However, given the postponement of the Budget, originally planned for November 2019 and the focus given to the General Election and ongoing Brexit developments, there have not yet been any major announcements on tax changes this year.
We may see tax changes announced or confirmed by the Government in the Spring, but for now we take a look at some of the main tax changes previously announced for the forthcoming 2020/21 tax year.
- Personal allowance and income tax: According to the Conservative General Election Manifesto, both the Personal Allowance (£12,500 in 2019/20) and income tax rates will remain unchanged in 2020/21.
- National insurance: The Conservatives’ pledge to raise the point at which people pay national insurance from £8,632 to £9,500 is also expected to be confirmed in the next Budget.
- Pensions: The Lifetime Allowance is expected to rise from £1.055 million, in line with inflation to £1.073 million.
- Inheritance tax: The residence nil-rate band is expected to rise from £150,000 to £175,000. This will allow homeowners to pass on £175,000 of property wealth, tax free, on top of the existing £325,000 standard inheritance tax allowance (if leaving a home to a direct descendant). This means that spouses and civil partners, who can share their allowances, will be able to pass on up to £1 million free of tax.
- Property: There are several changes that may impact those who own second properties including, mortgage interest relief disappearing and paying capital gains tax sooner when selling the property. There are also further proposed changes on the way including, reduced tax relief on selling second homes or rental properties and restrictions on Letting Reliefs. We discuss these tax changes further in our article ‘Plan now for the April 2020 property tax changes’.
- Civil partnerships: Mixed-sex couples in England and Wales are now able to enter into civil partnerships. From 31st December 2019, co-habiting couples who do not want to get married but do want to put their relationship on a firmer legal footing can now benefit from tax, inheritance, pensions and next-of-kin benefits. Civil partners can pass assets such as savings, shares and property between themselves without triggering a capital gains tax charge but cohabiting couples cannot do this. Civil partners can also claim the marriage allowance and bereavement benefits for working age couples, if one of them dies under pension age.
- Corporation tax: The corporation tax main rate is expected to remain at 19%. This is due a previously legislated fall to 17% being scrapped during the General Election. The tax accounting implications of this may need to be considered by businesses with 30 November and 31 December year-ends. In particular, consideration may be needed on whether disclosure in the accounts is required. For example, the impact on UK deferred tax assets and liabilities of changes announced prior to the date the financial statements are signed.
- Possible changes to Entrepreneurs’ Relief in the Budget 2020: During the election the Conservatives promised a review and reform of Entrepreneurs Relief (ER). In essence, ER allows a business owner to make gains on disposing of their business at just a 10% rate of tax on the first £10m of total gains since 2008. Therefore, it is a very generous relief and without it, a business owner would pay a top rate of 20% capital gains tax. We don’t know if there will be a change, or when this will be effective from (it could be from Budget day, the new tax year or some point in the future) and we certainly wouldn’t suggest this should be the sole reason to initiate a business disposal. However, if you are planning to sell your business in the near future, and if it is feasible within this short period of time, it could be worth bringing forward the disposal before the Budget announcement on 11th March 2020.
- National Living Wage increase: Employers will see above inflation increases to the National Living Wage from April 2020. The new rates for the National Living Wage for ages 25 and above will be £8.72 (a 6.2% increase). The National Minimum Wage will also increase for 21 to 24-year-olds to £8.20 (a 6.5% increase), for 18 to 20-year-olds to £6.45 (a 4.9% increase), for under-18s to £4.55 (4.6% increase) and for apprentices to £4.15 (a 6.4% increase).
- Research and development: The government previously confirmed that it will be bringing in a cap on R&D Tax Credits for SMEs for those with accounting periods on or after 1 April 2020. With the intent on combating fraudulent claims, the cap will mean the amount a loss-making company can receive in R&D Tax Credits will be limited at three times its total Pay As You Earn (PAYE) and National Insurance Contributions (NICs) liability. However, the Conservative’s Manifesto pledged to increase the R&D tax credit rate from 12% to 13%, so we may also see this being introduced from April.
- IR35: The off-payroll working rules (IR35) are set to change from 6 April 2020. This will affect private sector contracts and will place the responsibility for determining a worker’s employment status for tax in the hands of the employer or intermediary (agency), instead of the worker. You can read further details about this change here.
- VAT reverse charge: Those in the construction sector and its suppliers should prepare for the introduction of the ‘previously postponed’ VAT reverse charge on 1 October 2020. We have further details on this change here.
- VAT and trading with Europe: From 1 January 2020, the EU has launched what is being referred to as the ‘four quick fixes” for VAT. This is designed to simplify some aspects of the current VAT regime, but may also cause some compliance headaches for UK businesses. Forward planning and process changes may be needed and we discuss these changes further in our article here.
Stay up-to-date throughout the year
All these changes are subject to amendment, postponement or cancellation. To keep up-to-date on developments and for all our latest updates you can subscribe to our quarterly email newsletters here.