The 2020 Budget has been the subject of some speculation, as the current Government strives to make good on its election promises. Of course, with Coronavirus dominating the headlines, it has also featured heavily in the Budget.

In addition, March 11th witnessed a reduction in the Bank of England base rate from 0.75% to 0.25%. While this is not part of the Budget itself, it will certainly have an economic impact in the 2020-21 tax year.

These are the main points you need to be aware of:

The Economy in General

  • Inflation (CPI) is forecast at 1.4% for 2020.

  • Public sector borrowing is expected to rise to 2.4% of GDP in 2020/2021, and to continue rising.

  • The economy is predicted to grow by 1.1%, lower than last year’s forecast of 1.4%. Despite not taking into account the potential impact of Coronavirus, this is still the lowest level of growth since the 2009 recession.

Coronavirus

£12 billion has been earmarked to tackle the pandemic in addition to the £18 billion of additional Government spending to provide support to the economy. This includes:

  • £5 billion emergency response fund to reduce the burden on the NHS.

  • A further £500 million earmarked for local councils to support vulnerable people.

  • Sick pay is available to anyone who has been advised to self-isolate for two weeks, even if they do not have symptoms. Businesses with fewer than 250 staff can reclaim the costs.

  • Small companies can claim business interruption loans of up to £1.2 million.

  • Employment Support Allowance will be available for self-employed people from day one of a claim. The claim process has also been simplified.

Personal Tax

  • No major changes have been announced in respect of personal tax, with current rates and thresholds remaining the same for 2020/2021 (this doesn’t include thresholds in Scotland – if you are a Scottish tax payer, please contact us for more information).

  • National Insurance thresholds are to be increased, with the income level on which NI becomes due rising from £8,632 to £9,500 for 2020/21. This will result in an increase to net income for most working people.

  • A stamp duty surcharge of 2% will apply to overseas buyers of UK homes.

  • The Junior ISA contribution allowance is rising from £4,368 to £9,000. This is expected to have a minimal impact, as the average amount saved is around £1,000.

  • Home workers will be able to claim £6 per week in income tax relief, an increase of £2.

Pensions

Pensions have escaped relatively unchanged, although with one significant amendment. This follows the controversy last year regarding NHS consultants having to turn down hours or face tax penalties on their pension accrual.

  • Currently, anyone with taxable income from all sources of more than over £110,000 must carry out further calculations to assess whether their annual pension contribution allowance must be tapered. This threshold is rising to £200,000 for the 2020/21 tax year.

  • Where ‘adjusted income’ (broadly defined as taxable income from all sources plus the value of certain pension contributions) is over £150,000, the annual allowance reduces for £1 for every £2 above the threshold. This is rising to £240,000.

  • The maximum reduction in annual allowance is currently £30,000, taking the minimum tapered contribution limit to £10,000. The new minimum will be £4,000 for anyone with adjusted income over £312,000.

It has been argued that while the measures will take many people under the taper relief threshold, they do not tackle the complexity and confusion of the current system.

Work and Benefits

The following changes, which take effect in April 2020, had already been announced prior to the Budget:

Working age benefits will rise with inflation, having been frozen for four years.

  • The National Living Wage will rise to £8.72 per hour.

  • The State Pension is to increase by 3.9%.

  • Many freelancers will pay more tax, as the IR35 rules are extended to the private sector.

tax year end guide

Business

While business owners may breathe a sigh of relief due to the Coronavirus provisions, it is not all good news. For example:

  • Corporation tax will remain at 19%, rather than reducing to 17%.

  • Entrepreneur’s relief on the sale of a business or significant shareholding will be limited to £1 million rather than £10 million.

However, some small businesses will benefit from today’s announcements.

  • Pubs will receive a discount of £5,000 on business rates (rising from £1,000) while other small businesses will receive a £3,000 cash grant.

  • Shops, cinemas, restaurants and hotels will be exempt from business rates altogether in the coming year, providing their rateable value is under £51,000.

This applies to England only, as business rates are devolved in Scotland, Wales and Northern Ireland.

Tax on Products and Services

  • The freeze on fuel duty is to be maintained.

  • Tax on alcohol will also be frozen.

  • Tobacco tax will increase at 2% over inflation, adding 27p to a pack of 20 cigarettes.

  • 5% VAT rate on female sanitary products will be scrapped.

  • VAT on eBooks and online publications will be removed.

Science and Research

  • £900 million is earmarked for research into nuclear fusion, space exploration and electric vehicles.

  • Significant spending is planned on Research and Development (R&D) to improve innovation in UK industry.

Environment

  • Taxes will be raised on pollution, while funding for environmentally friendly transport will be increased.

  • £640 million will be set aside to protect natural habitats and plant trees.

  • From April 2022, companies will pay additional tax on plastic packaging.

  • Products containing less than 30% recyclable material will incur charges of £200 per tonne.

  • Farmers and rail operators will continue to receive red diesel subsidies, although other industrial vehicles will no longer benefit.

Infrastructure

  • Major investment in flood defences and emergency relief is planned following the impact of recent storms.

  • Over £600 billion is to be spent on roads, railways, housing and broadband over the next 5 years.

  • £1.5 billion will be provided to colleges to improve their buildings.

  • £650 million will be earmarked to help deal with homelessness.

  • Unsafe cladding will be removed from all public and private housing buildings taller than 18 metres.

  • Thousands of new jobs are to be created in the North of England. Further new jobs will be created in Scotland and Wales.

Overall, the main themes of the Budget have been:

  • Aiming to ease concerns about Coronavirus

  • More spending on public infrastructure, services and innovation

  • Not increasing taxation, except the reduction in Entrepreneur’s Relief, which will affect a very small minority.

Time will tell if the Government’s investment, and the resulting increase in public debt, will pay off.

Please don’t hesitate to contact a member of the team if you would like to find out more.


IMPORTANT

The information in this guide has been prepared to help you become aware of information which may be relevant to you and which you may wish to discuss with your financial or other professional adviser. However, the information is only general information. It is not intended to be personal advice, it does not take account of your personal circumstances or requirements and shall not be regarded as financial, legal, tax or other professional advice. Every effort has been made to make sure that the information in this guide is accurate and up to date. Tax legislation and rules, and how they are applied, may change and may depend on your individual circumstances. No responsibility or liability can be accepted for errors or omissions in this guide. The value of Investments  can go down as well as up and you may get back less than you originally invested. You must not rely on the information in this guide in making, or choosing not to make, any decisions, and no liability is accepted for any reliance placed upon it by any person. If you are in any doubt about how you should act, you should seek advice from a suitably qualified financial or other professional adviser.


SOURCES

Summary of Budget 2020: Key points at-a-glance

Budget 2020: What it means for you

Budget 2020: Key points explained

Posted by Peter Selby

Topics: Insights & Advice, financial planning

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