During this unprecedented time, it is easy to forget that, less than two weeks before the official lockdown, the government held its first Budget of the current Parliament.
Whilst several Covid-19 measures announced in the Budget have since been superseded, as it became more apparent that additional support was required, here is a summary of the important measures announced in the Budget.
Personal tax
The lifetime limit for Entrepreneurs’ Relief was reduced from £10 million down to £1 million and was renamed ‘Business Asset Disposal’ relief (BAD).
Only the first £1 million of any qualifying capital disposal will now benefit from the reduced rate of 10% Capital Gains Tax. Any gain above £1 million will be taxed at 20%.
Investors’ Relief remains unchanged, so any investments qualifying for this relief can still enjoy 10% tax on the first £10 million of any gains.
Personal tax rates and allowances were generally left unchanged from the previous tax year. However, one of the Conservative manifesto commitments during December’s General Election campaign was to increase the threshold for paying National Insurance contributions.
The Chancellor announced that the current threshold would rise, from £8,632 to £9,500. This equates to a tax cut for around 31 million people, saving a typical employee around £100 a year.
With regard to personal savings, the adult ISA subscription limit remains at £20,000. However, the annual limit for contributions to a Junior ISA (JISA) has more than doubled, to £9,000. This means up to £9,000 can be invested tax-efficiently each year for the benefit of a person under the age of 18.
In the Budget statement, the government said: “By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.”
Changes to pension allowances
Having promised an urgent review into the controversial Tapered Annual Allowance, the government announced the findings of this review in this year’s Budget. Essentially, the thresholds at which the Tapered Annual Allowance come into effect have risen by £90,000.
Now, if your threshold income is more than £200,000, you need to establish if your ‘adjusted income’ (all income that you are taxed on including dividends, savings interest and rental income, before tax plus the value of your own and any employer pension contributions) is more than £240,000.
If it is above £240,000, your Annual Allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £240,000.
Note that while the threshold earnings level for the Tapered Annual Allowance coming into effect has been raised by £90,000, individuals on higher incomes will see a significant reduction in the amount they can contribute to a pension and retain tax relief.
Previously, those affected the most by the Tapered Annual Allowance saw their Annual Allowance reduce to £10,000. Now, the minimum level to which the Annual Allowance can taper down will be £4,000. This reduction will affect individuals with total income (including pension accrual) over £316,000.
The Lifetime Allowance (the maximum amount you can accrue in a registered pension scheme in a tax-efficient manner over your lifetime) will rise to £1,073,100 in the 2020/21 tax year.
Corporation Tax
The Conservatives had previously announced that the rate of Corporation Tax would be cut to 17% from 1st April 2020. However, this planned reduction was reversed and so Corporation Tax remains at its current rate of 19%.
The rate of research and development (R&D) tax credits payable on the surrender of qualifying losses has increased from 12% to 13%.
The PAYE cap that was announced in respect of repayable R&D tax credits has been deferred for 12 months and will now not come into force until 1st April 2021.
Capital allowances
Capital allowances on structures and buildings increased from 2% per annum to 3%. All other capital allowance rates remain unchanged.
To encourage business to acquire ultra-low zero emission cars for business use, the carbon dioxide emissions thresholds for cars will be reduced.
From April 2021, the main rate of writing down allowances of 18% will only be available to cars with CO2 emissions up to 50g/km. The period for which 100% allowances will be available for zero rate emissions vehicles will be extended from April 2021 to April 2025.
Employment taxes
The employment allowance for secondary Class 1 National Insurance Contributions for eligible businesses has increased from £3,000 to £4,000.
The benefit in kind on vans with private use and the fuel provided for private use have increased to £3,490 and £666 respectively.
The benefit in kind rates for electric cars have been confirmed at 0% for 2020/21, 1% for 2021/22 and 2% for 2022/23. These create some interesting planning opportunities around employees making a salary sacrifice to fund an electric vehicle.
The proposed changes for the introduction of the IR35 legislation in the private sector were due to come in to force from April 2020. Due to the coronavirus pandemic, this has now been moved to April 2021.
Get in touch
If you have any questions about how the measures announced in the Budget affect you, please get in touch with your usual RPG contact or call us on 0161 608 0000.
Please note:
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.
Production
