Until the last couple of months or so, conventional wisdom was that the 2020 Budget would be dominated by the financial consequences of Brexit. To that has been added pressure to improve the lot of “Red Wall” voters and to address the effects of the worst flooding for decades. But everything else became unimportant when coronavirus came from nowhere to knock the global economy sideways.
In response, Mr Sunak has either “delivered the largest sustained fiscal boost in more than 30 years” or committed to “spending like a drunken sailor” on “debunked Keynesian stimulus theories”, depending on your point of view. Either way, by comparison with the announcements on expenditure, tax changes are barely noticeable in the Budget statement.
Nonetheless, tax is what this piece is supposed to be about; so, what’s he done on tax?
Capital Gains Tax Entrepreneurs’ Relief
As widely predicted, CGT Entrepreneurs’ Relief has been targeted: not abolished altogether, as many feared, but the lifetime limit has been reduced from £10m to just £1m for disposals on or after 11 March. Completely unexpected was the anti-forestalling measure that has the effect that contracts entered into before Budget Day but completed after Budget Day will also be subject to the reduced limits unless it can be shown that the arrangements were not tainted by tax avoidance – which may often be difficult to demonstrate.
Two changes are made to the rules on pensions – one beneficial, one adverse. On the plus side, the income thresholds beyond which the pension annual allowance starts to be reduced are increased by £90,000. “Threshold income” (broadly, net income before tax) becomes £200,000 and “adjusted income” (broadly, net income plus pension accrual) becomes £240,000. In particular, this will ease the tax problems of high-earning employees on final salary schemes. However, the minimum pension annual allowance for the highest earners will fall to just £4,000 – this will potentially affect those earning more than £300,000 annually.
The dog that didn’t bark on pensions (because it had been strangled at birth by misocynistic backbenchers) was the postulated restriction of tax relief on contributions to the basic rate of tax.
Other tax reliefs
Modest changes are made in some tax reliefs. The annual rate of Structures and Buildings Allowance (which gives tax relief for the cost of constructing, renovating or converting non-residential buildings and structures) increases from 2% to 3%; and the rate of Research and Development Expenditure Credit claimable (usually) by large companies increases from 12% to 13%. Also on R&D, the government will delay the implementation of the PAYE cap on the payable tax credit in the “Small and Medium Enterprise R&D scheme” until 1 April 2021.
The maximum Employment Allowance (effectively a rebate of Employer’s National Insurance Contributions) is to increase from £3,000 to £4,000 but, as previously announced, will no longer be available to employers whose Employer’s NIC liability exceeds £100,000 annually. And, to encourage the employment of military veterans, there will be a NIC “holiday” for the first year of civilian employment. This will be available from April 2021 once the details have been worked out.
On the VAT front, “Tampon Tax” (VAT on women’s sanitary products) will be abolished from the end of the Brexit Transitional Period on 31 December 2020. This is a significant move: it’s the first manifestation of the UK’s new-found freedom to set VAT rules that aren’t aligned with the EU and may be the harbinger of more.
Also on VAT, from 1 December 2020 (to allow time to agree the details) zero rating will apply to “e-publications”, so that e-books, e-newspapers, e-magazines and academic e-journals will be treated in the same way as their physical counterparts.
Pre-announced changes from Finance Act 2020
As well as changes announced in the Budget statement, Finance Act 2020 will include some changes that have already been announced, some by the chancellor-before-last as long ago as 2018. They include the extension of the “off-payroll working” rules (IR35) to the private sector; the rowing-back on the most controversial aspects of the employment income “loan charge”; and restrictions to the use of capital losses by companies.
Also as foreshadowed in 2018 is the introduction, from 1 April 2021, of a 2% Stamp Duty Land Tax surcharge on the purchase of residential property in England or Northern Ireland by non-UK residents. And, of course, the temporary increase (to £1m) in Annual Investment Allowance comes to an end at the end of 2020 when it reverts to £200,000.
If all of this is too stressful, don’t despair: the government is extending the exemption from the benefit-in-kind rules that applies to welfare counselling services provided to employees so that it will include related medical treatment, such as cognitive behavioural therapy. Keep calm and carry on…
All changes are effective from 6 April 2020 (or, for companies, 1 April 2020) unless otherwise stated.
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