The new Chancellor, Rishi Sunak, has introduced a budget, which has not delivered many surprises with the exception of the emasculation of Entrepreneurs Relief. The increase in the pension contributions thresholds as well as the various business rate reliefs are welcome, whilst drinkers will celebrate no increase in duty on their favourite tipples. However, smokers will be disappointed by another increase in duty.
We set out below the main tax changes contained out in the Budget:
Corporation Tax/Digital Service Tax
The current rate of 19% will be maintained. This will disappoint business, which had anticipated a rate cut to 17%
There will be a restriction on the proportion of capital gains in a tax year that can be relieved by brought-forward capital losses to 50%. This measure includes an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year, meaning that 99% of companies will be unaffected. This measure had earlier been announced in Budget 2018.
The Intangible Fixed Assets Regime (IFA) will be amended to remove the pre-2002 exclusion with effect from 1 July 2020. This welcome simplification means that tax relief for the cost of acquiring corporate intangible assets will be provided under a single regime.
The R&D relief for large companies – Research & Development Expenditure Credit (RDEC) rate –will increase from 12% to 13% from 1 April 2020.
A new Digital Services Tax (DST) will be introduced on 1 April 2020. DST is a new 2% tax on the revenues which certain digital businesses earn in the UK. DST will be charged on an annual basis until an appropriate global solution is in place. The government hopes to raise almost £500m a year from the DST, but the Trump administration in January this year threatened to impose tariffs on UK car exports if the government proceeds with this levy. The dispute could complicate Britain’s efforts to forge a post-Brexit trade deal with the US.
Employer National Insurance
The Employment Allowance will be increased from £3,000 to £4,000 from April 2020.
The annual rate of relief for Structures and Buildings Allowance will increase to three percent from April 2020;
The expected extension the off-payroll working rules (commonly known as IR35) to the private and third sectors will occur, as planned, in April 2020. Please see our earlier analysis of the measure https://www.src-time.co.uk/blog/ir35-extended-private-sector-what-does-it-mean-my-business
The calculation of Top Slicing Relief (TSR) on life insurance policy gains will be comprehensively set out in new legislation. A recent First-Tier Tribunal case (Silver v HMRC) held that HMRC’s standard methodology in a top slicing relief calculation was incorrect. The new legislation will specify how allowances and reliefs can be set against life insurance policy gains and it will apply to all relevant gains occurring on or after 11 March 2020
The maximum flat rate income tax deduction available to employees to cover additional household expenses has been increased from £4 per week to £6 per week. This applies to employees who work at home under homeworking arrangements. The increase will take effect from April 2020.
The scope of non-taxable counselling services will be extended to include related medical treatment, such as cognitive behavioural therapy, when provided to an employee as part of an employer’s welfare counselling services. The changes will take effect from April 2020.
Employee and Self-Employed National Insurance
The thresholds at which employees and the self-employed start paying National Insurance contributions (NICs) will be increased to £9,500 from April 2020.
Capital Gains Tax
Whilst change to the Entrepreneurs’ Relief provisions were anticipated, the Chancellor has radically reduced the lifetime allowance from £10 million to £1 million. As a result, only £1 million of gains derived from the sale of a business will qualify for a reduced 10% rate of CGT. To prevent taxpayers bringing forward disposals, the reduction comes in effect on 11 March 2020.
Savings and Investments taxation
The Junior ISA and Child Trust Fund annual subscription will be increased from £4,368 to £9,000 for 2020-21.
There is some good news for higher earning employees and directors.
The lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase to £1,073,100 in 2020/21.
The pensions annual allowance is the maximum amount of tax-relieved pension savings that can be accrued in a year. For those on the highest incomes, the annual allowance tapers down from £40,000
The two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020-21 the “threshold income” will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000.
For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.
In response to the Coronavirus outbreak the government announced a number of temporary discounts to business rates
For one year from 1 April 2020, the business rates retail discount for properties with a rateable value below £51,000 in England will increase from one third to 50% and will be expanded to include cinemas and music venues.
To support small businesses in response to COVID-19 the retail discount will be increased to 100% and expanded to include hospitality and leisure businesses for 2021.
The government previously committed to introducing a £1,000 business rates discount for pubs with a rateable value below £100,000 in England for one year from 1 April 2020. To further support pubs, in response to COVID-19 the discount for pubs will be increased to £5,000
A new Non-UK resident Stamp Duty Land Tax (SDLT) surcharge will be introduced on 1 April 2021. It will be charged at 2% on top of standard SDLT on non-UK residents purchasing residential property in England and Northern Ireland. The enforcement of this piece of legislation and what anti-avoidance measures may be needed should occupy HMRC up to the date it is introduced.
A zero rate of VAT will apply to e-publications from 1 December 2020. This will include e-books, e-newspapers, e-magazines and academic e-journals.
Following Brexit on 1 January 2021 postponed accounting for VAT will apply to all imports of goods, including from the EU.
From 1 January 2021 a zero rate of VAT to be charged on women’s sanitary products – the so-called ‘Tampon Tax’
Tax Compliance and enforcement
From April 2021 large businesses will have to notify HMRC of tax treatments relying on an uncertain legal interpretation which HMRC is likely to challenge;
We would be delighted to advise you on any tax and accounting aspects of these Budget changes. Therefore, please do not hesitate to get in touch today on 01273 326 556.