The Spring 2020 Budget finally saw the chancellor recognise the importance of small businesses to the economy. Please read our summary below to see the key announcements that we feel most affect our clients:
- No changes to National Insurance rates paid by the employed and employers or to Income Tax rates.
- Class 1 National Insurance threshold is rising from £8,632 for 2019/20 to £8,788 for Employer’s NI & £9,500 for Employee’s NI in 2020/21. Class 4 National Insurance threshold is also rising to £9,500.
- The Lower Earnings Limit will increase to £6,240 which is the minimum annual employment income you need to earn to get entitlement to benefits.
- Personal Tax-free Allowance remains the same at £12,500 and the Basic Rate Tax Band remains at £50,000. These will be increased in line with the Consumer Price Index from 2021-22 onwards.
- Marriage Allowance (which allows 10% of unused personal allowance to be transferred to your spouse) remains the same in line with the personal allowance at £1,250. This claim can be backdated for up to 4 years.
- From April 2020, the annual pension allowance will only be restricted where an individual’s income exceeds £200,000 (compared to £110,000 currently) but the minimum allowance will reduce from £10,000 to £4,000 for those with incomes over £312,000. The pension lifetime allowance has been increased by inflation to £1,073,100.
Capital Gains Tax
- Capital Gains Tax annual exempt amount for individuals is rising from £12,000 to £12,300.
- From 6 April 2020, the deadline for Capital Gains Tax due on UK property disposal and the resultant tax return will be shortened to 30 days after the property completion date. This could be a whole 18 months earlier than the current deadline.
- From April 2020, the Principal Private Residence final exemption period will decrease from 18 months to 9 months and letting relief will only be available to those in shared occupancy with their tenants.
- Entrepreneurs’ Relief (ER) is being tweaked again with the lifetime limit being reduced from £10m to £1m, with immediate effect.
Benefits in kind
- The official rate of interest will be reduced to 2.25% from 2.5%. This is used to calculate the benefit in kind received by an employee on a nil interest loan greater than £10,000 from their employer.
- A new method of measuring Co2 levels of company cars has been introduced for all new cars registered after 6 April 2020 which will result in higher benefits in kind being payable. To smooth the transition, the rates will be reduced by 2% for 2020/21 and then increased by 1% for 2021/22 and 2022/23.
- Electric only cars will have 0% benefit in kind from 6 April 2020, as previously announced, with 1% increase for 2021/22 and 2022/23. Electric only vans will have 0% benefit from 6 April 2021.
- The flat rate used to calculate fuel benefit of a car will increase to £24,500 for 2020-21 from £24,100. The flat rate used for a van will increase to £3,490 with the van fuel benefit increasing to £666.
- Retail premises with a rateable value of £51,000 or below, will receive business rate relief of 100% for 2020-21 (from current value of 33%). Due to Coronavirus, this relief will be temporarily extended to the hospitality & leisure sectors.
- A one-off grant of £3,000 will be available to small businesses which do not currently pay business rates because they qualify for Small Business Rate Relief (which provides full relief for businesses using a single property with rateable value of £12,000 or less) or Rural Rate Relief.
- As further support to small business (with under 250 employees) during Coronavirus, the cost of Statutory Sick Pay (SSP) which is payable from day one of illness for up to 14 days for all advised to self-isolate even if they have not yet presented with symptoms, will be refunded by the government in full. The sick note will be made available from NHS 111 service so a doctor’s visit is not necessary.
- The government will provide lenders with a guarantee of 80% on each loan made to small businesses to help them through Coronavirus hardship and HMRC are prepared to make more “Time to pay” arrangements to defer tax payments.
- Employment allowance has been increased to £4,000 from April 2020 so the first £4,000 of employer’s NIC liability is exempt provided the employer’s total NI liability is £100k or less and the business is not receiving de minimus state aid (such as R&D tax credits) of over €200,000 per year for most businesses (the agricultural limit is lower).
- From 1 April 2021 (a one year delay!), the amount of payable tax credit that can be claimed under the R&D SME tax relief scheme will be limited to three times the company’s total PAYE and NIC payments for the period.
- Employees with a home working contract can be reimbursed tax-free by £6 per week (increased from £4 per week). Higher rates can be claimed if the actual cost of providing the home office is calculated.
- Annual Investment Allowance remains £1m for purchases of business assets during 2020.
- The Structures and Buildings Allowance rate will increase to 3% annually from April 2020.
- The rate of Writing Down Allowance on cars with emissions greater than 50g/km will be 6%. Cars with emissions of 1-50g/km will qualify for the main capital allowance rate of 18% and zero emission electric cars will qualify for 100% First Year Allowance.
Making Tax Digital (MTD)
- Further progress on MTD will be stalled until an evaluation has been completed on the “Introduction of Making Tax Digital for VAT”. We`d expect further announcements on future progress in the Autumn 2020 budget.
VAT & Duty
- The VAT registration threshold will be maintained at £85,000 & deregistration threshold at £83,000 until at least 31 March 2022, as previously announced.
- Zero rate VAT will be applied to electronic versions of publications where the physical counterpart is zero-rated such as e-books. However zero rate VAT will not be applied to audio books.
- Zero rate VAT will be applied to sanitary products from 1 January 2021, removing the so-called “tampon tax”.
- Postponed VAT accounting will be introduced from 1 January 2021 which will ease company cashflow when importing goods into UK. We expect further measures to help with Brexit to be announced in Autumn 2020 budget.
- The proposed reverse charge mechanism will now be introduced from 1 October 2020, after its last minute delay last year. The reverse charge means that the customer, rather than the supplier, accounts for the VAT on both the purchase and the sale.
- Fuel & alcohol duty remain frozen for 2020-21 tax year.
- The Government are imposing a 2% surcharge (on top of 3% higher rate for additional dwellings) when a residential property is purchased by a non-UK resident.
- There is no delay to the extension of the off-payroll working rules (IR35) into the private sector for medium and large businesses, despite strong protests. It comes in for work completed after 5 April 2020.
- The maximum annual investment into a junior ISA is being significantly increased in 2020-21 to £9,000 from £4,368.
- Working age benefits have been increased by 1.7% for the first time since 2016! The state pension will increase by 3.7% to £175.20 per week from 6 April 2020.
- For people not eligible for SSP (such as sole traders), a “new style” Employment & Support Allowance will be payable from the first day of sickness, to people self-isolating or ill with coronavirus. A visit to the job centre will not be required to claim this or Universal Credit.
- The government is exploring how to improve guidance for self-employed people applying for mortgages.