2020 Budget Update

Treasury Chancellor Rishi Sunak has announced his 2020 Budget. Here is the summary of the key changes in the Budget:

The most significant changes announced in the 2020 Budget are detailed below:

Income tax Personal Allowance

The income tax Personal Allowance will remain at £12,500 in fiscal year 2020/21.

The 20% basic rate band has remained at £37,500 in 2020/21.

Higher rate Threshold remain at £50,000 in 2020/21.

The nil rate band for savings income will remain in line with 2020 at £5,000.

Dividends

The tax free dividend allowance of £2,000 will remain at £2,000 from 6 April 2020. The dividend tax rates will remain at 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate taxpayers.

National Insurance

The National Insurance threshold for employees will increase from £8,788 to £9,516 in 2020/21.

From 2020/21, Class 4 National Insurance will apply from £9,500 to £50,000 at 9% for the self employed and 12% for employees.

Directors Loans

The Section 455 tax on Directors’ loans will remain at 32.5%.

Corporation tax rates and bands

The main rate of Corporation tax to remain at 19% from 1 April 2020. Plans to reduce the rate to 17% were scrapped in the Conservative party manifesto.

Annual Investment Allowance

The Annual Investment Allowance for companies will continue at £1,000,000 to 31 December 2019. The rate will reduce to £200,00 thereafter.

Research and development

R&D tax credits for large companies increased from 12% to 13% from 1 April 2020. 

Capital Gains tax

The annual exemption for capital gains tax will increase from £12,000 to £12,300 from 6 April 2020.

The main rates of capital gains tax will continue at 10% basic rate and 20% for the higher rate with the exception of gains on residential property which are taxed at 18% and 28% respectively.

From 6 April 2020, capital gain tax on residential property is to be declared and paid to HMRC within 30 days of completion. This is a significant change.

Entrepreneurs’ Relief

The annual lifetime allowance for Entrepreneurs’ Relief will be reduced from £10m to £1m. This will apply to qualifying disposals made on or after 11 March 2020 and to certain disposals made before 11 March 2020.

VAT

The VAT registration threshold will remain at £85,000. The deregistration remains unchanged at £83,000.

Property

From 1 April 2020 non-resident companies with UK property income will be liable to corporation tax and gains arising on the disposal of UK property will be charged to corporation tax rather than capital gains tax.

From 6 April 2020 the finance cost restriction will be 100%, meaning that finance costs such as mortgage interest will no longer be deductible from rental income.

Annual Tax on Enveloped Dwellings (ATED)

From 1 April 2020, the ATED charge properties above £500,000 with increase to £3,700 for the lowest banding.

Digital Services Tax

A new Digital services tax will be introduced from 1 April 2020 in the form of a 2% tax on revenues generated from search engines, social media platforms and online marketplaces attributable to UK users.

The Digital services tax will apply to companies with annual revenues in excess of £500 million. There is a £25 million per annum allowance and there is also a safe harbour provision that exempts loss making companies and reduces the effective rate of tax for business with low profit margins.

Homeworking

From 6 April 2020 the maximum flat rate 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.

National Living Wage

The National Living Wage will increase in April 2020 from £8.21 an hour to £8.72 for the over 25’s.

Proposed changes to IR35 and Intermediary Rules

HMRC’s proposal to extend the amended IR35 rules for intermediaries in the public sector to those in the private sector has been postponed to 6 April 2021.

Pensions

The pensions lifetime allowance will increase from £1,055,000 to £1,073,000 from 6 April 2020.

The annual pension allowance will remain at £40,000.

Individual Savings Accounts (ISA’s)

The ISA Allowance will remain at £20,000 which can be apportioned between cash and share ISA’s.

The annual subscription limit for junior ISAs will rise from £4,368 to £9,000 in 2020/21.

Savings allowance

The personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers will remain in line with prior year.

Summary

In summary, there are no major surprises in the Budget with many of the rates and allowances remaining in line with prior year. Contractors and self employed will not see any significant changes in their tax liability in 2020/21.

Belsize Accountancy are specialist accountants for contractors and small businesses.