potential bring forward unused allowance from the previous three years) providing you have earned income of at least this level.
- The point at which the £40,000 begins to be tapered increases from £150,000 to £240,000 of total income. Once over £240,000 your Personal Pension Annual Allowance will be lost at the rate of £1 for every £2 that your total income exceeds £240,000. It carries on tapering until your total income exceeds £312,000 at which point you are fully tapered down to £4,000 (previously the full taper only took you down to £10,000).
- The Lifetime Allowance is increased from £1,055,000 to £1,073,100.
- These changes commence from 6 April 2020.
Corporation Tax
In the 2017 Budget the Chancellor announced that the rate of Corporation tax will be down to 17% from 1 April 2020. Well it won’t be! Rishi withdrew the reduction and we continue with the current rate of 19%. Hopefully this signals a trend of not announcing things three years in advance!
Entrepreneurs Relief
Entrepreneur’s Relief applies to business owners who own at least 5% of their trading company and who are either an officer or employee of the company (both for at least twelve months). In these circumstances the rate at which Capital Gains Tax is applied is reduced from the ‘normal’ rate of 20% down to 10%. Up to now these owners had a Lifetime Allowance of £10,000,000 of gains to which the reduced rate applied. This Lifetime Allowance is reduced to £1,000,000 with effect from 11 March 2020.
VAT
Electronic publications (books and newspapers) are now exempt from VAT bringing them into line with their paper counterparts. This change takes place on 1 December 2020 (there’s sure to be a reason!).
Other matters to be aware of:
Capital Gains Tax on Residential Property
announced in the 2017 Budget and coming into force from 6 April 2020 you only have 30 days to report and pay any Capital Gains Tax that is due on the sale of residential property. This has been the case for a while for Non-Residents but it will be affecting EVERYONE from April. It is a draconian measure that reduces the reporting period from typically over 500 days down to 30!
In our experience, solicitors (surely best placed to deal with this) ignore the tax reporting (because they aren’t accountants) so you must tell us immediately if you have sold a property.
Sometimes you couldn’t make our tax system up – please note: For tax purposes the sale takes place on the Exchange of Contracts; for the submission of the Residential Property Return the 30 days runs from the Completion of the transaction.
And until we know your circumstances for the full tax year in question it is not possible to confidently calculate the amount of tax due! So there will be some estimation prior to the real figures that we will disclose in your Tax Return. What does the Office of Tax Simplification say about this?
Capital Gains Tax on Residential Property – 2
Announced in the 2018 Budget and coming into force from 6 April 2020 the exemption for the final 18 months of ownership for a property that was once your Main Residence is cut to just 9 months. Again a big move given that until recently the exempt period was 3 years! The 36 month period continues to apply to disabled individuals or people in a care home…
Capital Gains Tax on Residential Property – 3
Announced in the 2018 Budget and coming into force from 6 April 2020 the additional exemption for a property that was once your Main Residence that you go on to rent is cut from the maximum of £40,000 to £nil (unless the owner is in shared occupancy with the tenant).
Inheritance Tax
The Nil Rate Band remains at £325,000 (as it has been since 6 April 2009!). But what has changed is the final increase to the Residence Nil Rate Band (RNRB) up from £150,000 to £175,000. Do you recall the Tory (David Cameron) pledge to increase the Inheritance Tax threshold to £1,000,000? Well, in a classic fudge, this is the final piece in that particular jigsaw. If you add the two thresholds together and multiply by 2 for a couple – there you have it: £1,000,000! But (it’s politics) there are strings attached. The RNRB is tapered if your Estate exceeds £2,000,000 and roughly speaking you will need a Main Residence in the Estate (or recently in the Estate) that passes to direct descendants…
IR35 (off payroll working)
This is relevant if you are in business either as an ‘engager’ or a ‘supplier’. It is an age-old question but the crux of the matter for ‘engagers’ is: are you engaging a business or are you taking on an employee? For ‘suppliers’ the question is: are you running a business or are you an employee?
From 6 April 2020 the responsibility broadly shifts from the ‘worker’ to the organisation making the payments. Either way it is important to get the structure right…
Employment Allowance
This one is only relevant if you employ someone. Effectively the first £4,000 (up from £3,000) of Employers National Insurance (per annum) is covered by the Employment Allowance. This valuable benefit will automatically be accounted for (if relevant) where we administer your Payroll.
Making Tax Digital
There’s a revolution on its way albeit slowly! First announced in the April 2015 Budget, making Tax Digital will affect us all. The timing is still uncertain but we do know that it has happened for most VAT registered businesses. We expect the next wave of Making Tax Digital to affect the Self Employed and Landlords.
The comments above are brief highlights and each item is subject to change, please note the full chart of Rates and Allowances below and remember – there is always more to it than meets the eye so please contact us before taking or refraining from action.
Rates and Allowances for 2020 and 2021
Rates and allowances for Income Tax, Corporation Tax, Capital Gains Tax, and Inheritance Tax are set out below.
| 2019-20 (£) | 2020-21 (£) | Increase (£) | |
| Income Tax allowances | |||
| Personal allowance Personal allowance (age 65-74) Personal allowance (age 75 and over) |
12,500 N/A N/A |
12,500 N/A N/A |
0 0 0 |
|
Income limit for under 65 personal allowance |
100,000 |
100,000 |
0 |
|
Married couple’s allowance for people born before 6 April 1935 |
8,915 |
9,075 |
160 |
|
Capital Gains Tax annual exempt amount: |
12,000 |
12,300 |
300
|
|
Inheritance Tax |
325,000 |
325,000 |
0
|
|
Taxable bands 2019-20 (£) |
Taxable bands 2020-21 (£) |
||
|
Starting rate 10% |
– |
Starting rate 10% |
– |
|
Basic rate 20% |
0 – 37,500 |
Basic rate 20% |
0 – 37,500 |
|
Higher rate 40% |
37,501 – 150,000 |
Higher rate 40% |
37,501 – 150,000 |
|
Additional rate 45% |
Over 150,000 |
Additional rate 45% |
Over £150,000 |
|
Income tax rates |
|
|
|
|
Tax year 2019-20 |
Tax year 2020-21 |
|
Basic rate |
20% |
20% |
|
Higher rate |
40% |
40% |
|
Additional rate |
45% |
45% |
|
Dividend ordinary rate – for dividends otherwise taxable at the basic rate |
7.5% |
7.5% |
|
Dividend upper rate – for dividends otherwise taxable at the higher rate |
32.5% |
32.5% |
|
Dividend additional rate – for dividends otherwise taxable at the additional rate |
38.1% |
38.1% |
|
Dividend allowance |
£2,000 |
£2,000 |
|
Personal savings allowance Higher rate taxpayers will not have tax to pay on their first £500 of savings income. |
£1,000
£500 |
£1,000
£500 |
|
Starting rate for savings |
|
|
|
|
Tax year 2019-20 |
Tax year 2020-21 |
|
Starting rate for savings |
0% |
0% |
|
Starting rate limit for savings |
£5,000 |
£5,000 |
|
Corporation Tax profits 2019-20 (£) |
|
|
All profits – main rate 19% |
N/A |
|
Marginal relief |
N/A |
National Insurance
|
|
2019/2020 |
2020/2021 |
||||
|
Class 1 Employees |
||||||
|
On first |
£166 pw |
Nil |
£169 pw |
Nil |
||
|
Between |
£166 – £962 pw |
12% |
£169 – £962 pw |
12% |
||
|
Over |
£962 pw |
2% |
£962 pw |
2% |
||
|
Class 1 Employers |
||||||
|
On first |
£166 pw |
Nil |
£166 pw |
Nil |
||
|
Over |
£166 pw |
13.8% |
£166 pw |
13.8% |
||
|
Employers’ contracted-out rebate, salary related schemes |
N/A |
|
N/A |
|||
|
Employers’ contracted-out rebate, money purchase schemes |
Abolished |
|
Abolished |
|||
|
Class 2 Self employed |
||||||
|
Flat rate |
£3.00 pw |
|
£3.05 pw |
|||
|
Small earnings exception |
£6,365 pa |
|
£6,475 pa |
|||
|
Special Class 2 rate for share fisherman |
£3.65 pw |
|
£3.70 pw |
|||
|
Special Class 2 rate for volunteer development workers |
£5.90 pw |
|
£6.00 pw |
|||
|
Class 3 Voluntary |
||||||
|
Flat rate |
|
£15.00 pw |
|
£15.30 pw |
||
|
Class 4 Self employed |
||||||
|
On profits between |
£8,632 – £50,000 pa |
9% |
£9,500 – £50,000 pa |
9% |
||
|
|
above £50,000 |
2% |
above £50,000 |
2% |
||
|
Rate |
All land in the UK |
Rate |
All land in the UK |
|
|
Residential |
|
Additional residential property |
|
Zero |
£0-125,000 |
3% |
£0-125,000 |
|
2% |
On next £125,00 |
5% |
On next £125,00 |
|
5% |
On next £675,000 |
8% |
On next £675,000 |
|
10% |
On next £575,000 |
13% |
On next £575,000 |
|
12% |
On the rest (above) £1,500,000 |
15% |
On the rest (above) £1,500,000 |
Previously, SDLT was charged at a single rate for the entire price of a property. From 17 March 2017, SDLT is charged at increasing rates for each portion of the price.
|
Rate |
All land in the UK |
|
|
Non-residential |
|
Zero |
£0-150,000 |
|
2% |
£150,001 – 250,000 |
|
5% |
£250,001 |
The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2020-21.
|
Value Added Tax (VAT) |
||
|
|
April 2019-20 |
April 2020-21 |
|
Standard rate |
20% |
20% |
|
Reduced rate |
5% |
5% |
|
Zero rate |
0% |
0% |
|
Exempt |
n/a |
n/a |
|
Value Added Tax (VAT) – Registration and Deregistration thresholds |
||
|
|
From April 2019 |
From April 2020 |
|
VAT – registration threshold |
85,000 |
85,000 |
|
VAT – deregistration threshold |
83,000 |
83,000 |