The_ Budget_ March_ 2020_ What_ you_ need_ to_ know
The Budget was delivered against the backdrop of uncertain times in the wake of the Coronavirus outbreak and we take the opportunity to wish all of our clients the best of health and wealth over the coming months.
In terms of the Budget itself, there were no major surprises, with the headline income tax, corporation tax and VAT rates all remaining unchanged.
I would highlight the following points:
- The Chancellor announced that businesses who face financial difficulties over the coming months can access government funding and most importantly can arrange time to pay for tax liabilities.
We have significant experience in working with clients to agree time to pay arrangements for clients and would be happy to assist in this regard. It is important to raise liquidity issues early with HMRC as they tend to be more flexible if you go to them in advance of a payment deadline rather than after it is already late.
- Reductions in business rates across a variety of sectors should be noted.
- The increase in the R&D tax relief credit rate to 13% from 12%, which will be of use to start-up technology companies.
- There was also a welcome increase in the primary threshold for National Insurance to £9,500.
There is an increase in the Employers NIC allowance from £3,000 to £4,000, but this applies on an employer basis. However from 6/4/2020, companies with an employers NIC bill of over £100,000 per year do not get the allowance, so larger employers will not benefit.
- The changes to Entrepreneurs Relief (ER) to reduce the lifetime allowance to £1 million for sales after 11 March 2020 will be disappointing to some, but there had been rumours that something would happen to ER.
The rules will take into account previous disposals. So for example if you have made more than £1million of ER gains in the past, you will have used up your lifetime allowance for ER.
At £1 million per person, it remains a valuable relief and for husband and wife owned companies where both parties meet the qualifying conditions, they can make gains of up to £2 million at a 10% tax rate, before the normal capital gains tax rates (up to 20% on most assets apart from residential property and carried interest) kick in.
Given the changes to ER, other tax reliefs such as EIS/SEIS or sales to employee Ownership Trusts which all have uncapped capital gains tax exemptions become more valuable than ever.
- The introduction of changes to off-payroll working (IR35) are being implemented from 6 April 2020 as feared. The government have promised to make amendments to improve implementation but have not deferred the changes.
Medium sized and large companies who are affected need to quickly review their exposures and obligations to the IR35 rules if you use contractors before the changes take effect in a few weeks’ time.
- There are some potentially significant changes to the maximum pension contributions that taxpayers can make. The main allowance is £40,000, but this is currently restricted down to £10,000 for persons with income over £150,000 on a £1 loss in allowance for every £2 of income.
The point at which the reduction in pension allowances starts to kick in are being increased to £240,000 from 6/4/2020, but the restricted amount now reduces to £4,000.
What this means is that from next year anyone earning under £240,000 will be able to claim tax relief in full on £40,000 of pension contributions.
However higher earners, in particular, those earning over £300,000 will have a lower amount they can contribute to their pensions. The £4,000 restriction kicks in when someone’s earnings are more than £312,000.
Planning may be considered to split earnings with spouses or family members and to defer income if possible to maximise pension contributions.
- There will be a 2% Stamp Duty Land Tax surcharge for non-resident investors in UK residential property from 1 April 2021.
- There will be restrictions for companies using brought forward capital losses against capital gains from 1 April 2020. The losses will be restricted to 50% of any capital gains made above £5 million in an accounting period. Hence is unlikely to be an issue for most of our clients.
If you have any questions, please contact your normal engagement team or please get in touch with me.