UK Budget 2020 – top takeaways

Mar 11, 2020

Today was newly appointed Chancellor of the Exchequer Rishi Sunak’s first Budget and the first UK Budget in over 16 months. It came just weeks after the UK’s departure from the EU amidst the coronavirus crisis, with many seeing the Budget as an opportunity to vaccinate the UK economy. The Chancellor took a number of steps today in that direction. Read our press release reacting to the Budget.

We’ve analysed the top takeaways from today’s announcements and accompanying publications. Next Monday’s edition of  Chartered Accountants Tax News will examine the Budget’s tax measures in more depth.

You can also see all of the key Budget publications on tax at:  https://www.gov.uk/government/collections/budget-2020-tax-related-documents and https://www.gov.uk/government/publications/budget-2020-overview-of-tax-legislation-and-rates-ootlar. Finance Bill 2020 is expected to be published next week – remember – the devil is in the detail.  

VAT postponed accounting

Prior to today’s Budget, the Government had previously only intended to introduce postponed accounting for VAT from 1 January 2020 where the transition period ended in a no-trade deal scenario.

Today, the Budget announcements extend the availability of postponed accounting for import VAT to post transition period trading arrangements, in whatever form these may take.  This is a positive move and one that Chartered Accountants Ireland has been calling for.

This means that VAT will not be immediately due at the point of import when buying from outside the UK, including the EU, but instead will be payable on the trader’s next VAT return when they will also be able to simultaneously claim relief for the VAT paid, in most cases.

Corporation tax rate is maintained

Meeting the Conservative Party’s manifesto promise not to reduce the rate of corporation tax to 17 per cent from 1 April 2020, instead the rate will stay at 19 per cent from that date. The 17 per cent rate has already been enacted in legislation via the Finance Act 2016, and therefore an amendment will be required in the next Finance Bill.

Entrepreneurs’ relief lifetime limit

Entrepreneurs’ relief (“ER”) was first introduced in April 2008 after the abolition of taper relief. In recent years, the relief has been tweaked and its conditions amended. Most recently, Budget 2018 extended the ownership period of qualifying ER assets from one year to two years.

In today’s Budget, the Chancellor had two options on the table. To either further curtail the relief or abolish it altogether. The Chancellor chose to curtail.

From today 11 March 2020, the lifetime limit on gains eligible for the relief (which offers a reduced 10 per cent rate of Capital Gains Tax on qualifying disposals) is being reduced from £10 million to £1 million.

Business tax measures

The annual rate of capital allowances available for qualifying investments to construct new, or renovate old, non-residential structures and buildings will increase from 2 per cent to 3 per cent. The change will take effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax. The Structures and Buildings Allowance was introduced at Budget 2018.

The Government will also increase the Employment Allowance from £3,000 to £4,000 from April 2020. The Employment Allowance can be used against the employers’ National Insurance (“NIC”) bill of a business but only where, from April 2020, the total employer’s NIC liability in the previous tax year was under £100,000.

The Government will also legislate in Finance Bill 2020 to remove the pre-2002 exclusion from the Intangible Fixed Assets regime to support investment in intellectual property and other intangible assets. This means tax relief for the cost of acquiring corporate intangible assets on or after 1 July 2020 will be provided under a single regime, subject to restrictions to prevent tax avoidance. The exact detail of what this means is not yet clear.

And finally, the rate of the taxable Research & Development (R&D) expenditure credit for companies claiming under the “large” R&D tax relief regime will increase from 12 per cent to 13 per cent from 1 April 2020. As the corporation tax rate will stay at 19 per cent from this date, the net tax saved from every £1 of qualifying R&D under this scheme will now be 10.53 pence.

Pensions

The pensions annual allowance is the maximum amount of tax-relieved pension savings that can be made in a year. For additional rate taxpayers, the annual allowance tapers down from £40,000 to a minimum of £10,000 by £1 for every £2 of income in excess of £150,000.

The Budget also announced that the two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020-21 the “threshold income” will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000.

The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020 onwards. This reduction will only affect individuals with total income (including pension accrual) over £300,000. Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward.

Personal tax

The Budget confirmed the Government’s commitment to increase the thresholds at which employees and the self-employed start paying NIC from £8,632 to £9,500 from April 2020. This is the first step in meeting the Government’s ambition to increase these thresholds to £12,500 as set out in the Conservative Party manifesto.

Stamp Duty Land Tax non-residents

From 1 April 2021, the government will introduce a 2 per cent SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland. The original consultation in this area had proposed a 1 per cent surcharge.

Taxes in insolvency

As announced at Budget 2018, the Government will change the rules  to make HMRC a secondary preferential creditor for certain tax debts. The Budget delays the commencement date of this measure from 6 April to 1 December 2020 and extends this measure to Northern Ireland. This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE income tax, employee NICs and CIS deductions). The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer NICs. The legislation will be introduced in Finance Bill 2020.

VAT on e-publications

The Government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020. This follows on from the recent Tribunal decision in News Corp UK & Ireland Limited v HMRC [2019]. The Upper Tribunal in that case found that electronic editions of newspapers should be treated in the same way as printed newspapers for VAT, and zero-rated.

Last but not least….

Sir Amyas Morse recommended in the Loan Charge Review published in December 2019 that “There should be a new strategy published within six months, addressing how the Government will establish a more effective system of oversight, which may include formal regulation, for tax advisers”.

Following on from that, the Government will publish a call for evidence in the spring on “raising standards for tax advice”. This will seek evidence about providers of tax advice, current standards upheld by tax advisers, and the effectiveness of the government’s efforts to support those standards. We will be seeking feedback from our members on this important call for evidence once it is launched.