Chancellor Rishi Sunak has delivered his first Budget in the House of Commons, announcing the government’s plans regarding benefits, tax, spending and the wider economy. But what does it mean for your financial health and has there been an update or amendment to off-payroll legislation?
Please click on the button below to download our free PDF guide which outlines the key announcements made during the Spring Budget 2020:
Plans to support the UK economy amid Coronavirus
Many of the measures announced to tackle the impact of the coronavirus are aimed at small businesses and minimising the potential impact the virus could cause.
UK employees will receive Statutory Sick Pay from the first day off work, instead of the fourth day. The government has introduced this new legislation in a bid to contain the spread of the coronavirus.
Those who are not eligible for Statutory Sick Pay, particularly the self-employed, will be able to claim Employment and Support Allowance (ESA) from day one of illness which prevents them from working.
Companies with a rateable value of less than £51,000 will benefit from a tax holiday in the coming year as business rates are suspended for retail, leisure and hospitality firms. The tax cut comes as a measure to support the economy as smaller businesses will suffer if customers are cautious and stay away in light of the spread of the coronavirus.
Businesses and Tax
Entrepreneurs Relief
Entrepreneurs’ Relief on Capital Gains Tax (CGT), which costs the Treasury £2.6bn a year, will be reduced rather than abolished. The scheme, introduced by former chancellor Alistair Darling 12 years ago, allows company founders to pay CGT at a discounted rate of 10% when they sell their business.
Chancellor Rishi Sunak said that he “did not want to discourage genuine entrepreneurs”, and is therefore reducing the lifetime limit for relief from £10 million to £1 million. The reforms are projected to save over £6 billion over the next five years and will be re-invested into employment, buildings and research and development.
Corporation Tax cut will be cancelled
Business owners are likely to be frustrated after the long-awaited cut to Corporation Tax was abandoned. Rather than decreasing Corporation Tax from 19% to 17%, it has been confirmed the rate will remain at 19% for at least the next two years. This is likely to pocket the Treasury up to £7.5 billion per year.
Inheritance tax threshold from April is due to hit £500,000
The Conservative Party has regularly reduced inheritance tax. In fact, right now, you can pass on £475,000 to relatives without any tax implications (this amount is £950,000 for a married couple). From April 2020, this tax-free amount will increase to £500,000. And, impressively, this rises to £1 million for married couples.
Although it has not been confirmed in the 2020 Budget, there are strong rumours that the new chancellor is seriously considering shutting down all business loopholes that can help people reduce their Inheritance Tax bills – in some cases by up to 100%.
Despite plenty of gossip regarding the death tax, Rishi Sunak avoided the subject altogether in this years’ Budget. Some of the major predictions before the 2020 Budget suggested the death tax rate would fall from 40% to 10%, the lifetime gifting allowance would be scrapped and finally, Business Property Relief would become obsolete. Instead, there has been no clarification.
Wages and Pensions
National Insurance Contribution tax threshold to rise
The National Insurance Contribution threshold is set to rise from £8,632 to £9,500.
The current threshold sees the self-employed and employees paying NI contributions once they earn £166 a week – equivalent to an annual yearly salary of £8,632.
According to the independent economists at the Institute for Fiscal Studies (IFS), from April 2020, the new threshold will mean 500,000 people will no longer have to pay this tax. Those who still need to pay the tax will save on average around £85-100 per year.
National Minimum Wage for over 25’s will rise
Good news for those who are over 25 – the National Minimum Wage will be increasing to £8.72 per hour – a rise of over 6%.
Rises are not just limited to the over 25’s though. The National Minimum Wage will also be climbing to £8.21 for 21 to 24 year olds, £6.45 for 18 to 20 year olds, £4.55 for under 18’s, and £4.15 for apprentices.
The chancellor has also unveiled an increase in the National Living Wage. To summarise, the National Living Wage will shortly become two-thirds of the median wage by 2024 and experts are predicting this is likely to be in the region of £10.50.
Pension Tax Savings for Higher Earners
It is no secret that high earners are taxed in a sophisticated and rather confusing fashion. In this years’ Budget, the chancellor has said that pension tax breaks for higher earners will become more plentiful, starting in April.
At the moment, the tax-free annual allowance for contributions to a pension is £40,000. This amount reduces down to only £10,000 for those who are annually earning over £110,000. In the 2020 Budget, it was revealed that the threshold will increase from £110,000 to £200,000 – meaning higher earners do not have to worry about the reductions until they are now earning £200,000.
The Financial Times states that the “chancellor should take 98 per cent of NHS doctors out of the scope of the annual allowance taper.”
State Pension are on the up
State pensions are to go up by 3.9% from April 2020. This will result in a rise from £168.60 per week to roughly £175.20. It is worth noting that many pensioners still get the old state pension arrangement but this will also be increasing by 3.9%. Weekly payments will be growing from £129.20 per week to £134.25.
Growth Figures and the Economy
Here are a few figures we have learnt from the 2020 Budget:
- The economy is estimated to grow by 1.1% this year. While this may sound positive, it is worth noting it has not taken the effect of the coronavirus into effect.
- Should the economy grow as estimated, it would be the slowest increase since 2009.
- Future forecasts suggest economic growth will be 1.8% in 2021-2022, 1.5% in 2022-2023 and 1.3% in 2023-2024.
Off-Payroll in the Private Sector
As many expected, off-payroll in the private sector (IR35) changes are to go ahead as previously announced. This is likely to result in thousands of contractors switch from contracting through a limited company (often referred to as a personal service company) to an umbrella company, as their IR35 status is no longer theirs to determine. Instead, private sector end-clients are required to make the assessment and ensure their temporary workers are paying the correct taxes.
The FCSA have voiced their dissatisfaction with the government regarding the impending IR35 changes and have said they have shown an “arrogant disregard for all the many sensibly argued submissions” made to them by thousands of contractors, trade-bodies, industry representatives and stakeholders around the UK.
If you are a contractor looking for more information about umbrella companies, or you are interested in switching from limited company contracting to a PAYE umbrella company, please give our Consultants a call on 01707 871622. Alternatively, you can schedule a call for a time that suits you by completing our short online form here.
Please read our blog ‘Important changes to consider for the 2020/21 tax year’ for more information on how to prepare for April 2020.
