On 11 March 2020 the new Chancellor, Rishi Sunak, presented his first Budget, just a month into the job. It was always going to be a challenge for him to prepare for the budget in such a short space of time and this wasn’t made any easier for him with the rapidly changing situation with coronavirus. He announced a number of measures in response to the coronavirus threat, which are detailed in our dedicated blog “Coronavirus and Your Business”.
Overall it wasn’t a budget that was particularly heavy on tax changes – normally the first budget of a new parliament increases lots of taxes in order to fund the manifesto pledges (and giving the maximum amount of time before going to the polls again… who wants to raise tax just before an election?!) but I guess with coronavirus, it’s not something they felt they could do.
As always, we have a more detailed roundup of the budget announcements on our website here but the major points as they relate to you and your business are below.
Personal Tax – Pensions Annual Allowance
The major change on personal tax relates to the increased thresholds for the tapered pensions annual allowance. Without going into too much technical detail, the rules as they were meant that many doctors (and other high earning individuals) were disincentivised to do any overtime. This is because their additional earnings meant they were over their pensions allowance so were paying an effective tax rate of 97% (yes, 97%!) on their earnings…… I can’t say I would fancy putting in an extra shift to end up with only 3% of my pay actually making it into my pocket!
So the thresholds have gone up £90,000 which will take most doctors out of the “danger zone” – something that will be crucial given Brexit and coronavirus (sorry, I said the “C” word!).
Business Tax – Cars
In order to encourage more business to buy electric company cars, the budget extends the 100% first year allowance for zero-emission cars and goods vehicles for another 4 years from April 2021 – this means that the full purchase cost is written off against profits for tax in the year of purchase, which is great for businesses’ cash flow! Previously the allowance was available for cars under 50g/km of CO2, so the criteria is more strict, but the allowance lasts longer.
The CO2 limit for capital allowances on petrol and diesel cars will also decrease from April 2021 – only vehicles with emissions of less than 50g/km (currently 110g/km) will qualify for main rate writing down allowances at 18% and any over this will get just 6% each year. The hope is that this will encourage manufacturers to design cars with lower emissions to help save your tax bill and the planet at the same time.
Business Rates Discount and Grant Funding
Everyone hates business rates, right?! Well in order to stop a lot of smaller businesses from disappearing from our high streets the Chancellor announced a number of changes to business rates. Firstly the business rates retail discount for properties with a rateable value of under £51,000 will be increased from 50% to 100% for 2020/21 (for one year only!). Secondly there will be grants of £3,000 available from local authorities for those that are eligible for Small Business Rates Relief or Rural Rate Relief.
Employment Allowance Changes
From April 2020 the Employment Allowance (which is offset against Employers National Insurance contributions) will be increased from £3,000 to £4,000 per year. Who doesn’t love free money?! However the allowance will only be available to employers whose employers NIC bill (including group companies) was below £100,000 in the previous tax year, as previously announced.
Entrepreneurs’ Relief (ER) Limit Reduced
To be honest, I was expecting something more drastic on Entrepreneurs’ Relief but the announcement was simply that the lifetime limit will be cut from £10m to £1m for ER qualifying disposals made on or after 11 March 2020. This means that only £1m of ER capital gains will be eligible for the special 10% tax rate, and any excess will be taxed at the standard capital gains tax rate, currently 20%.
While this is a huge drop, it actually reduces the limit back to where it was when ER was first introduced in 2010 as there have been many substantial increases to the limit over the past 10 years and it’s costing the public purse too much (apparently without encouraging start up businesses, which is what it was brought in to do in the first place). It remains a generous relief and will fully cover most ER gains made by owners of small businesses. In addition, capital gains tax at 20% is still much lower than income tax at 45%, meaning that capital gains are still preferable to income.
As always, if you want more information please see our full Budget 2020 report on our website here or give us a call.
Katie Kettle – Technical Manager