On 11th March, the UK received its first Budget in seventeen months from the new Chancellor of the Exchequer, Rishi Sunak. In this blog post, Manchester chartered accountant, MCC, gives you a broad overview of the major tax changes due to be introduced in the coming months and explain how they’ll affect you.
We’ll discuss other legislation introduced in the Budget and in the past few weeks regarding Coronavirus, small businesses and the self-employed, in another post.
Entrepeneur’s Relief has been under scrutiny for quite some time now, so it came as little surprise that it will be altered. The intended purpose of the relief was to encourage investment in, and the growth of, entrepreneurial businesses, by cutting the capital gains tax rate from 20% to 10% for company founders selling their businesses. From now on, the rate will only be applicable on gains of up to £1 million, a considerable reduction from the original rate of £10 million.
The other major relief consideration is that surrounding ‘going green’. Companies’ expenditure on items such as low emission cars will continue to qualify for 100% first year capital allowances. This will be the case until March 2025, though note that from April 2021 only zero-emission cars will be eligible.
The corporate tax rate will remain at 19% for the foreseeable future, even after April 2021. However, companies will now be able to claim corporation tax relief for intangible assets (intellectual property) obtained before 2002 from other companies,
Where a company is making capital losses, legislation is being brought in line with that of 2017 which relates to other types of corporate income losses. That means that above the £5 million threshold, only 50% of losses can be offset against carry forward losses. There will be separate legislation for companies in insolvency.
LLPs which operate with a view to making a profit will see no changes this year. However, those which do not seek to make a profit need to be aware that HMRC will now be able to amend their tax returns. This is a retrospective measure. So too is the legislation which allows for the automation of more HMRC operations. This will include the issuing of penalty notices.
Planned changes to taxation during insolvency have been postponed until December of this year. The intention is for a greater proportion of taxes paid by customers and other related bodies and temporarily held by a company entering administration to be used for the improvement of public services. The change will only affect taxes collected on behalf of taxpayers, for example PAYE for employees and VAT for customers.
Away from business tax legislation, a number of announcements were also made which will affect taxpayers, though there was very little in terms of seismic shifts in legislation and tax bands. The personal allowance will remain at £12,500, whilst the basic rate limit will stay at £37,500. The only major changes will be increases to the married couples’, and the blind person’s allowance.
There will also be some changes to NIC contributions; the Class 1 primary threshold will increase to £183 a week, though the Class 1 upper limit and the Class 4 lower profits limit will not change. NIC changes will affect employers; the NIC employment allowance, currently set at £3000, will increase tov £4000, though this allowance will only be available to those employers who in the 2019-2020 tax year had an NIC liability up to £100,000.
As has been already announced, the inheritance tax residence nil rate band will increase from £150,000 to £175,000. All other aspects of inheritance tax remain the same.
There were however some changes to pensions tax, which had fallen into disarray because of the tapering off of the pensions annual allowance. Under the current system, certain high earning individuals have had to refuse overtime for fear of losing out on their take-home pay; for those earning more than £110,000, the annual allowance is reduced by £1 by every two pounds of adjusted income (currently the threshold is £150,000). The new legislation will increase the earnings threshold to £200,000 and the adjusted income one to £240,000.
Other Tax Matters
As was to be expected, further legislation is to be introduced to reduce the incidence rate of tax avoidance in the UK. This time, however, it is the promoters of tax avoidance schemes, rather than the actual users of these schemes, who are being targeted. HMRC is currently in the process of drawing up a strategy to make it considerably harder for companies to advertise such illegal activities, as well as making it explicitly clear to users that these activities will be challenged with a heavier hand by HMRC than in the past. At present, more concrete details of how this strategy will be rolled out or function have not been released.
New measures will also be introduced in July 2020 to counter the rise of so-called marketed tax avoidance, though again, what form this will take place is unclear at the moment.
Finally, in a bid for clarity and the removal of doubt in situations where tax arrangements appear to be illicit but aren’t, HMRC will soon begin to ask all large companies to notify the organisation when it holds a position ‘which HMRC is likely to challenge’. What form these positions will take and how companies will notify HMRC is yet to be revealed, but a precedent was set by the failed introduction, in the 1980s, of powers which would have meant taxpayers had to tell hMRC if they had taken the benefit of the doubt when completing their tax return.
If you’d like some more information on how the Budget announcements will affect you, please contact Manchester chartered accountant, MCC. Call us now on 0161 707 1500.