As yesterday’s Budget speech was the first for about 17 months, we were expecting some significant changes to some key areas of tax. However, with the 11th hour change of Chancellor and the outbreak of the Coronavirus, it seemed at one point like the Chancellor was going to undertake the entire Budget speech without even mentioning any tax changes, but we did get some announcements in the end.
We have outlined the key tax updates which impact individuals and businesses.
Personal Tax
Income Tax Rates and Thresholds
As already legislated for, the personal allowance remains at £12,500, and the basic rate limit at £37,500. Indeed, all income tax rates and allowances remain the same as for 2019/20, apart from cost of living increases to blind person’s allowance and married couple’s allowance.
Capital Gains Tax
The capital gains tax annual exempt amount is increased from £12,000 to £12,300.
National Insurance Contributions
The NIC Class 1 primary threshold (but not the secondary threshold for employer NIC) is increased to £183 per week, equivalent to £9,500 per year. The Class 4 lower profits limit is similarly increased to £9,500. There is no change to the Class 1 upper limit or Class 4 upper profits limit.
Individual Savings Accounts and child trust funds
The individual savings account (ISA) annual subscription limit remains unchanged at £20,000 for 2020/21. However, the annual subscription limit for a junior ISA is more than doubled to £9,000 (currently £4,368), and the same applies to the child trust fund subscription limit.
Pensions
As regards pensions tax, the lifetime allowance is increased in line with inflation to £1,073,100 for 2020/21. The annual allowance and money purchase annual allowance remain unchanged at £40,000 and £4,000 respectively.
The adverse effect of pension changes in the last few years on some high earners, such as doctors, has resulted in their having to refuse overtime in order to preserve their take-home pay. This has arisen as a result of the tapering of the pensions annual allowance.
The annual allowance limits the maximum amount that individuals can contribute to their pension pots, and for those with income ― excluding pension contributions ― of over £110,000, it is currently reduced by £1 for every £2 of adjusted income (income plus pension contributions/accrual) over £150,000 earned. From 2020/21, the income threshold is increased from £110,000 to £200,000, and the adjusted income threshold is increased from £150,000 to £240,000. In addition, the minimum tapered annual allowance will be reduced from £10,000 to £4,000.
Business and Corporate Tax
Entrepreneur’s Relief
The Chancellor stated that a review of Entrepreneurs’ Relief showed it to be expensive and an ineffective incentive to encourage business start-ups.
The relief allows business owners to pay capital gains tax at 10% when they sell their business, rather than 20%.
The Chancellor has reduced the lifetime relief on gains eligible for relief to £1 million (from the pre-existing £10 million). This reduction has immediate effect ― it will apply for all disposals on or after 11 March 2020, although special rules will apply for disposals entered into before 11 March that have yet to be completed.
Corporation tax rates
As expected, the Chancellor confirmed that the corporation tax rate will remain at 19% from 1 April 2020. Legislation will also be introduced to maintain this rate from 1 April 2021.
Capital Allowances
Expenditure on low CO2 emission cars, zero-emission goods vehicles and equipment for gas refuelling stations is to continue to qualify for 100% first year capital allowances for another four years. Thus, expenditure will be eligible for relief if it is incurred before 31 March 2025 (5 April 2025 for income tax purposes). Note though that the threshold at which low emission cars are eligible for the FYA will reduce to 0g/km (previously 50g/km) from April 2021.
The structures and buildings allowance (SBA) is to be increased from 2% to 3% from 1 April 2020 (6 April 2020 for income tax purposes). The SBA was introduced last year for non-residential structures and buildings and provides relief on eligible expenditure on a straight-line basis.
Research & Development
Several announcements were made in relation to the R&D regime:
from 1 April 2020, the tax credit available to larger companies is to increase from 12% to 13% to drive innovation in the economy.
the PAYE cap on the payable tax credit for the SME R&D scheme will be delayed until April 2021. This is a significant boost for innovative small and medium sized businesses.
there will be a consultation on extending the scope of the R&D scheme to include expenditure on data and cloud computing
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
