The Chancellor, Rishi Sunak, delivered his first Budget on Wednesday 11 March 2020. What did he announce in the Budget 2020 and what do the changes mean for you? Here are the 2020 tax rates & proposed changes at a glance.
Personal Taxation – 2020/21
- National Insurance contributions (NICs) – Increase in the Primary Threshold and Lower Earnings Limit from £8,632 to £9,500 from April 2020. The Secondary Threshold has increased from £8,632 to £8,788.
- Capital Gains Tax – Entrepreneurs’ Relief changes with immediate effect the lifetime allowance reduces today to £1 million per individual a reduction of 90% from £10 million.
- Capital Gains Tax – Annual exemption will increase from £12,000 to £12,300 from 6 April 2020.
- Pensions – From April 2020, an increase in the annual allowance taper threshold by £90,000 from £110,000 to £200,000 and the level against which adjusted income is tested increases from £150,000 to £200,000. However, the minimum tapered allowance will reduce from £10,000 to £4,000 at an adjusted income level of £312,000 and above.
- Stamp Duty Land Tax (SDLT) – From April 2021, there will be a 2% non-UK resident surcharge. The measure introduces a 2% SDLT in England and Northern Ireland for all purchases of residential property by non-UK residents.
Business Taxation – 2020/21
- Structures and Buildings Allowance (SBA) – From 1 April 2020, the SBA on non-residential structures will be will increase from 2% to 3% capital allowances.
- Capital Allowances for business cars – From 1 April 2021, extended the first-year allowance on zero-emission cars. This extends the availability of the First Year Allowance (FYA) on ultra-low emission vehicles from 1 April 2021 to 31 March 2025. In addition, Writing Down Allowance (WDA) for cars with emissions larger than 50g/km will not be eligible for the main rate of 18% instead they will be eligible for a special rate WDA of 6% this will take effect from April 2021.
- Corporation Tax – The rate of Corporation Tax remains at 19%. The rate was previously due to reduce to 17% in April 2020. This rate does not apply to ring-fenced profits of oil and gas companies which are subject to different Corporation Tax rates.
- IR35 – Off-payroll working rules that apply to the public sector will apply to the private sector large and medium-sized businesses from April 2020.
- Research and Development (R&D) – The amount of tax credits that a loss-making company can use will be restricted to PAYE/NIC liability for that year for small and medium-sized companies in an attempt to tackle abuse, this was due to come in from 1 April 2020 but has now been delayed until 1 April 2021.
- Employment Allowance – Increases from £3,000 to £4,000 from April 2020.
Ellacotts Top Ten Tax Tips
- The personal allowance of £12,500 and the basic rate band of £37,500 so the 40% tax rate applies to chargeable annual income exceeding £50,000. Family businesses should consider how each member withdraws profits from the business to maximise the use of the tax allowances and lower rate bands.
- A 60% Income Tax rate applies to those whose income falls between £100,000 and £125,000 in 2020/21. Anyone who believes their personal income may exceed £100,000 per annum should consider whether they can claim tax relief (e.g. pension payments) or share income with other members of the family. We can advise you about your pension planning.
- The company Corporation Tax rate is remaining at 19%. So, some partnerships and sole traders could consider incorporating into a limited company to benefit from lower tax rates. The government plans a review of incorporation so beware!
- The annual limit for individual savings accounts (ISAs) remains at £20,000. ISAs are very tax-efficient and the increased limit and simplified structure will make it easier to make investments that save Income Tax. Please ask for advice on this if relevant.
- Tax relief is increased for pensions for higher-income individuals (>£150,000pa) from 6 April 2020. Pension planning will be even more important especially for those at or approaching retirement.
- Despite the reduction in the lifetime allowance, Entrepreneurs’ Relief continues to reduce the rate to 10% for qualifying gains up to £1 million on trading asset disposals. Business owners should check carefully whether they qualify for Entrepreneurs’ Relief.
- The increase of the Inheritance Tax nil rate band from £325,000 to £500,000 (for family homes) per individual (£1 million per couple) will allow more wealth to pass to the next generation without tax being payable at 40%. This encourages longer-term planning to start at an earlier age and the use of family trusts to protect assets for younger beneficiaries. So what’s your family succession strategy?
- Significant capital allowances at 100% on £1,000,000 of equipment purchases provide a major tax payback for capital-intensive businesses (e.g. farmers, hauliers & manufacturers). Timing of planned capital expenditure is crucial to ensure tax relief falls into the best tax year.
- The employer’s National Insurance (NIC) rebate of £4,000 for most employers (excluding director-only companies). However, this will be restricted to employers with NIC below £100,000 in their previous tax year from April 2020. Make sure that your business claims this allowance by reducing your NIC payments in the next tax year.
- No benefit in kind on electric cars from 6 April 2020. You may want to consider changing to all-electric cars.