Key Budget Summary 2020 Updates for UK Businesses

Summary of the Budget 2020

With the new tax year, 2020-2021, commencing from the 6th of April 2020 a wide range of factors is being considered under the new government led by Mr Boris Johnson. The Chancellor of the Exchequer, Rishi Sunak, delivered his first budget speech which is focused on initiatives and precautionary measures that need to be taken amidst the Coronavirus crisis.

The Chancellor began by highlighting his response to the COVID-19 pandemic in fiscal terms. He further discussed the new changes proposed to NI thresholds, CGT, Infrastructure spending and Pensions. 

Our article covers the key points that are part of the Budget 2020, mostly covering financial and tax aspects, speak to your accountant to learn more about issues that you think have an impact on your business or your tax situation.

Video: Budget Summary 2020 Guide for Small Businesses

Watch this video to get acquainted with all the updates regarding the Budget 2020.

Key Announcements

1. Additional NHS Funding: The government promises to provide the National Health Service (NHS) with the relevant financial support to combat the Coronavirus COVID-19.
2. Statutory Sick Pay (SSP): An individual who has requested self-isolation (with or without the symptoms of coronavirus COVID-19) is eligible for SSP under UK law. The rule also applies to those who are taking care of individuals with COVID-19. This rule, however, does not apply to self-employed individuals or people with low incomes. You can now acquire a sick note over the phone by calling 111. You can read more about SSP in relation to COVID-19.
3. Financial Support for Small Businesses: The government has planned to refund the costs regarding SSP to qualifying small and medium-sized businesses. They might also be offered loans to compensate for the losses incurred.
4. Business Rates Changes: Retail businesses inclusive of leisure and hospitality businesses, with a rateable valuation below £51,000, will not be required to pay business rates for the 2020-2021 tax year. Nearly 700,000 small businesses which do not qualify for this relief may be given up to £3000 in cash grants.
5. Supporting Export: In order to promote export in a post-Brexit era, the government has announced a digital trade Network in the Pacific Asian region.

Moreover, Mr Sunak announced that an estimated £30bn will be spent to overcome the economic challenges resulting from the outbreak of the Coronavirus and has promised to spend more money if required.

What do you need to know about the Budget 2020?

The following propositions will be effective from 6 April 2020 regarding Income tax and National Insurance Contributions:

1. There will be no modifications to income tax rates or to the basic personal allowance.
2. There has been an increase in the income limit for age-related married couples allowance. The income limit is now £30,200 from £29,600.
3. The upper limit of the married couple’s allowance for anyone born before 6 April 1935 has now increased to £9,075.
4. The lower limit of a married couple’s allowance has risen to £3,510.
5. The allowance for a blind individual has increased to £2500.
6. The Employee Primary Threshold has risen to £9500.
7. For self-employed individuals, the payable Class 2 NICs threshold has risen to £6,475. Similarly, Class 4 has risen to £9500.

What about the limits on Individual Savings Account Investment?

The following clauses will be effective from 6 April 2020:

1. The limit for the Junior ISA subscription has increased to £9000.
2. The limit for the Child Trust Fund (CTF) has increased to £9000.
3. There are no changes made to Adult ISA savings limits.

What about New Tax Reliefs?

There have been new income tax and NIC exemptions introduced for the one-off 1000 bursary paid to individuals aged between 16 and 24 who have done an apprenticeship.

Any payment made on or after 3rd April 2019 will not be deducted for Income Tax, Inheritance Tax and Capital Gains Tax (CGT).

What about Pensions?

The following will be effective from 6th April 2020.

1. The lifetime allowance has surged from £1,055,000 to £1,073,100.
2. The threshold income has risen from £110,000 to £200,000.
3. The adjusted income has now been set to £240,000 from £150,000.
4. The minimum tapered annual allowance has been reduced from £10,000 to £4000.

Related: To understand how pension income is taxed, you can learn more by reading our pension income taxation guide.

What about Making Tax Digital (MTD)?

There has been no MTD-related announcement in the Budget 2020.

What about Capital Gains Tax (CGT)?

The following will be effective from 6th April 2020.

• There has been an increase in the annual exemption for CGT. The annual exemption has risen to £12300 for individuals, personal representatives and £6,150 for trustees.

What about Entrepreneurs’ Relief?

• There has been a sharp decrease in the lifetime allowance from 10 million to 1 million.

Related: If you are unsure about the ER relief or other reliefs that may be available, you can find more information on our guide to which relief is most suitable for you: Which Investment Relief is for you: IR, ER, SEIS or EIS?

What about Inheritance Tax Rates and Allowances?

• There has been a surge in residence nil rate band to £175,000. This was also proposed back in 2017.

What do Employers need to know?

Employers may have to pay SSP to employees from day one of their absence from work, this is relating to COVID19 and self-isolation.

In case a company has less than 250 employees, the cost of SSP for up to 14 days will be fully refunded by the UK government.

What about Employers NIC allowance?

• The Employers NIC allowance has increased from £3000 to £4000 effective 6th April 2020.

What about Flat Rate Tax Deduction for work-from-home?

• The work-from-home allowance for employees who work from home has risen from £4 to £6 per week, given they are working at home under homeworking arrangements. This will be effective from 6th April 2020.

What about Car/Van Benefits?

The following will be effective from 6th April 2020

• The multiplier for the car fuel relief multiplier has risen to £24,500. All new vehicles given to employees and those available for personal use that are to be registered from 6 April 2020 will be taxed in accordance with the CO2 emissions figure. This is estimated according to the Worldwide Harmonised Light Vehicle Test Procedure System.
• The flat-rate van benefit charge has risen to £3,490.
• The flat-rate van fuel benefit charge has risen to £666.

 A zero van benefit charge will be applicable on vans that produce zero carbon emissions.

Digital Services Tax for large companies:

The following will be effective from 1st April 2020.

• Search engines, social media platforms and online marketplaces that derive profits from UK users will have to pay a tax of 2% on their revenues. This condition is only applicable to large multinational companies that gain profits by providing a social media platform, a search engine or an online marketplace to UK users.

What about Capital Allowances?

The following is retrospectively effective from 11th March 2020 for structures and buildings:

• Capital allowance has increased from 2% to 3%.
• The new rates will come into effect from 1st April 2020 for those businesses within the charge to corporation tax and 6th April 2020 for businesses within the charge to income tax.
• Moreover, the new rates introduced are not only applicable to newly purchased, but they are also applicable to businesses that have incurred qualifying expenses on new non-residential (for instance, commercial) structures and buildings on or after the 29th October 2019.

What do you need to know about the Budget Proposition for vehicles?

Changes have been made for capital allowance for carbon dioxide emissions limit for business and goods vehicles, this also covers equipment for gas refuelling stations.

The following will be effective from April 2021.

1. The timeframe for which complete first-year capital allowance can be enjoyed for these expenses has been extended from April 2021 to April 2025.
2. The following measure can also reduce the CO2 emission threshold, which is useful in determining the rate of capital allowances that can be availed for business cars. This measure can also decrease the threshold for the lease rental restriction.

What about Value-Added Tax (VAT)?

A domestic reverse charge for the Construction Industry Scheme (CIS) has been introduced. The Budget 2020 has confirmed the applicability of VAT domestic reverse charge for building and construction services will come into effect from October 2020.

Clear House Accountants are industry leaders, we follow regulatory changes to keep abreast of changes which can help our clients grow, expand or save money. Speak to us to see how can help as your Accounting firm and Business Tax Advisors.