The December 2019 General Election meant that the Autumn Budget that was meant to delivered by Sajid Javid, was delayed. The new Chancellor, Rishi Sunak will now deliver his first Post-Brexit Budget on Wednesday 11 March 2020.
In summary, we are expecting that the tax measures in the Conservative Party manifesto will be announced again and confirmation that changes consulted on last year will be put in place.
What will the Chancellor announce in the Budget 2020? We have put together some key tax areas Rishi Sunak may focus on:
IR35 off-payroll workers
Freelancers and contractors working through personal service companies in the public sector were hit with IR35 rules a couple of years ago. These are now scheduled to be rolled-out to those working in the private sector in April 2020.
In January 2020 the government launched a four-week review of the changes to IR35 off-payroll working rules, as the result of mounting criticism about the way these rules will operate. The review is scheduled to conclude by mid-February and therefore we should see an announcement in the Budget. It is unlikely that there will be a significant u-turn but it may limit the range of contractors to whom it will apply or the size of businesses who will be obliged to operate it. The new rules are currently scheduled to apply to ‘large and medium-sized businesses’ as defined by the Companies Act.
The government will also carry out a further review of the enhanced CEST tool designed to assist businesses in checking employment status and public sector bodies’ experience of applying the rules since 2017.
Disguised Remuneration Loan Charge
The loan charge was introduced to collect tax from individuals who had benefited from schemes devised to avoid PAYE and National Insurance. The date that the loan was made to the individual is critical in determining whether the loan charge will apply.
Due to criticism of the loan charge, an independent loan charge review was conducted and published on 20 December. The major change, which will be legislated in the next Finance Act, is that taxpayers who took loans before 9 December 2010 will not now be subject to the loan charge. This was the day when draft legislation was published, alongside a ministerial statement, to make it clear that disguised remuneration arrangements, including loans, would be specifically taxed as earned income. The current legislation, introduced in 2018, applies retrospectively to such loans and will need to be repealed.
Taxpayers who took loans from their employers between 10 December 2010 and 5 April 2016 and who fully disclosed the use of the loan scheme will not be subject to the loan charge if, and only if, HMRC failed to take action because of disclosure. Loans taken out on or after 6 April 2016 and which were still outstanding on 5 April 2019, remain within the loan charge. You can spread the tax charge over three tax years from 2018/19 to 2020/21.
Pensions u-turn for doctors
There have been many stories in the press about GPs and senior hospital doctors refusing to take on extra shifts due to the additional tax they are required to pay on the extra pension contributions paid by the NHS. Rumours are circulating that the tapering of the annual pension allowance for those with income over £150,000 may be abolished or amended for all taxpayers, not just those working in the NHS. Will Rishi Sunak announce this in the Spring Budget 2020? If he does, it could come with other changes to pension tax relief.
Inheritance Tax (IHT)
Another announcement to listen out for in the Spring Budget 2020 is whether the Chancellor acts on the recommendations of the Office of Tax Simplification (OTS) regarding Inheritance Tax (IHT). One recommendation suggested simplifying IHT by reducing the period of exemption of lifetime gifts from 7 to 5 years. The donor would therefore only have to survive for 5 years following a gift for the transfer to be exempt from IHT.
Business Property Relief (BPR)
The OTS also suggested that the conditions for Business Property Relief (BPR) might be tightened up by aligning the rules with the definition of a trading company for Capital Gains Tax (CGT). This relief currently provides 100% relief on the transfer of shares in an unquoted company. The suggested change would mean that more transfers of shares would potentially be liable to Inheritance Tax (IHT). If you are looking to pass on your business, you may wish to undertake a careful review of your plans to ensure you are being tax-efficient.
Corporation Tax and National Insurance
Boris Johnson had promised in his Conservative Party Manifesto to raise the threshold for National Insurance contributions from £8,632 to £9,500 in 2020-21. The party’s ambition is to raise the threshold to £12,500 in line with the Income Tax Personal Allowance.
He also stated that Corporation Tax would remain at 19% instead of reducing to 17% on 1 April 2020 to provide £6 billion funding for the NHS. Businesses would, however, benefit from an increase in the Structures and Buildings Allowance from 2% to 3%. This provides tax relief for the construction or renovation of commercial buildings.
We can help you
We will be sending out our Budget 2020 summary email for everything you need to know about the announcements on the afternoon ofWednesday 11 March. If you would like to receive the summary please subscribe to our Tax newsletter here.