UK Budget 2020 – Key Highlights
Amid all the tensions in and around coronavirus outbreak, the new government and Chancellor Rishi Sunak delivered their first budget, i.e. UK Budget 2020 on 11th March 2020. The government has set aside £30 billion to provide direct support to businesses worth £12 billion and the remaining £18 billion in additional government spending to offset the temporary slowdown in the economy. The other key announcements entailed in the first non-EU budget in the last 40 years are as follows:
1. Individual tax rate and allowance
The personal allowance of £12,500 and an individual’s tax threshold continue to remain the same as before.
2. National Insurance Contributions
The national insurance contributions' primary threshold and lower profits limit for employees and self-employed are raised from £8,632 to £9,500. This shall mean a saving for £78 for a self-employed while £104 saving for an employee.
3. Capital Gain tax
The annual tax-free capital gain allowance limit has been increased from £12,000 to £12,300.
4. Entrepreneur’s Relief
Entrepreneur’s relief acts as an aid to those who wish to sell all or part of their businesses. The relief enables the entrepreneurs to pay tax at 10% on all the gains on the qualifying assets subject to a lifetime limit of £10 million of qualifying gains. For qualifying disposals made after 11th March 2020, the lifetime limit of £10 million shall be reduced to £1 million, marking a significant reduction implying a change in policy.
5. Capital Allowances: Structure and Building Allowances
In order to support business investment in constructing new structures and buildings, ‘Structure and Building Allowance’ was introduced on 29 October 2018 on qualifying costs for new non-residential structures and buildings to allow a capital allowance at the rate of 2% on a straight-line basis over 50 years. The rate of allowance has now been increased to 3%. This shall mean a reduction in the time it will take to relieve qualifying expenditure, from 50 years to 33 and one-third years.
6. Capital Allowances: Enhanced Capital Allowance (ECA)
- Enhanced Capital Allowance is a type of the first-year allowance. It is a 100% allowance provided to the businesses for investment in new plant or machinery within designated assisted areas in Enterprise Zones. These were set to elapse by 31 March 2020, however, the Chancellor has announced that these capital allowances will remain available until at least 31 March 2021.
- For incorporated businesses from 1 April 2020 and for unincorporated businesses from 6 April 2020, environmental enhanced capital allowances, i.e., first-year allowances for certain energy-saving/water-efficient products will be abolished.
Large companies and SMEs who have been subcontracted to do R&D work by other large companies were eligible to avail credit at 12% of the company’s qualifying R&D expenditure. This credit is taxable. RDEC may be used to discharge the tax liability or result in a cash payment depending on whether the company is profitable or loss-making.
In order to incentivise Research and Development, the rate of credit has been increased from 12% to 13% in the Budget 2020 thereby providing more support to large companies for their R&D.
8. Employment allowance
The taxpayers working as employees are provided with an allowance called employment allowance that aids them in reducing their Class 1 National Insurance by a fixed amount. The amount of employment allowance was £3,000 which has now been increased to £4,000 with effect from 6th April 2020. Another change with effect from the said date is that the employment allowance will now be available to only those employees whose Class 1 National Insurance bill is below £100,000 in the previous tax year.
9. Corporation tax rate
As part of the UK Budget 2020, The government has confirmed that the corporation tax rate continues to be 19% still being the lowest among G20 countries.
10. Capital loss restriction
Large companies having any carry forward CAPITAL LOSSES will now be able to offset only up to 50% of those gains using carried-forward (allowable) capital losses for accounting periods ending on or after 1st April 2020.
A Corporate Income Loss Restriction (CILR) for carried forward INCOME LOSSES meant that the first £5 million of profits per group could be offset with the carried forward losses before 50% restriction is applied. This deduction allowance of £5 million can now also be set against chargeable gains, also. This means £5m annual deductions allowance available to a group of companies can now be used to access losses carried-forward, either income or capital, without restriction up to an aggregate of £5m per annum.
11. National Minimum Wage 2020 (NMW) and National Living Wage 2020 (NLW)
One of the vital points to extract from the UK Budget 2020 is the confirmation of an increase in NMW and NLW. With effect from 6th April 2020, these will be as follows:
|Age||The year 2020-21||Percentage Increase|
|Apprentices aged 19 and over, but in the first year of their apprenticeship||£4.15||6.4%|
|Apprentices aged under 19||£4.15||6.4%|
|Aged under 18 (but above compulsory school leaving age)||£4.55||4.6%|
|Aged between 18 to 20 inclusive||£6.45||4.9%|
|Aged between 21 to 24 inclusive||£8.20||6.55|
|Aged 25 and above (NLW)||£8.72||6.2%|
12. VAT on e-publications
The government is all set to issue legislation from 1 December 2020 to apply ZERO rates of VAT on all e-publications like e-books, e-newspapers, e-magazines, and academic e-journals just like their physical counterparts.
13. Flat rate tax deduction for working from home
If the employees incur any additional household costs when they work from home under homeworking arrangements, then they are allowed a flat-rate deduction for the same. This flat rate has been increased from £4 to £6 in the year 2020-21.
14. VAT postponed accounting
With effect from 1 January 2021 onwards, postponed accounting for VAT will apply to all imports of goods, including goods imported from the EU. This will help VAT registered the UK businesses integrated into international supply chains, to adapt to the UK’s position as an independent trading nation
15. Taxation of company cars using carbon dioxide emissions
All new cars registered from 6 April 2020 onwards and are provided to employees for private use will be taxed according to the CO2 emissions figure, measured under the Worldwide Harmonised Light Vehicle Test Procedure system.
16. Pension Tax Relief
To ensure that the pension tax relief is fair, affordable, and sustainable- the government has made the following changes:
- Increased the threshold income (net income before tax excluding pension contributions) used in calculating a tapered annual allowance from £110,000 to £200,000.
- Increased the adjusted income (net income plus pension accrual) from £150,000 to £240,000.
- Decreased the minimum tapered annual allowance from £10,000 to £4,000.
These changes will be effective for benefits accrued on or after 6 April 2020.
17. Digital services tax (DST)
With effect from 1 April 2020, the government shall levy a 2% on the revenues generated by digital businesses from providing social media services, search engines, and online marketplaces to UK users.
18. Pension lifetime allowance
Pension lifetime allowance means the maximum amount a person can accrue in a registered pension scheme in a tax-efficient manner over their lifetime. The allowance has been increased to £1,073,100 with effect from 6 April 2020 in order to keep it in line with the consumer price index.
|S. No||Description||Effective date|
|1||Individual tax rate and allowance||6 April 2020|
|2||National Insurance Contributions||April 2020|
|3||Capital Gain tax||April 2020|
|4||Entrepreneur’s Relief||11 March 2020|
|5||Capital Allowances: Structure and Building Allowance||1 April 2020 (for Corporation tax purposes)|
6 April 2020 (for Income tax purposes)
|6||Capital Allowances: Enhanced Capital Allowance (ECA)||April 2020|
|7||Research and Development Expenditure Credit (RDEC)||1 April 2020|
|8||Employment allowance||6 April 2020|
|9||Corporation tax rate||1 April 2020|
|10||Capital loss restriction||1 April 2020|
|11||National Minimum Wage (NMW) and National Living Wage (NLW)||April 2020|
|12||VAT on e-publications||1 December 2020|
|13||Flat rate tax deduction for working from home||April 2020|
|14||VAT postponed accounting||1 January 2021|
|15||Taxation of company cars using carbon dioxide emissions||6 April 2020|
|16||Pension Tax Relief||6 April 2020|
|17||Digital services tax (DST)||1 April 2020|
|18||Pension lifetime allowance||6 April 2020|