Just one month into his new role as Chancellor of the Exchequer, Rishi Sunak has delivered his first Budget Statement promising ‘historic’ investment in roads, railways, broadband and scientific research, as the government tries to deliver on its promise to level up the UK. Ahead of the Statement, the Chancellor said that it would be “a Budget for people right across the country – no region will be left behind.”
The Chancellor opened the Statement by addressing current coronavirus Covid-19 concerns. He said that there is likely to be a temporary disruption to the economy, but the government will do whatever it takes to support it. On the supply side, the government anticipates that up to a fifth of the working age population could need to be off work at any one time. Business supply chains are currently being disrupted around the globe. The combination of these factors will mean that for a period, UK productive capacity will shrink. There will also be an impact on the demand side of the economy, through a reduction in consumer spending. The Chancellor went on to outline a comprehensive set of measures to support business and households through the coronavirus crisis with business rate relief, time to pay tax deferrals and underwriting the cost of statutory sick pay for smaller businesses. HMRC have also set up a dedicated phone helpline to support businesses and self-employed people concerned about not being able to pay their tax due to covid-19.
Although the personal tax allowance will remain at its current level of £12,500 for 2020/21, the National Insurance Contributions (NICs) primary threshold will rise to £9,500 in April 2020, meaning an average pay increase of £104 for most employees. The government intends that by 2024, the National Living Wage will reach two-thirds of median earnings. On current forecasts, that means a living wage of over £10.50 an hour, but this is to be examined in further detail by the independent Low Pay Commission.
The Chancellor set out several measures designed specifically to help businesses, including enhancements to certain capital allowances and research and development rules. Originally the government intended to cut corporation tax by 2% from April 2020, but this was ruled out after the General Election in December 2019. Keeping the corporation tax rate at 19% is expected to raise some £46bn in year one, rising to £75bn a year by 2024/25.
Following strong lobbying against a possible abolition of entrepreneurs’ relief, the Chancellor committed to retaining it for the present time but announced that the lifetime allowance would be reduced from £10m to £1m for qualifying disposals made on or after 11 March 2020.
Green issues also featured heavily in the Budget speech. Privately owned boats and yachts will have to use white diesel instead of the cheaper red diesel in their tanks to curb pollution; there will be further consultation on the proposed plastic packaging tax which will apply a rate of £200 per tonne of plastic packaging which does not contain at least 30% recycled plastic; and the climate change levy on electricity will be frozen from April 2022, and increased on gas. There will be substantial investments in tackling nitrogen dioxide emissions in towns and cities across England, and further support for the rollout of new rapid charging hubs, so that drivers are never more than 30 miles away from being able to charge up their car.
The following paragraphs summarise the key tax points arising from the 2020 Spring Budget based on the documents released on 11 March 2020. Please remember that these proposals are subject to amendment during the passage of the Finance Bill through Parliament. We will, of course, keep you informed of any significant developments.
Personal tax allowances and NICs
The personal tax allowance will remain at £12,500 for 2020/21.
The Class 1 National Insurance Contributions (NIC) primary threshold will rise to £9,500 from April 2020 (from £8,632 in 2019/20, which means an average increase in earnings of £104 for employees.
The Budget also contained details of a future consultation on pension tax administration. Those earning around or below the level of the personal allowance and saving into a pension may benefit from a top-up on their pension savings equivalent to the basic rate of tax, even if they pay no tax. Whether they receive this top-up will depend on how their pension scheme administers tax relief.
Implementation of recommendations from the independent review of the loan charge
The government has confirmed that it will implement all but one of the recommendations made by Sir Amyas Morse in his review of the loan charge rules. The legislation will have effect retrospectively to 5 April 2019, which is the relevant date for the purposes of applying the loan charge. However, clauses related to repayments of voluntary payments will have an effect on and after the date of Royal Assent to Finance Bill 2020.
Income tax and NI exemptions for bursary payments to care, leavers,
Statutory income tax and NIC exemptions will apply for the one-off £1,000 bursary paid to care leavers aged between 16 and 24 who enter an apprenticeship.
The measure will have effect after the date of Royal Assent to Finance Bill 2020, once regulations have been laid to specify the details of the bursary payment. For payments that have already been made HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any retrospective amounts.
2020/21 Van benefit and car and van fuel benefits confirmed
The van benefit charge and the car and van fuel benefit charges will rise in line with the Consumer Price Index (CPI) from 6 April 2020. The flat-rate van benefit charge will increase to £3,490, the multiplier for the car fuel benefit multiplier will increase to £24,500, and the flat-rate van fuel benefit charge will increase to £666.
Taxation of company cars using CO2 emissions
As announced at Autumn Budget 2017, the carbon dioxide (CO2) emissions figure for the purposes of the company car tax regime and related charges will be based on the Worldwide harmonized Light Vehicle Test Procedure (WLTP) for all new cars registered from 6 April 2020.
For cars measured under WLTP, most appropriate percentages are reduced by 2 percentage points in 2020/21 compared to the current percentages for cars with emissions measured under the New European Driving Cycle (NEDC) to help support the introduction of the WLTP for example, emissions generating a percentage of 8% would have a reduced percentage of 6%. The percentages will then be increased by one percentage point for each of the tax years 2021/22 (for example from 6% to 7%) and 2022/23 (for example from 7% to 8%). In the tax year 2022/23, the increase will bring the percentages back to their published rates in existing legislation.
The measure includes changes to the appropriate percentage figures for all cars classified as being ZEVs under both the NEDC and WLTP test procedures. The appropriate percentage will be reduced to 0% for 2020/21 and will be increased by one percentage point for 2021/22 (to 1%) and 2022/23 (to 2%). In 2022/23, the increase will bring the appropriate percentage back to their published rates in existing legislation which will be sustained throughout the tax years 2023/24 and 2024/25.
For cars registered between 1 October 1999 and 5 April 2020 inclusive, the CO2 emissions figures for company car tax and related charges will continue to be based under the New European Driving Cycle (NEDC) procedure.
Pensions tax changes to income thresholds for calculating the tapered annual allowance
Following an increase in the threshold income and adjusted income, those individuals with a threshold income of between £110,000 and £200,000 and adjusted income between £150,000 and £240,000 will no longer be impacted by the tapered annual allowance.
Broadly, the income limits used in calculating a tapered annual allowance is increased and the minimum tapered annual allowance reduced. The threshold income, which is broadly net income before tax (excluding pension contributions), will rise from £110,000 to £200,000. The adjusted income, which is broadly net income plus pension accrual, will also rise from £150,000 to £240,000.
For individuals who continue to be affected by the tapered annual allowance, the minimum tapered annual allowance will be £4,000 (currently £10,000).
These changes have effect for 2020/21 and will be effective for benefits accrued on or after 6 April 2020.
Tax treatment of the Troubles Permanent Disablement Payment Scheme
An exemption from income tax, inheritance tax, and capital gains tax applies for payments made under the Troubles Permanent Disablement Payment Scheme from 29 May 2020.
CGT entrepreneurs’ relief – reduction in the lifetime limit
The lifetime limit for capital gains tax (CGT) entrepreneurs’ relief is reduced from £10 million to £1 million for qualifying disposals made on or after 11 March 2020.
There are special provisions for disposals entered into before 11 March 2020 that have not been completed.
HMRC has also published a technical note explaining the reduction. View the technical note Reduction in the lifetime limit for Entrepreneurs’ Relief – technical note.
Capital gains tax: the annual exempt amount
The capital gains tax (CGT) annual exempt amount for 2020/21 will rise from £12,000 to £12,300 for individuals and personal representatives, and from £6,000 to £6,150 for trustees of settlements.
Changes to top-slicing relief on life insurance policy gains
An amendment to the legislation will allow the personal allowance to be reinstated within the calculation for top-slicing relief (TSR). This will provide additional relief for taxpayers whose entitlement to the personal allowance has been reduced because again is included as part of their income. The measure will have an effect on all relevant gains occurring on or after the announcement at Budget 2020.
Employment Allowance increases for National Insurance
The maximum Employment Allowance that may be claimed by eligible employers will rise by £1,000 to £4,000 from April 2020.
Increase in Structures and Buildings allowance for capital allowances
Businesses that incur qualifying expenditure on the construction, renovation, or conversion of non-residential structures and buildings may claim Structures and Buildings Allowances (SBA). From 1 April 2020 for the purposes of corporation tax and 6 April 2020 for the purposes of income tax, businesses may claim an increased annual allowance of 3%.
Some miscellaneous amendments are also being made to the legislation to ensure it operates as intended.
Enhanced capital allowances in Enterprise zones
Enhanced first-year allowances for investment in new plant or machinery within designated assisted areas within Enterprise Zones were introduced in 2012 and were initially available for investment over a 5-year period but this was later extended to 8 years. The period commences from when the area is treated as designated.
By 31 March 2020, 8 years will have elapsed since the introduction of these enhanced first-year allowances. The government has confirmed that these capital allowances will remain available for expenditure incurred in relation to all areas, whenever designated, until at least 31 March 2021.
Capital allowances: CO2 emissions thresholds for business cars and first-year allowances for business cars, zero-emission goods vehicles and equipment for gas refueling stations
The period for which the 100% first year (capital) allowances (FYAs) are available for this expenditure is extended from April 2021 to April 2025.
In conjunction with this, the CO2 emission thresholds which are used to determine the rate of capital allowances available for business cards are being reduced. This will also reduce the threshold for the lease rental restriction. These changes will also come into effect from April 2021.
Corporation tax rates confirmed
The corporation tax (CT) main rate is set at 19% for the financial year beginning 1 April 2020. This maintains the rate at 19% rather than reducing it to 17% from 1 April 2020.
The charge to corporation tax and the main rate will also be set at 19% for the financial year beginning 1 April 2021.
The measure has retrospective and prospective effect from the date of Royal Assent to Finance Bill 2020.
Corporation tax changes for non-UK resident companies with UK property income
Changes are being made to ensure that Finance Act 2019 rules enacted to bring non-UK resident companies that carry on a UK property business, or have other UK property income, within the scope of corporation tax (CT) from 6 April 2020, work as intended.
Change to R&D expenditure credit rate
The research and development expenditure credit rate for corporation tax purposes will be increased from 12% to 13% in relation to expenditure incurred on or after 1 April 2020.
Corporate capital loss restriction changes
For accounting periods ending on or after 1 April 2020, companies making chargeable gains will only be able to offset up to 50% of those gains using carried-forward (allowable) capital losses.
CT treatment of intangible fixed assets from 1 July 2020
A restriction that exists in relation to pre-FA 2002 intangible assets that prevent some companies from claiming relief for older, well-established intellectual property rights are being removed. This means that corporation tax (CT) relief will be available for the cost of acquiring these assets in circumstances where it wasn’t previously and that corporate intangible assets will now be relieved and taxed under a single regime for acquisitions from 1 July 2020.
Changes of VAT rules for call-off stock arrangements
Changes required by Council Directive (EU) 2018/1910 are being implemented to simplify the VAT treatment of call-off stock moved from the UK to another Member State (MS) or vice-versa.
The changes permit a supplier in the State of origin to remove call-off stock to storage in another State, the destination State, without accounting for VAT on the transaction at that time. The supplier and customer will account for the supply and acquisition when the goods are called-off. This avoids the need for the supplier to register for VAT in the destination State.
The measure, which has a retrospective element, applies to goods removed from an MS of the EU to the UK (or vice versa) on or after 1 January 2020.
2020/21 APD rates confirmed
The long haul rates of Air Passenger Duty (APD) for 2021/22 will increase in line with the retail price index (RPI) as forecast at Budget 2020. Short-haul rates will not rise.
Changes to casino gross gaming yield bands for gaming duty
The gross gaming yield (GGY) bands for gaming duty are rising in line with inflation for gaming duty accounting periods starting on or after 1 April 2020.
2020 landfill tax rates confirmed
As announced at Budget 2018, both the standard and lower rates of landfill tax will increase in 2020 in line with the Retail Prices Index (RPI), rounded to the nearest 5 pence.
2020 CCL rates confirmed
The main rates of climate change levy (CCL) for 2020/21 and 2021/22 have been confirmed. Details of the reduced rates of CCL for qualifying businesses in the Climate Change Agreements scheme have also been announced.
Changes to tax provisions for a carbon emissions tax
The government will maintain the carbon emissions tax as a fallback carbon pricing policy and legislate in Finance Bill 2020 to make changes to the tax provisions set out in Finance Act 2019. A consultation will take place later this spring on how the tax would operate if introduced.
Tobacco duty rates confirmed
The duty rate on all tobacco products will continue to increase by 2% above the Retail Price Index (RPI) inflation. Hand-rolling tobacco duty will rise by an additional 4%, to 6% above RPI inflation from 6 pm on 11 March 2020.
Fuel Duty changes for diesel used in private pleasure craft
Finance Bill 2020 will contain enabling legislation relating to the propulsion of private pleasure craft. Private pleasure craft already pays white diesel rates for their propulsion, even though they are allowed to put red diesel in their tanks. Under this measure, private pleasure craft would have to use white diesel in their propulsion tanks. Craft with a separate fuel tank for domestic use on-board can continue to use red diesel for this purpose. Where craft has one tank for propulsion and heating, the government will explore options that prevent them from having to pay a higher rate of duty on their heating use than they would otherwise have to pay.
The measure was subject to a summer 2019 consultation, a response to which will be published later this year alongside the government’s consultation on red diesel. Details on implementation will set out in due course.
Plastic packaging tax
The plastic packaging tax will take effect from April 2022 and will apply to plastic packaging produced in, or imported into the UK that does not contain at least 30% recycled plastic.
Plastic packaging is packaging that is predominantly plastic by weight.
It will not apply to any plastic packaging which contains at least 30% recycled plastic, or any packaging which is not predominantly plastic by weight.
Imported plastic packaging will be liable to the tax, whether the packaging is unfilled or filled.
The government has also launched a consultation on the design and implementation of the tax, which will run until 20 May 2020.
Introduction of the Digital Services Tax
From 1 April 2020, the government will introduce a new 2% tax on the revenues of search engines, social media services, and online marketplaces that derive value from UK users.
VED rates for cars, vans, motorcycles, and motorcycle trade licenses from 1 April 2020
The Vehicle Excise Duty (VED) rates for cars, vans, motorcycles, and motorcycle trade licenses will be updated by reference to the Retail Prices Index (RPI) from April 2020.
Vehicle Excise Duty rates for zero-emission vehicles from 1 April 2020
All registered zero-emission light passenger vehicles registered from 1 April 2017 until 31 March 2025 will be exempt from the Vehicle Excise Duty (VED) supplement for light passenger vehicles with a list price exceeding £40,000, starting from April 2020.
View HMRC’s policy paper Vehicle Excise Duty rates for zero-emission vehicles
VED rates for motorhomes from 12 March 2020
From 12 March 2020, new motorhomes (type approved M1SA) will be included in the Private/Light Goods Vehicle or Private Heavy Goods Vehicle (HGV) Vehicle Excise Duty (VED) class.
Income tax automation challenges
A technical change is being made to confirm that processes used by HMRC to carry out certain functions, including the issue of notices to file self-assessment tax returns and notices imposing a penalty for late filing of those returns, may be carried out using a computer or other means, rather than an individual officer.
This measure will apply both prospectively and retrospectively. Although this measure applies retrospectively, it does not introduce any new or additional obligations or liabilities.
Tax treatment of LLPs
A change to the existing rules will provide that in circumstances where a limited liability partnership (LLP) s has delivered an LLP return on the basis of operating ‘with a view to profit’ and is subsequently found to be operating ‘without a view to profit’, HMRC can still amend the LLP members’ returns based on the LLP return as originally submitted.
The measure has retrospective and prospective effect from the date of Royal Assent to Finance Bill 2020.
Introduction of changes to protect tax in insolvency
From 1 December 2020, when a business enters insolvency, more of the taxes paid in good faith by its employees and customers, and temporarily held by the business, will go to fund public services rather than being distributed to other creditors.
Tax treatment of certain Scottish social security benefits
The tax treatment of three new social security benefits introduced by the Scottish Government is to be clarified.
Legislation for a UK ETS
HM Treasury is to be given the power to establish a UK Emissions Trading System (UK ETS), which could be linked to the EU ETS, or a standalone UK ETS. This charging power means that allowances can be auctioned in a UK ETS and that additional market stability mechanisms can be implemented in a standalone UK ETS, to be defined in regulations.