Rates and allowances for 2020/21
As already legislated for, the personal allowance remains at £12,500 and the basic rate limit at £37,500. Indeed, all income tax rates and allowances remain the same as for 2019/20 apart from cost of living increases to blind person’s allowance and married couple’s allowance. This applies equally across the UK except that Scotland has its own income tax rate bands set by the Scottish Parliament (seewww.gov.scot/news/scottish-budget-2020-21). It has already been confirmed that the Welsh rates of income tax will remain the same as for the rest of the UK other than Scotland (seehttps://gov.wales/sites/default/files/publications/2019-12/2020-2021-draft-budget-narrative.pdf).
The capital gains tax annual exempt amount is increased from £12,000 to £12,300.
The NIC Class 1 primary threshold (but not the secondary threshold for employer NICs) is increased to £183 per week, equivalent to £9,500 per year. The Class 4 lower profits limit is similarly increased to £9,500. There is no change to the Class 1 upper limit or Class 4 upper profits limit.
The NICs employment allowance for employers is increased from £3,000 to £4,000 per year, but it is also worth mentioning that the allowance is being separately reformed, also from 6 April 2020, to restrict the allowance to employers whose NICs liability in the previous tax year was less than £100,000.
Inheritance tax thresholds and rates are unchanged, except that (as already planned) the residence nil rate band increases from £150,000 to £175,000 for 2020/21.
As regards pensions tax, the lifetime allowance is increased in line with inflation to £1,073,100 for 2020/21. The annual allowance and money purchase annual allowance remain unchanged at £40,000 and £4,000 respectively (but see below for changes to the thresholds for calculating the tapered annual allowance).
Individual savings accounts and Child trust funds
The Individual Savings Account (ISA) annual subscription limit remains unchanged at £20,000 for 2020/21. However, the annual subscription limit for a Junior ISA is more than doubled to £9,000 (currently £4,368), and the same applies to the Child Trust Fund subscription limit.
Top slicing relief on life assurance gains
There will be legislative changes to the calculation of top slicing relief, which will apply to life assurance gains occurring on or after 11 March 2020. They will provide additional relief for taxpayers whose entitlement to the personal allowance has been reduced because a gain is included as part of their income. The changes will also clarify the treatment of allowances and reliefs within the top slicing calculation by confirming that they must be set as far as possible against other income in preference to the life assurance gain.
Scottish social security benefits
Legislation will be introduced to exempt from income tax three social security benefits, (Scottish Child Payment, Job Start, and Disability Assistance for Children and Young People) introduced by the Scottish government.
Pension tax changes
The adverse effect of recent pension changes on some high earners, such as doctors, has resulted in their having to refuse overtime in order to preserve their take home pay. This has arisen as a result of the tapering of the pensions annual allowance.The annual allowance limits the maximum amount which individuals can contribute to their pension pots and for those with income, excluding pension contributions, of over £110,000, it is currently reduced by £1 for every £2 of adjusted income (income plus pension accrual) over £150,000 earned. From 2020/21 the income threshold is increased from £110,000 to £200,000 and the adjusted income threshold is increased from £150,000 to £240,000. In addition, the minimum tapered annual allowance will be reduced from £10,000 to £4,000.
Car and van benefits
The amount to which the appropriate percentage is applied in determining the taxable benefit of company car fuel is £24,500 for 2020/21 (£24,100 for 2019/20). The cash equivalent of the benefit of a company van for 2020/21 is £3,490 (2019/20 is £3,430). The cash equivalent of the benefit of van fuel for 2020/21 is £666 (£655 for 2019/20).
The Government also plans to reduce the van benefit charge to zero from 6 April 2021 for vans that produce zero carbon emissions.
The taxable benefit of cars provided to employees that are available for private use are based on the CO2 emissions figure. As previously announced, for all new cars provided to employees which are first registered from 6 April 2020 the CO2 emissions figure will be based on the worldwide harmonised light-vehicles test procedure (WLTP) figures. The benefit for cars registered before this date will continue to be calculated using the CO2 emissions figure under the existing New European Driving Cycle procedure.
Statutory sick pay
New legislation will temporarily allow statutory sick pay (SSP) to be paid from the first day of sickness absence, rather than the fourth day, for people who have coronavirus or who have to self-isolate in accordance with Government guidelines. The Government will also temporarily extend SSP to cover individuals who are unable to work because they have been advised to self-isolate, and people caring for those within the same household who display coronavirus symptoms and have been told to self-isolate. To take pressure away from GPs, self-isolating employees will be able to obtain a notification via NHS111 which they can use as evidence for absence from work.
Employers with fewer than 250 employees as of 28 February 2020 will be eligible for a refund of eligible SSP costs relating to coronavirus. This will be limited to two weeks per employee.
Off-payroll working rules
Following a recent review the Government is making a number of changes to support the smooth and successful implementation of the reform of the off-payroll working rules in the private and third sectors from April 2020.
Disguised remuneration and the loan charge review
The Government has confirmed its response to Sir Amyas Morse’s Independent Loan Charge Review. The recommendations will be legislated for in Finance Bill 2020.
Tax deduction for homeworking
From 6 April 2020 the maximum flat rate income tax 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.
NIC holiday for employers of veterans
The Government is introducing an NIC holiday for employers of veterans in their first year of civilian employment. From 6 April 2021 employers will be exempt from any employer’s NIC liability on the veteran’s salary up to the upper earnings limit.
Construction Industry Scheme (CIS) abuse
Legislation will be introduced in a later Finance Bill to prevent non-compliant businesses from using the CIS to claim tax refunds to which they are not entitled. The measure will allow HMRC to reduce or deny the CIS credit claimed on employer returns where the sub-contractor cannot evidence the deductions and does not correct their return when asked.
As widely anticipated, the Chancellor announced changes to Entrepreneurs’ relief. The relief, which allows company founders to pay capital gains tax at 10% when they sell their business, rather than 20%, had been under the microscope for a while following concerns that it is costing far more than was originally anticipated and didn’t entirely deliver on its objective to act as an catalyst for investment in and growth of entrepreneurial businesses.
He stopped short of abolishing the relief entirely but instead reduced the lifetime relief on gains eligible for relief to £1 million (from the pre-existing £10 million). This reduction has immediate effect – it will apply for all disposals on or after 11 March 2020, although special rules will apply for disposals entered into before 11 March that have yet to be completed.
The Structures and Buildings Allowance (SBA) allowance is to be increased from 2% to 3% from 1 April 2020 (6 April 2020 for income tax purposes). The SBA was introduced last year for non-residential structures and buildings and provides relief on eligible expenditure on a straight-line basis.
Expenditure on low CO2 emission cars, zero-emission goods vehicles and equipment for gas refuelling stations is to continue to qualify for 100% first year capital allowances for another four years. So expenditure will be eligible for relief if it is incurred before 31 March 2025 (5 April 2025 for income tax purposes). Note though that the threshold at which low emission cars are eligible for the FYA will reduce to 0g/km (previously 50g/km) from April 2021.
Digital services tax (DST)
As announced at Budget 2018, a Digital services tax (DST) applies from 1 April 2020 to tackle the tax treatment of digital business.
The DST is a 2% tax on revenues generated from search engines, social media platforms and online marketplaces where those activities are hose activities which areattributable to UK users. There is a £25 million per annum allowance and the DST only applies to groups that generate global yearly revenues of more than £500 million. A tax on revenue can have a higher impact on loss-making and start-up companies but there is a safe harbour provision that exempts loss-makers and reduces the effective rate of tax for business with very low profit margins.
Corporate tax rates
As expected, the Chancellor confirmed that the corporation tax rate will remain at 19% from 1 April 2020. Legislation will also be introduced to maintain this rate from 1 April 2021.
Corporate capital loss restriction
From 1 April 2020, corporate capital losses are to be brought in line with the 2017 restrictions that apply to other corporate income losses. The corporate income loss restrictions apply such that from April 2017, only 50% of corporate income losses (in excess of the £5 million allowance) are eligible for offset against carry forward losses. From April 2020 corporate capital losses are to be included in the £5 million allowance. Therefore, the utilisation of brought forward capital losses will be restricted to 50% of annual capital gains. It was also announced that there will be specific provisions toexclude certain companies in liquidation from these rules.
Research & Development
Several announcements were made in relation to the R&D regime:
- From 1 April 2020 the RDEC rate will increase from 12% to 13%
- The PAYE cap on the payable tax credit for the SME R&D scheme will be delayed until April 2021
- There will be a consultation on extending the scope of the R&D scheme to include expenditure on data and cloud computing
Intangible fixed assets
From 1 July 2020, companies will be able to claim corporation tax relief for pre 2002 intangible assets acquired from related parties. This is a welcome relaxation and means that companies can now claim relief for older, well-established intellectual property rights.
VAT and Indirect Tax
VAT on e-publications
It was announced that the zero-rate of VAT which currently applies to physical publications (books, magazines, etc.) is to be extended to include e-publications with effect from 1 December 2020 (before the end of the Brexit implementation period). EU rules were amended in 2018 such that the UK is entitled to extend zero-rating in this way but the announcement was not widely anticipated. The changes come against the backdrop of litigation in the UK as part of which the Upper Tribunal has held that zero-rating can already apply to digital publications such as online newspapers (albeit HMRC has confirmed that it is appealing this decision). The Government has indicated that it will be consulting on the details of the legislation and it will not be included in Finance Bill 2020.
VAT on call-off stock arrangements
The Finance Bill will introduce legislation relating to the VAT treatment of call-off stock across the EU. EU wide rules simplifying the VAT treatment of call-off stock came into force on 1 January 2020 as a result of which changes to UK legislation are required. The UK legislation was not ready for the 1 January 2020 so there will be a retrospective element to the legislation introduced by the Finance Bill. Draft legislation was published by HMRC on 31 December 2019 and can already be viewed. HMRC has also published tertiary legislation in Notice 725 in relation to these changes which it is intended will have force of law once the Finance Bill received Royal Assent. It is likely that these changes will be repealed after the Brexit implementation period.
Agricultural Flat Rate Scheme (AFRS)
The Agricultural Flat Rate Scheme (AFRS) is broadly an alternative to VAT registration for farmers which allows them to charge and retain an additional amount (the flat-rate addition) when supplying VAT registered persons with certain farming-related goods and services. From 1 January 2021 (at which point it is expected that the Brexit implementation period will be completed) the Government intends to introduce new entry and exit rules for the (AFRS). Changes include the introduction of an annual turnover threshold of £150,000 for farming activities below which businesses may join the AFRS and a turnover threshold of £230,000 for farming activities above which businesses must deregister from the scheme (and register for VAT instead).
A broad removal of the entitlement to use red diesel and rebated biofuels was announced. The removal will not take effect until April 2022 and the relevant legislation is expected to be introduced by a future Finance Bill. Exceptions are to be made for the agriculture and rail sectors as well as for use in non-commercial heating. A consultation will take place later this year which will present other sectors with the opportunity to put forward a case for their continued entitlement to use red diesel and rebated biofuels.
Plastic Packaging Tax
The Government confirmed the introduction of a plastic packaging tax. The idea was posited in Budget 2018 and a consultation took place in 2019. Now paving legislation will be introduced in Finance Bill 2020 and a further consultation on the detailed policy design has been launched. The consultation closes on 20 May 2020.
Limited liability partnership (LLP) returns
Legislation will be introduced with retrospective effect to ensure that where an LLP operates ‘without a view to profit’, HMRC can nevertheless amend the LLP members’ returns. The vast majority of LLPs operate with a view to profit, and these will not experience any change at all.
HMRC automated processes
As already announced, the Government will introduce retrospective legislation to confirm that HMRC can use automated processes to issue taxpayers with notices to file returns and with penalty notices. Notices do not have to be issued by an individual officer. The use of automated processes had been challenged, with varying degrees of success, in a number of tribunal cases.
Protecting taxes in insolvency
It had already been announced that the Government would change the rules for businesses entering insolvency, so that more of the taxes paid in good faith by its employees and customers and temporarily held by the business go to fund public services rather than being distributed to other creditors. This will apply only to taxes collected and held by businesses on behalf of other taxpayers i.e. VAT and amounts deducted under PAYE and the Construction Industry Scheme. The changes had been expected to have effect from 1 April 2020 but will now be delayed until 1 December 2020. They will now be extended to Northern Ireland as well.
Tax avoidance – general measures
A series of measures have been announced which have the intention of restricting the supply of tax avoidance arrangements by targeting promoters rather than users. HMRC is to publish a new strategy to deal with promoters of avoidance schemes. This will be deliberately aimed at disrupting the supply chain by making it harder for firms to promote schemes as well as making it clearer to potential users that HMRC will challenge these sorts of arrangements. There are no details at the moment, but we can expect that any proposals will include both new legislation and changes to HMRC’s operational structure to make it easier for the department to identify potential abuse.
In addition, HMRC will call for evidence as part of a project to raise the standards of tax advice. At the moment taxation is not a regulated profession in the UK and standards are set by the professional bodies. There is no sign that HMRC wishes to move to become a regulator of tax advisers, but it clearly wants to have a closer involvement in the way that standards are set and monitored.
Following the review of the loan charge by Sir Amyas Morse the Government announced that it would introduce further measures to tackle marketed tax avoidance. No details of what is intended have been announced but it has been confirmed that draft legislation will be published in July 2020.
Notification of difference of view
One further change, though not specifically linked to avoidance, will clearly change the relationship between businesses and HMRC. HMRC will in future require large businesses to notify HMRC when they ‘take a position which HMRC is likely to challenge’. No details of this have been announced and there will be a consultation on how the notification process will work. This is in fact the re-emergence of an idea which was first proposed by the Keith Committee on Revenue powers in the 1980s under which taxpayers would be required to notify the Revenue if they had taken the benefit of the doubt in their tax return. That was rejected at the time as unworkable but in today’s very different climate HMRC has obviously decided that the idea is worth exploring again. Perhaps, for example, a business might be required to notify if it files on a basis which is different to that outlined in an HMRC manual.
This is the phrase which HMRC uses to link a business’s licence to operate with its tax compliance record. At the moment there are no links, so that a business can have a licence to operate while being beneath HMRC’s radar. From 2022 firms in the private hire and scrap metal businesses will only be able to obtain or renew a licence to operate if they can show that they are properly registered for tax. The Government is clearly attracted by this idea because it has announced that it will consult on whether or not it can be used more widely for all Government awards and authorisations. The rules will apply only in England and Wales but HMRC will work with the devolved administrations to extend the principle across the whole of the UK.