News and Updates
PETER HUGHES – CHARTERED ACCOUNTANT
This summary outlines the principal tax measures announced in the Budget on 11 March 2020. Except where stated, the changes take effect for the 2020/21 tax year.
The Budget was issued to the backdrop of the coronavirus epidemic, and the financial situation has moved on dramatically since 11 March. The notes below focus on the taxation measures which were announced on 11 March, although I have also mentioned a late announcement relating to personal service companies. With a couple of exceptions the Budget was rather light on far-reaching taxation announcements, and I have an idea of a measure which might have eased the burden for pension savers had it been implemented, as outlined below.
The personal allowance for 2020/21 will remain unchanged at £12,500. The 20% band will remain at £37,500, meaning that the higher rate threshold (the 20% band plus the personal allowance) will still be £50,000 in 2020/21.
For national insurance, the primary threshold is increased from £8,632 to £9,500 a year. This is a step towards the harmonisation with the income tax personal allowance and will make the average worker £100 a year better off.
Pensions tax relief is still available for higher rate taxpayers, despite fears that it would be withdrawn. It was reported in the press in the weeks leading up to the Budget that senior medical consultants were harmed disproportionately by the tapering down restriction of the annual allowance for those with an income above £150,000. Consultants were, reports said, discouraged from taking on additional work in case their annual income rose above £150,000 and gave rise to an “annual allowance charge” – this would be levied if, for example, an individual earned £210,000 but paid £40,000 into a pension scheme, in which case there would be a maximum allowance of £10,000, and there would be excess contributions of £30,000 with income tax charged on that excess at 45%.
“Having been largely frozen out of pension saving, higher earners have been brought in from the cold”, says Nathan Long of Hargreaves Lansdown in the Financial Times. For 2020/21, the “tapering down” only applies to those with annual an income over £240,000. For every £2 the individual earns above £240,000, the annual allowance reduces by £1, with the result that an individual with earnings of £312,000 has an annual allowance of £4,000 - the standard £40,000 less half the difference between £312,000 and £240,000. Curiously, the Treasury’s Budget Report does not mention this £312,000 and simply says “This reduction will only affect individuals with total income (including pension accrual) over £300,000”.
In the current climate, many individuals with a flexible access pension scheme may be forced to draw on that pension early owing to a sudden and dramatic fall in their earned income, in the hope of reinstating their contributions to their previous level in future years. There is a catch here, however. Once an individual draws on the flexible pension, the annual allowance in future years is reduced to £4,000 and unused allowances can no longer be carried forward. Perhaps the Chancellor could have relaxed this rule for a year.
The PSC rules apply to contractors who provide services to a client through an intermediary company in circumstances in which the contractor would normally be treated as an employee but for the existence of the intermediary. The rules (known as IR35) already make workers who operate in this way liable to income tax and NICs on deemed employment income, and since 2017, for contractors working in the public sector, the public sector body for which the contractor works has been responsible for determining whether the IR35 rules apply to the PSC. From April 2020, the private sector was to have been brought into line with the public sector, except that this would only have applied where the end user was a large or medium-sized business (as defined in companies legislation). For small companies, the PSC rather than the end user would have continued to be responsible for determining whether the IR35 legislation applies.
On 17 March, it was announced that the measure to bring the private sector into the net would not take effect until April 2021.
The annual investment allowance remains at £1 million for qualifying expenditure before 31 December 2020.
The structures and buildings allowance, introduced in the 2018 Budget on a straight-line basis at 2% a year applying to contracts entered into on or after 29 October 2018, will be increased to 3% from 1 April 2020.
The main rate writing down allowance (WDA) of 18% currently applies to cars with emissions not exceeding 110g/km. From April 2021, the 18% WDA will be applicable to cars with emissions up to 50g/km, and higher polluting cars with emissions above 50g/km will go into the special rate pool attracting allowances at only 6%.
The CGT annual exemption rises from £12,000 to £12,300.
Entrepreneurs’ relief enables business owners to pay CGT at a reduced rate of 10% as opposed to the normal 20% where the taxpayer is in the higher or upper rate income tax bands. There is a significant change here as the lifetime limit on which the relief can be claimed reduces from
£10 million to £1 million. A Treasury review, said the Times, found that only one in ten claimants said that the relief had been an incentive to set up a business.
The main rate of corporation tax was to reduce from 19% to 17% on 1 April 2020. In fact Boris Johnson had announced to the CBI before the General Election that, if the Conservatives were elected, they would keep the rate at 19%, and this has been confirmed for two years.
It will also affect deferred taxation in a company’s financial statements. Once the Finance Bill has passed through the House of Commons it will be deemed to have been “substantively enacted”, and for balance sheets drawn up on or after the date of substantive enactment, deferred tax should be calculated at 19%. For balance sheets before that date, a disclosure may be necessary.
The VAT registration threshold will remain at £85,000 at least until 31 March 2022.
VAT on e-publications will become zero-rated from 1 December 2020. This includes e-books, e-newspapers, e-magazines and academic e-journals but not audio books which will remain standard-rated.
HMRC previously published “VAT for businesses if there’s no Brexit deal” in which they announced that businesses importing goods would account for import VAT via their VAT returns. This has been confirmed and will take effect from 1 January 2021 irrespective of whether a trade deal is reached.
Women’s sanitary products will be zero-rated from 1 January 2021.
I qualified as a Chartered Accountant in 1997 with Malthouse & Company, a practice in Liverpool City Centre, and moved on in 1999 to work in property management. In January 2004 I started my own practice, initially in Birkenhead but then in York from 2008, specialising in VAT.
Many of my clients have been with me since the mid-2000s and value the personal and prompt service I offer, whether they need in house VAT training, a visit to discuss VAT issues or ad hoc advice over the telephone or by email. Any telephone advice I give is followed up within a short time by an emailed summary.
Unusually for a sole practitioner, my practice has an international aspect. I prepare UK VAT returns for businesses located in the USA and Turkey and often give UK businesses advice on supplying and purchasing goods or services to and from other countries. Since 2013 I have had a regular engagement to speak on European VAT issues at a course in Amsterdam, and I have also spoken on numerous occasions in Malta.
I have strong technical VAT knowledge in the fields of property and partial exemption and am a member of the VAT and Duties Sub-Committee of the ICAEW’s Tax Faculty. Clients often ask me questions about other taxes such as stamp duty and capital gains tax, as well as financial reporting, and I am always pleased to advise.
Peter Hughes, M.A., F.C.A.
11 Sails Drive, Heslington, York
YO10 3LR
Tel 01904 421570;
Mobile: 07801 810694
P.D. Hughes Consultancy Services Ltd
Company No 06841251 (Registered in England & Wales)
peter@pdhughesconsultancy.co.uk
www.pdhughesconsultancy.co.uk
18 March, 2020