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Budget 2020 – headlines (amended 18 March)

On 11 March the first budget since November 2018 took place in the major shadow of the coronavirus outbreak. Measures specific to the coronavirus have been covered in other News items so we concentrate here on the other Budget headlines.

There had been consistent speculation prior to the Budget that Capital Gains Tax Entrepreneurs’ Relief could be scrapped or materially altered. In the event, the relief was retained but much-reduced. The lifetime limit on claims was altered from £10m to £1m, effective immediately.

[Update 18 March 2020] IR35 is the government’s anti-avoidance legislation aiming to tax ‘disguised employment’ at the same rate as employment. It has been with us for some time with only limited success for HMRC in reducing what they see as artificial arrangements to avoid National Insurance contributions. The big change that was due on 6 April 2020 has now been delayed and won't take effect until 6 April 2021 at the earliest (delayed due to the coronavirus outbreak). The change is that responsibility for deciding on the status of a worker or an engagement will fall on the ‘end user’, often a large enterprise which may ultimately (via various agencies and intermediaries) engage hundreds or thousands of workers using their own personal service companies. It is likely that this change will spell the end for many such arrangements. We will cover this issue in due course once the details become clearer. [End of update]

Personal tax and NIC rates and allowances were largely unchanged, following on from similar announcements in the recent Scottish Budget. The personal allowance remains at £12,500 for 2020/21. Perhaps the main change in this area is the increase in the employee/self-employed NIC primary threshold. This means that the first £9,500 of earnings and profits will be NIC-free, compared to £8,632 in 2019/20; however the threshold for employer NIC has only risen to £8,788. We will produce a brief article shortly setting out the various rates and thresholds for reference.

Recent restrictions to the pension annual allowance have been causing problems in the health service in particular, with some doctors and consultants reducing their hours or retiring early in order to avoid punitive tax charges. From 2020/21 the adjusted income limit at which the restrictions start has been increased from £150,000 to £240,000, which will reduce the numbers affected.

The long-planned reduction in the rate of corporation tax from 19% to 17% in April 2020 was removed from the last Conservative election manifesto and has now been officially dropped, so corporation tax will remain at 19% for 2020/21 and 2021/22.

The Employment Allowance that can be offset against the first £3,000 of employer NIC has been increased to £4,000 for 2020/21 but is now only available to employers who had a total employer NIC liability of less than £100,000 during tax year 2019/20. Note that where more than one business is under common control the EA will only apply to one, and only if the combined 2019/20 employer NIC bill for the businesses was below the £100k limit.

Finally, the concept of ‘Tax Conditionality’ is to be introduced for 2022/23, to make the renewal of licenses to operate taxis and private hire vehicles, to operate a private hire firm, and to deal in scrap metal, conditional on applicants completing checks that confirm that they are appropriately registered for tax. The government believes that these sectors are high risk for non-compliance and wish to ensure that all parties carrying on these businesses can only do so if they are appropriately registered with HMRC. Note that this UK government proposal wouldn’t currently extend to Scotland but it’s likely that the Scottish government would introduce this or a similar measure by 2022.

This article includes only a brief summary of the main points arising from the Budget. If you’d like to discuss any aspect of these in more detail please contact Alan or Nicola.

March 16, 2020

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