Budget 2020 – Key Points
Newly appointed Chancellor of the Exchequer, Rishi Sunak, has just delivered his first ever Budget to the House of Commons, in fact the first Budget since October 2018 and it’s packed with implications for small businesses. We have highlighted below what would affect our clients the most. We have not gone into detail about other points covered in the Budget regarding the economic outlook and spending plans for the government.
Also please note that there has been no change in the bandings or amounts in respect of income tax thresholds for the 2020/2021 tax year remain the same as those for the 2019/20 tax year. My blogpost, DIVIDEND FOR 2019/20 .
IR35 changes will go ahead
The planned changes to how IR35 operates, moving the compliance requirements from the contractor to the client for large and medium-sized private sector businesses who engage freelancers, will go ahead from 6th April 2020. I have written a separate blogpost about this called ‘New IR35 rules – some guidance’.
Entrepreneurs’ Relief is restricted rather than abolished
There were rumours that Entrepreneurs’ Relief, which reduces the rate of capital gains tax to 10% on the sale of all or part of a business, would be abolished altogether.
This, thankfully, did not happen. Instead, everyone will be able to claim Entrepreneurs’ Relief on a maximum of £1million worth of eligible gains during their lifetime, down from £10million, with the reduction applying from Budget Day, 11th March 2020.
The Chancellor began speaking about coronavirus as this being the most pressing matter globally and nationally. He introduced various measures to help businesses survive the outbreak. Here are the key points for you.
- For small businesses with staff, including those who work through their own limited companies, where a director or employee has to self-isolate or falls sick with coronavirus, the affected individual can be paid Statutory Sick Pay for up to two weeks and reclaim the cost in full from the government. This relief applies as long as the business had fewer than 250 employees on 28th February 2020. As Statutory Sick Pay cannot normally be reclaimed, this could bring a welcome cash boost, however small, to your clients. This relief cannot be claimed by sole traders and partners who do not have employees. The rules around claiming certain other state benefits have been relaxed for the duration of the coronavirus outbreak but as not all self-employed individuals claim benefits, this will not help everyone.
- Small- and medium-sized businesses affected by coronavirus have the option to apply for a loan under the temporary Coronavirus Business Interruption Loan Scheme. Under this new scheme, banks and other lenders will be able to make loans to affected businesses of up to £1.2million per loan, with up to 80% of each loan backed by a free government guarantee.
- Small businesses in the retail, hospitality and leisure industries will pay no business rates for 2020/21 and many will also be eligible for a £3,000 cash grant to help meet their costs.
- HMRC’s Time to Pay service will be scaled up to give businesses affected by coronavirus more time to pay their taxes. HMRC will also waive late payment fines and interest where a business is unable to contact HMRC or pay their tax due to coronavirus. Both options are potentially welcome news.
Increase in Employment Allowance
The Employment Allowance will be increased from £3,000 to £4,000 from 6 April 2020. The Primary Threshold and Lower Profits Limit will also both be increased to £9,500, however the Secondary Threshold remains unchanged. This would not necessarily have a drastic impact if you are taking a low salary.
Corporation Tax rate holds steady
The rate at which limited companies pay Corporation Tax was originally planned to fall from 19% to 17% on 1st April, but these plans have been axed. The rate of Corporation Tax will now remain at 19%.
The tapered annual allowance on pensions has gone up. This measure increases the income limits used in calculating the tapered annual allowance and decreases the minimum tapered annual allowance. Threshold income, which is broadly total income before tax (less employee/personal contributions), is increased from £110,000 to £200,000. Adjusted income, which is broadly total income before tax plus employer contributions, is increased from £150,000 to £240,000.
The minimum tapered annual allowance is decreased from £10,000 to £4,000. The measure will have effect for the tax year 2020/21 and will be effective for benefits accrued on or after 6 April 2020.
Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward. Those with adjusted income over £300,000 will see a reduction in their annual allowance and will pay more tax consequently. Likewise, those with adjusted income below £300,000 are likely to see a reduction in the tax they pay because they are either no longer impacted by the taper and are entitled to the full £40,000 annual allowance, or they are still impacted by the taper, but their tapered annual allowance has increased.
A small business-friendly Budget?
While the measures to support businesses through coronavirus will be welcome, there is little tangible support for those self-employed traders who do not have business premises and for whom self-isolation effectively represents a two-week business shutdown. It is also disappointing to see the IR35 changes go ahead in spite of the ongoing House of Lords review and the questions raised by many contractors and representative organisations.