On the 11th of March, the 2020 budget was announced by Chancellor Rishi Sunak. We have summarised the relevant updates, including those that have recently been amended by Covid-19. We hope you find this information useful. As always, if you have any further enquiries please don’t hesitate to get in touch with a member of our team.
MORE RATES RELIEF FOR SMALL BUSINESSES
There has again been lobbying from the small business sector to reduce business rates to enable traditional retailers to compete with internet traders.
The Chancellor announced a long-term review of the future of business rates and hopefully the Scottish Government follow this lead, but in the meantime, there are some very welcome measures to assist small businesses. The 100% business rates retail discount will be extended to the leisure and hospitality sectors where the rateable value is no more than £50,999. In addition, very small businesses who already pay no business rates at all will be able to claim £10,000 cash grant.
PERSONAL ALLOWANCE AND HIGHER RATE LIMIT FROZEN
The personal allowance for 2020/21 is frozen at £12,500, the same as in 2019/20. The higher rate tax threshold is also frozen at £50,000. The higher rate tax threshold is also frozen at £50,000 for investment income in Scotland and for all income in the rest of the UK. The higher rate threshold from income arising from employment, self-employment and property in Scotland is £43,430 – a lot lower than that of the rest of the UK!
NO CHANGES TO INCOME TAX RATES
The basic and intermediate rate of income tax and higher rate remain at 20%, 21% and 41% respectively, and the 46% additional rate continues to apply to income over £150,000. There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.
The annual ISA investment limit increased to £20,000 from 6 April 2017 and remains at that level for 2020/21. There will be a significant increase in the junior ISA limit to £9,000 for 2020/21. Despite a thorough review of all tax reliefs by the treasury, the rumoured restrictions in pension tax relief has failed to materialise.
TAPERING OF PENSION ANNUAL ALLOWANCE
One welcome change, particularly among hospital consultants and GPs, is the increase in the threshold at which the pension annual allowance starts being tapered. From 2020/21, the adjusted income limit will increase from £150,000 to £240,000 which means that most doctors will not be caught by the restriction.
Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,500 of earnings from 2020/21, a significant increase from the £8,632 limit in 2019/20. Note that employers will be required to pay 13.8% on earnings over £169 per week, £8,788 per annum. The employment allowance that can be set against employers NIC increases to £4,000 from 2020/21 but will not be available to employers with NIC liabilities in excess of £100,000 p.a.
STATE BENEFITS INCREASED
Many state benefits have been frozen or limited for several years. The government have however decided to increase many state benefits from 2020/21 including child benefits. The amount payable in respect of the oldest child has been increased to £21.05 and £13.95 for each subsequent child. Note that you may have to pay a tax charge if one parent has income in excess of £50,000. Since budget day it has been announced that the rate of universal credit available to the self-employed has been increased to £94.25 a week in line with the rate of SSP for employees.
CAPITAL GAINS ENTREPRENEURS’ RELIEF RESTRICTED
There were many rumours in the run up to the budget that CGT entrepreneurs’ relief that allows certain business owners to pay just 10% tax on disposal would be abolished. Rather than abolish the relief, the Chancellor has announced that from 11th March 2020 onwards the relief will only be available against the first £1 million of lifetime gains instead of the previous £10 million limit. The relief will therefore still benefit most small business owners.
COMPANY TAX RATE FROZEN AT 19%
As previously announced the corporation tax rate is to remain at 19% for the time being. It was scheduled to reduce to 17% from 1 April 2020.
STRUCTURES AND BUILDINGS ALLOWANCE INCREASED TO 3%
In the October 2018 budget a new tax relief was introduced for the cost of construction or renovation of commercial buildings and structures. As announced in the Conservative party manifesto, the original 2% straight line allowance is to be increased to 3% from 1st April 2020 for companies, 6th April 2020 for unincorporated businesses.
R&D TAX CREDIT CHANGES
The Conservative party manifesto also included a promise to increase R&D expenditure relief for non-SMEs from 12% to 13% and this was confirmed in the March budget. However, a measure originally announced in the 2018 Budget and consulted on in 2019 will limit the amount of repayable R&D tax credit for SMEs to three times the total PAYE and NIC payments for the period. This measure will now take effect from 1st April 2021 not 2020.