Key Tax Aspects of the March 2020 Budget

Here below is a summary of all the key changes. If you would like any additional information in respect of the budget announcements please contact Jan Friend with your queries.

Statutory Sick Pay (SSP) Relief

The Government is predicting that up to 20% of the workforce may be unable to work due to the virus at any one time. It had already been announced that employees would be entitled to SSP from day 1 not day 4. It was announced in the Budget that the Government will fully reimburse employers with fewer than 250 employees the SSP paid for the first 14 days of absence, equivalent to the self-isolation period.

More rates relief for small businesses

There has again been much lobbying from the small business sector to reduce business rates to enable traditional retailers in particular to compete with internet traders.

The Chancellor announced a long term review of the future of business rates, but in the meantime there are some very welcome measures to assist small businesses. The 100% business rates retail discount will be extended to the leisure and hospitality sectors where the rateable value is no more than £51,000.

In addition, very small businesses who already pay no business rates at all will be able to claim a £3,000 cash grant.

Personal allowances and higher rate tax threshold frozen

The personal allowance for 2020/21 is frozen at £12,500, the same as in 2019/20. The higher rate tax threshold is also frozen at £50,000.

No changes to income tax rates

The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.

There had again been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1%, depending upon whether the dividends fall into the basic rate, higher rate or additional rate band. Note that the first £2,000 of dividend income continues to be tax-free.

The annual ISA investment limit increased to £20,000 from 6 April 2017 and remains at that level for 2020/21. There will be a significant increase in the Junior ISA limit to £9,000 for 2020/21. Despite a thorough review of all tax reliefs by the Treasury, the much rumoured restrictions in pension tax relief again failed to materialise.

Tapering of pension annual allowance

One welcome change, particularly among hospital consultants and GPs, is the increase in the threshold at which the pension annual allowance starts being tapered. From 2020/21 the adjusted income limit will increase from £150,000 to £240,000 which means that most doctors will not be caught by the restriction.

IR35 “off- payroll” rules to go ahead

Despite considerable opposition from businesses, the Government has decided to go ahead with the new rules for workers providing their services through personal service companies from 6 April 2020.  This will represent a significant administrative burden on large and medium-sized businesses who will be required to decide whether the rules apply to payments to workers supplying their services through personal service companies. If the new rules apply to the arrangements, then income tax and NIC will need to be deducted from payments to the personal service company.

NIC changes

Employees and the self-employed will not pay national insurance contributions (NIC) on the first £9,500 of earnings from 2020/21, a significant increase from the £8,632 limit in 2019/20. Note that employers will be required to pay 13.8% on earnings over £169 per week, £8,788 per annum.

The employment allowance that can be set against employer’s NIC increases to £4,000 from 2020/21 but will not be available to employers with total employer’s NIC liabilities in excess of £100,000 p.a.

State benefits increased

Many State Benefits have been frozen, or increases limited, for a number of years. The Government has decided however to increase many State Benefits from 2020/21 including Child Benefit. The amount payable has been increased to £21.05 for the eldest child and £13.95 for each subsequent child. Note however that you may have to pay a tax charge if one of the parents has income in excess of £50,000.

Capital gains tax Entrepreneurs’ Relief restricted

There were many rumours in the run up to the Budget that CGT Entrepreneurs’ Relief which allows certain business owners to pay just 10% tax on disposal would be abolished. Rather than abolish the relief the Chancellor has announced that from 11 March 2020 onwards the relief will only be available against the first £1 million of lifetime gains instead of the previous £10 million limit.

The relief will therefore still benefit most small business owners.

Company tax rate frozen at 19%

As previously announced the corporation tax rate is to remain at 19% for the time being. It was originally scheduled to reduce to 17% from 1 April 2020.

Structures and building allowances increased to 3%

In the October 2018 Budget a new tax relief was introduced for the cost of construction or renovation of commercial buildings and structures.  As announced in the Conservative Party manifesto the original 2% straight line allowance is to be increased to 3% from 1 April 2020 for companies and from 6 April 2020 for unincorporated businesses.

R&D tax credit changes

The Conservative Party manifesto also included a promise to increase R&D expenditure relief for non-SMEs from 12% to 13% and this was confirmed in the March Budget. However, a measure originally announced in the 2018 Budget and consulted on in 2019 will limit the amount of repayable R&D tax credit for SMEs to three times the company’s total PAYE and NIC payments for the period. This measure will now take effect from 1 April 2021 not 2020.

Coronavirus Crisis- help for business

We have detailed above some of the key tax aspects of the help for businesses during this period of crisis (the SSP and rates reliefs). However there were also some other key cash flow announcements which we have summarized and included in a further blog where we detail a financial action plan to help get your business through this crisis.

The blog can be accessed here: How your business can survive the coronavirus crisis

The content in this blog is correct as at 16/03/2020 See terms and conditions.