2020 Budget Update

Treasury Chancellor Rishi Sunak has announced his 2020 Budget. Here is the summary of the key changes in the Budget:

The most significant changes announced in the 2020 Budget are detailed below:

Income tax Personal Allowance

The income tax Personal Allowance will remain at £12,500 in fiscal year 2020/21.

The 20% basic rate band has remained at £37,500 in 2020/21.

Higher rate Threshold remain at £50,000 in 2020/21.

The nil rate band for savings income will remain in line with 2020 at £5,000.

Dividends

The tax free dividend allowance of £2,000 will remain at £2,000 from 6 April 2020. The dividend tax rates will remain at 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate taxpayers.

National Insurance

The National Insurance threshold for employees will increase from £8,788 to £9,516 in 2020/21.

From 2020/21, Class 4 National Insurance will apply from £9,500 to £50,000 at 9% for the self employed and 12% for employees.

Directors Loans

The Section 455 tax on Directors’ loans will remain at 32.5%.

Corporation tax rates and bands

The main rate of Corporation tax to remain at 19% from 1 April 2020. Plans to reduce the rate to 17% were scrapped in the Conservative party manifesto.

Annual Investment Allowance

The Annual Investment Allowance for companies will continue at £1,000,000 to 31 December 2019. The rate will reduce to £200,00 thereafter.

Research and development

R&D tax credits for large companies increased from 12% to 13% from 1 April 2020. 

Capital Gains tax

The annual exemption for capital gains tax will increase from £12,000 to £12,300 from 6 April 2020.

The main rates of capital gains tax will continue at 10% basic rate and 20% for the higher rate with the exception of gains on residential property which are taxed at 18% and 28% respectively.

From 6 April 2020, capital gain tax on residential property is to be declared and paid to HMRC within 30 days of completion. This is a significant change.

Entrepreneurs’ Relief

The annual lifetime allowance for Entrepreneurs’ Relief will be reduced from £10m to £1m. This will apply to qualifying disposals made on or after 11 March 2020 and to certain disposals made before 11 March 2020.

VAT

The VAT registration threshold will remain at £85,000. The deregistration remains unchanged at £83,000.

Property

From 1 April 2020 non-resident companies with UK property income will be liable to corporation tax and gains arising on the disposal of UK property will be charged to corporation tax rather than capital gains tax.

From 6 April 2020 the finance cost restriction will be 100%, meaning that finance costs such as mortgage interest will no longer be deductible from rental income.

Annual Tax on Enveloped Dwellings (ATED)

From 1 April 2020, the ATED charge properties above £500,000 with increase to £3,700 for the lowest banding.

Digital Services Tax

A new Digital services tax will be introduced from 1 April 2020 in the form of a 2% tax on revenues generated from search engines, social media platforms and online marketplaces attributable to UK users.

The Digital services tax will apply to companies with annual revenues in excess of £500 million. There is a £25 million per annum allowance and there is also a safe harbour provision that exempts loss making companies and reduces the effective rate of tax for business with low profit margins.

Homeworking

From 6 April 2020 the maximum flat rate deduction available to employees to cover additional household expenses will increase from £4 to £6 per week where they work at home under homeworking arrangements.

National Living Wage

The National Living Wage will increase in April 2020 from £8.21 an hour to £8.72 for the over 25’s.

Proposed changes to IR35 and Intermediary Rules

HMRC’s proposal to extend the amended IR35 rules for intermediaries in the public sector to those in the private sector has been postponed to 6 April 2021.

Pensions

The pensions lifetime allowance will increase from £1,055,000 to £1,073,000 from 6 April 2020.

The annual pension allowance will remain at £40,000.

Individual Savings Accounts (ISA’s)

The ISA Allowance will remain at £20,000 which can be apportioned between cash and share ISA’s.

The annual subscription limit for junior ISAs will rise from £4,368 to £9,000 in 2020/21.

Savings allowance

The personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers will remain in line with prior year.

Summary

In summary, there are no major surprises in the Budget with many of the rates and allowances remaining in line with prior year. Contractors and self employed will not see any significant changes in their tax liability in 2020/21.

Belsize Accountancy are specialist accountants for contractors and small businesses.

Support for businesses during Coronavirus Pandemic

UK Chancellor Rishi Sunak has released a series of measures to support Small businesses during the Coronavirus pandemic (Covid-19). A summary of the main proposals are detailed below:

Grants covering up to 80% of salaries

• Government grants are available under the Coronavirus Job Retention Scheme
• The grant covers 80% of employee salaries up to £2,500 per month.
• The Employer National Insurance contributions are also covered together with Employer pension contributions (up to the minimum statutory level of auto enrolment).
• The grant will be backdated to cover wages from 1 March 2020
• Grant will run for at least 3 months.
• All employees are eligible for the scheme, including zero hours workers, provided they have been on the payroll on or before 28 February 2020.
• To be eligible for the grant the respective employees will need to be placed on furlough. This is discussed separately below.
• For workers on zero hour contracts, their pay will be determined by taking their average salary during fiscal year 2019/20.
• Agency workers paid via PAYE will be eligible for the scheme.
• The grant will be determined according to base salary and regular payments only. Payments for bonus, overtime and discretionary commission will be excluded under the scheme.
• The government portal for the scheme is currently being developed and will be available for applications by 30 April 2020.

What is Furlough?

In order to be eligible for the Coronavirus Job Retention Scheme, the relevant employees must be placed on Furlough for a minimum of 3 weeks. The concept of Furlough is to compensate companies that have been impacted by Covid-19 and to prevent redundancies. Once an employee is Furloughed, they cannot work for the company during the time they are placed on Furlough. This includes providing services carrying out revenue generating activities.

Company directors and office holders are eligible for the scheme, provided that they do not engage in any revenue generating activity or continue their normal day to day activities for the business. The decision to Furlough a director must be formally adopted as a decision of the company, noted in the company records and communicated in writing to the directors concerned.

Business owners will need to consider the legal implications when making a decision to furlough their employees and take legal advice where necessary:

• Employers should discuss the decision to furlough with their staff
• Furlough will require temporary changes to the employment contract to be agreed by both parties
• To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. A record of this communication must be kept for five years.
• Employees still have the same rights at work during the furlough. This includes sick pay, maternity, holidays etc.
• Whilst employees cannot work for the company whilst they are furloughed, they are able to carry out training.

Support for Self Employed individuals

• Self employed individuals will be able to claim a grant through the Self Employment Income Support Scheme.
• The Grant will operate similar to the Coronavirus Job retention scheme discussed above with self employed businesses affected by the Coronavirus being able to claim a grant equal to 80% of their profits from 1 March 2020.
• The grant will be based on the average profits declared on the individuals tax return for the 3 years ended 2018/19.
• For individuals with less than 3 years profits the grant will be based on an average of the time they were self employed.
• The grant will be capped at £2,500 per month.
• Individuals with profits over £50,000 per annum will not be eligible for the grant.
• In order to be eligible for the grant, individuals must earn the majority of their income from self-employment.
• The scheme is currently in the process of being set up and is expected to be open to applications by the end of April.
• Grants will be paid in a single lump sum instalment covering the three months for which the scheme is applicable. The first payments are expected to be paid by the beginning of June.

Support for Limited Company Contractors paying salary and dividends

• Limited Company Contractors who trade through a limited company and pay themselves a salary and dividends will receive limited assistance under the proposals to support UK small businesses.
• Business owners will be covered for their salaries under the Coronavirus Job Retention Scheme – 80% up to £2,500 per month.
• Dividends will not be covered.

Small Business Grant Fund

• Business Grant Funding is available to businesses who pay small business rates, or are in receipt of Small Business Rates Relief.
• The grant funding ranges between £10,000 and £25,000 according to the rateable value of the business premises.
• Businesses in retail, hospitality and leisure will be eligible for a cash grants of £10,000 or £25,000 per property. 

Business rates relief

• Businesses in the retail, hospitality and leisure sectors in England will not have to pay business rates for the 2020 to 2021 tax year.
• You do not need to take any action. Your local council will apply the discount automatically.

Deferral of VAT payments

• Cash flow support is provided to small businesses through the deferral of VAT payments
• Businesses have the option to pay zero VAT on VAT returns due between March and June 2020.
• Any deferred VAT to be paid by 31 March 2021.
• HMRC will not charge interest or penalties on any amounts deferred during this period.

Deferral of Self Assessment taxes

• Your payments on account for July 2020 can be deferred to 31 January 2021 without penalty.

Individuals and businesses who cannot pay their tax on time

• Businesses that cannot pay their tax bills because of coronavirus can contact the HMRC coronavirus helpline for support.

Changes to Statutory Sick Pay (SSP)

• From 13 March 2020, the rules for statutory sick pay have been updated temporarily during the Coronavirus outbreak.
• Employers will be able to reclaim payments of up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19.
• Employers should start paying SSP from the first qualifying day that an employee is off work, as long as they are off sick for at least four days in a row.
• Employees who have COVID-19 or are advised to self-isolate can obtain an ‘isolation note’ by visiting NHS 111 online and completing an online form rather than visiting a doctor.
• For COVID-19 cases, this replaces the usual need to provide a ‘fit note’ after seven days of sickness absence. Isolation notes will also be accepted by Jobcentre Plus as evidence of inability to attend for benefit interview purposes.
• The rates for SSP will increase from 6 April 2020.

Other support for self employed

• Self employed individuals who are not eligible to claim the grant through the Self Employment Income Support Scheme, will be able to claim Universal credit.
• The minimum income floor for Universal Credit will be temporarily relaxed for the duration of the outbreak to enable all self employed individuals to access the scheme.

Coronavirus Business Interruption Loan Scheme for Small and Medium sized businesses

• Available to UK based businesses with turnover up to £45m
• Finance is available in the form of a bank loan or an overdraft.
• Government will provide lenders with a guarantee of 80% on each loan (at no charge to lender or business)
• Finance will be 12 month’s interest free.
• The Scheme is available via 40 accredited lenders, including all major high street banks.
• Lenders will not request personal guarantees for loans under £250,000.

Apply for the Business support relevant to your business

The UK government has launched a range of support for UK small businesses as described above. For businesses that require assistance in claiming the relevant support for their business, feel free to contact Belsize Accountancy Limited on 0207 043 0052. We are specialist accountants for UK Contractors and small business.

2020 Budget Highlights

Treasury Chancellor Rishi Sunak has announced his 2020 Budget. Here is the summary of the key changes in the Budget: 

• Personal Allowance will remain at £12,500 in fiscal year 2020/21.
• Higher rate Threshold will remain at £50,000 in 2020/21.
• Corporation tax to remain at 19% from 1 April 2020. Plans to reduce the rate to 17% were scrapped in the Conservative party manifesto.
• The National Living Wage will increase in April 2020 from £8.21 an hour to £8.72 for the over 25’s.
• The annual exemption for capital gains tax will increase from £12,000 to £12,300 from 6 April 2020.
• The annual lifetime allowance for Entrepreneurs’ Relief will be reduced from £10m to £1m from 11 March 2020.
• From 6 April 2020, capital gain tax on residential property is to be declared and paid to HMRC within 30 days of completion.
• The inheritance tax threshold will remain at £325,000 with the additional residence nil rate band increasing from £100,000 to £175,000 in 2020/21. This allows an individual to pass on their property up to £500,000 with no IHT payable – or £1m per couple.
• Plans to introduce IR35 changes to the private sector from 6 April 2020 have been scrapped. The proposal has been deferred to 6 April 2021.

In summary, there are no major surprises in the Budget. The reporting of capital gains on residential property within 30 days may catch some taxpayers unawares and you should watch out for this.

A more detailed analysis of the Budget will follow. Please monitor the website for updates. Belsize Accountancy are specialist accountants for contractors and small businesses.