Chancellor Rishi Sunak delivered his and the new government’s first budget on 11th March 2020 against a background of major economic and political turmoil. The global coronavirus emergency and economic headwinds took centre stage.
Article updated on 19th March 2020.
Since the budget on 11th March 2020, we have seen more fiscal measures announced by the government to help support individuals, businesses and the overall economy as the Global Coronavirus (also known as COVID-19) emergency develops. Where appropriate, we have updated this article.
On the day of the budget, the Bank of England announced an immediate reduction in the base rate of interest from 0.75% to 0.25%, the Bank subsequently announced a further drop on 19th March 2020 to a record low of 0.1% – the lowest level since the 2008 financial crash.
The government reiterated its support for the NHS, businesses, and individuals by introducing special measures and funding to ‘get the country through’ the coronavirus emergency. Longer-term plans were also announced to meet the government’s ambitions for increased spending on major infrastructure projects across the UK.
The 2020 Finance Bill will be published by the government on 19th March.
Some highlights from the budget that affect Crunch clients are as follows.
Tax Rates and Allowances
The government delivered on its manifesto promise not to increase Income Tax, National Insurance, or VAT. Chancellor Sunak confirmed the previously published rates, thresholds, and allowances for the 2020/21 tax year.
This means an increase in the Primary National Insurance (NI) threshold (where employees begin to pay NI) to £9,500 from 6th April 2020. If you earn £25,000 as an employee, you’ll pay around £100 less NI in the 2020/21 tax year. The tax-free Personal Allowance remains at £12,500 and no changes have been made to Income Tax rates or thresholds compared to last year.
The Employment Allowance was increased from £3,000 to £4,000 which means employer’s NI bills are reduced. The allowance is restricted to businesses with a NI bill of less than £100,000. There is also a newly introduced employer’s National Insurance holiday for the first year for businesses who employ service veterans.
All of the tax rates, thresholds, and allowances for the 2020/21 tax year can be found in our Knowledge article.
As previously announced, the Corporation Tax rate remains at 19% following the government’s decision to withdraw the planned reduction to 17%.
The Chancellor announced an increase in the simplified expenses available to employees to cover additional household expenses from £4 per week to £6 per week under home working arrangements. This will take effect from April 2020.
The Chancellor announced wide-ranging changes to Entrepreneurs’ Relief (ER).
Under the outgoing arrangements, business owners were able to reduce their tax bills by up to £1 million when they sold their businesses, based on a lifetime allowance of £10 million.
From 6th April 2020, small business owners will still pay a lower amount of Capital Gains Tax (CGT) when they sell their businesses, but this is reduced significantly to a lifetime allowance of £1 million. This means the maximum tax reduction is lowered to £100,000.
Capital Gains Tax (CGT)
An increase in the Capital Gains annual allowance was announced, from £12,000 to £12.300. In addition, the period allowed to pay any CGT on property sales over to HMRC will be reduced to 30 days from the date of sale. These changes take effect from 6th April 2020.
IR35 for the private sector
IR35 legislation was introduced in 2000 to make sure people working via personal services companies (PSCs) pay the right amount of employment tax. As expected, and following the ‘implementation review’ completed by the government in February 2020, the new rules for IR35 in the private sector are being rolled out as previously published.
The government has promised a ‘soft landing’ as the new rules take effect and that the new approach won’t affect genuine freelancers.
Find out more about IR35 for the private sector at our IR35 hub, you can also use our IR35 calculator to see where you’re at risk of being caught by the new rules.
Pension tax relief
No changes were announced to existing arrangements for pension tax relief. The maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime increases in line with CPI for the 2020/21 tax year to £1,073,100.
Find out how pension tax relief works by reading our article, ‘What are the tax implications of paying into a personal pension?’.
Tax-free savings allowances
The band of savings income that is subject to the 0% starting tax rate will remain at its current level of £5,000. The adult ISA annual subscription limit remains unchanged at £20,000.
The annual subscription limit for Junior ISAs and Child Trust Funds will be increased from £4,368 to £9,000.
Fuel duty was frozen for the 10th successive year, so there will be no increase for the 2020/21 tax year.
National Minimum Wage (NMW) and the National Living Wage (NLW)
The chancellor confirmed an increase in the National Minimum Wage (NMW) and the National Living Wage (NLW):
- For workers over 25, the NLW increases to £8.72 (6.2% rise)
- For workers aged 21 to 24, the NMW increases to £8.20 (6.5% rise)
- For workers aged 18 to 20, the NMW increases to £6.45 (4.9% rise)
- For workers under 18, the NMW increases to £4.55 (4.6% rise)
- For apprentices, the NMW increases to £4.15 (6.4% rise).
The government has set a target for the NLW to reach two-thirds of median earnings and be extended to workers aged 21 and over by 2024, provided economic conditions allow. Based on the latest OBR forecast, this means the NLW is expected to be over £10.50 in 2024.
Alcohol duty rates
The duty rates on beer, spirits, wine, and cider have all been frozen.
VAT on e-publications
The government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020, including e-books, e-newspapers, e-magazines, and academic e-journals.
Research & Development tax credits
The Chancellor announced an increase in the rate of Research & Development Expenditure Credit from 12% to 13% from 1st April 2020.
Statutory Sick Pay relief
In the light of the coronavirus emergency, the government previously said that Statutory Sick Pay (SSP) will be paid from day one of illness. The Chancellor announced that this would also be available to those advised to self-isolate even if they had not yet presented with symptoms. There will also be no need to go to the doctors for a sick note, which will be made available by the NHS 111 service.
The Chancellor also announced that the government will support small- and medium-sized businesses and employers to cope with the extra costs of paying COVID-19-related SSP by refunding eligible SSP costs.
Employment and Support Allowance and Universal Credit
Of course, many self-employed people cannot claim SSP, for those who can’t, the Chancellor has said the government will make it quicker and easier to claim and receive ‘new style’ Employment and Support Allowance and Universal Credit. The government will also be temporarily relaxing the requirements of the minimum income floor in Universal Credit for those directly affected or self-isolating according to government advice for the duration of the outbreak.
Crunch will shortly publish our 2020 “Getting ready for the end of the tax year” article. In the meantime, we have an article with all the updated tax rates and thresholds.