Budget 2020 - A Tax Summary

On March 11 2020, the Chancellor Rishi Sunak delivered Budget 2020, which will go down in history as the coronavirus budget.

Although the Chancellor announced some non-coronavirus related tax measures that will be of interest to small and medium-sized businesses, the most significant changes introduced in this budget were to combat the economic impacts that COVID-19 will have on the UK economy and, more broadly, everyone living in the UK.

This article highlights some of the key tax measures announced at Budget 2020, both related to COVID-19 and tax more widely.

COVID-19 announcements

Time to pay

HMRC has set up a dedicated COVID-19 helpline, which can help businesses and the self-employed who find themselves in financial distress agree a time to pay arrangement with HMRC in respect of their tax liabilities.

Statutory Sick Pay

As a temporary measure designed to support those who are unable to work due to COVID-19, SSP will be paid from the first day of sickness absence, rather than the fourth day. SSP cover will also be extended to cover:

• Individuals unable to work because they have been advised to self-isolate
• People caring for those within the same household who display COVID-19 symptoms and have been told to self-isolate

Small business rates holiday

The business rates retail discount will increase to 100% for the 2020/21 tax year, and will also be expanded to the leisure and hospitality sectors.

Pensions

The annual allowance is the maximum amount of tax-relieved pension savings that can be accrued in a year.

In order to ensure NHS staff with income of less than £200,000 can work additional hours without their annual allowance reducing, the two tapered annual allowance thresholds will each rise by £90,000. From 2020/21, the “threshold income” will be £200,000 while the “adjusted income” will be £240,000.

Additionally, the minimum level the annual allowance can taper down to will reduce from £10,000 to £4,000 from April 2020. However, this will only impact individuals with total income exceeding £300,000.

Note that while the measures have been designed with NHS workers in mind, they apply to all individual taxpayers.

Coronavirus tax measures announced since Budget 2020

In light of the escalating COVID-19 situation, the government has announced further measures to support employees, the self-employed, and businesses during this difficult time.

Although further measures may well be announced in future, at present these measures include:

The Coronavirus Job Retention Scheme

HMRC will reimburse 80% of the wages of employees who have been asked to stop working, but who are being kept on payroll (aka furloughed workers). This is capped at £2,500 per month. The scheme will cover the cost of wages backdated to 1 March 2020 and will run for 3 months initially, although there may be an extension in future.

The Self-Employment Income Support Scheme

Self-employed individuals or members of a partnership may be able to claim a taxable grant worth 80% of their trading profits, capped at a maximum of £2,500 per month for the next three months, with a future extension possible if needed. HMRC will use the average profits from tax returns in 2016-17, 2017-18 and 2018-19 to calculate the size of the grant, and is open to those where the majority of their income comes from self-employment and profits of less than £50,000.

Deferred VAT payments

UK VAT registered businesses with a VAT payment due between 20 March and 30 June 2020 will have the choice to either pay VAT as usual, or defer the payment until a later date (until 31 March 2021).

Income tax payment deferral

Individuals within income tax self-assessment who make payments on account have the choice of an optional deferral for payments due on 31 July 2020, which can be deferred until 31 January 2021.

Other tax measures announced at Budget 2020

Tax rates

For corporation tax, the main rate will remain at 19% for financial years beginning 1 April 2020 and 1 April 2021. There had previously been plans to reduce the corporation tax rate to 17%, but this will no longer be going ahead.

Income tax rates (excluding Scotland) will remain unchanged for the 2020/21 tax year, with the basic rate, higher rate, and additional rates all set to remain at 20%, 40% and 45% respectively.

In Scotland, the income tax rates will be as follows for the 2020/21 year:

• Starter Rate - 19%
• Scottish Basic Rate - 20%
• Intermediate Rate - 21%
• Higher Rate - 41%
• Top Rate - 46%.

National Insurance Contributions (NIC)

Budget 2020 also confirmed an increase in the NIC thresholds for employees and the self-employed to £9,500 from April 2020.

Employment Allowance

In a measure that should benefit around 510,000 businesses, the employment allowance will increase by £1,000 to £4,000 from April 2020.

However, access to the employment allowance will be restricted to employers whose NIC liability in the previous tax year was under £100,000.

Entrepreneurs’ Relief (ER)

There had been massive speculation prior to the budget that ER would see significant reform, or potentially even be scrapped, given the general consensus that the relief wasn’t truly working as intended.

Although ER won’t be abolished, it will be reformed. From 11 March 2020 (i.e. effective from the date of the budget) the lifetime allowance on gains eligible for Entrepreneurs’ Relief will reduce from £10 million to £1 million.

Tax guidance

In summer 2020, new interactive guidance will be launched by HMRC, which is aimed at making it easier for self-employed taxpayers to navigate the tax system. This announcement is part of a wider range of measures from the government to provide greater support to the self-employed.

What was left out of Budget 2020?

Making Tax Digital for VAT

Making Tax Digital for VAT only received a tiny mention in Budget 2020. Namely, the government will publish an evaluation of the introduction of Making Tax Digital for VAT, along with related research.

IR35 delay

No mention was made of IR35 in Budget 2020. However, on 18 March 2020, the government announced that, as part of the response to COVID-19, the planned reforms to off-payroll working (IR35) in the private sector would be delayed by 12 months, until 6 April 2021.