Budget Notes - Saffery Champness
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Budget Notes
Budget 2020
Contents
Introduction
Measures announced at Budget 2020
Personal taxation
Income tax rates and bands
Income tax allowances
Scottish taxation
Welsh taxation
Capital gains tax rates
ISAs and Junior ISAs
National Living Wage and National Minimum Wage
National Insurance Contributions
Annual Tax on Enveloped Dwellings charges
Entrepreneurs’ Relief
Top slicing relief on life insurance policy gains
Pensions – annual allowance
Non-resident Stamp Duty Land Tax (SDLT) surcharge
Official rate of interest
Business taxation
Making Tax Digital
Notification of uncertain tax treatment
Changes to Employment Allowance
Employee benefits in kind on company cars and vans
Capital allowances
Structures and Buildings Allowance
Corporate taxation
Main rate of corporation tax
Research and development
Enterprise Management Incentives
Changes to corporation tax treatment of certain older intangible fixed assets
Digital Services Tax
VAT and indirect taxation
Registration thresholds
Agricultural Flat Rate Scheme (AFRS)
Zero rating of e-publications
Zero rating of sanitary products
Brexit
VAT gap and avoidance measures
Call-off stock and goods traded between the UK and EU
VAT exemption for Special Investment Funds
Other indirect tax changes
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Support for those affected by coronavirus
Business rates
Time to Pay
Coronavirus Business Interruption Loan Scheme
Statutory Sick Pay
Measures announced at previous Budgets
Off-payroll working for the private sector
Private Residence Relief - changes to lettings relief and final period relief
Capital gains tax relief on loans to traders
Inheritance tax treatment of trust additions and transfers between trusts
Corporation tax on property income of non-resident companies
Restriction on the use of corporate capital losses
Stamp Duty on shares
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Introduction
The Chancellor, Rishi Sunak, delivered a Budget yesterday in somewhat extraordinary circumstances. Having
been appointed on Valentine’s Day and in the job for less than a month, Mr Sunak was not only facing
demands from his party to deliver on their ambitious programme of “levelling up” the UK’s regions, but also
handling political fallout from the recent floods and, of course, providing a financial platform for the
government’s plans to deal with the coronavirus pandemic.
With all that on his plate, it is perhaps not surprising that announcements on tax were fairly thin on the
ground. As expected, the axe fell on Entrepreneurs’ Relief, with the lifetime limit being cut from £10 million
to £1 million - largely bringing to an end the era of a 10% capital gains tax rate on business sales which began
with taper relief in 1998 and has continued more or less uninterrupted ever since. The government contends
that 80% of those claiming the relief will be unaffected by the change, making it clear that the real targets
here are those realising the most substantial gains on business disposals. It is somewhat surprising that a
tax relief which had been in place for such a long time has been targeted at a point in time when the
government is seeking to encourage entrepreneurial behaviour post-Brexit, although perhaps this can be
explained by the projected savings (£6.3 billion between now and 2024-5).
More of a concern were the extremely wide and arguably retrospective “anti-forestalling” rules which
accompanied the change. These will have the effect of pulling a large number of transactions, thought to be
over and done with well prior to the Budget, into the new £1 million lifetime limit.
The changes to Entrepreneurs’ Relief are covered in detail in what follows, together with the other
announcements on tax. There were also some notable omissions from the Budget announcements: there
was no information on how last year’s review of the taxation of trusts or the two reports from the Office of
Tax Simplification on inheritance tax might be taken forward. It may be that we will hear more on these in
the promised Autumn Budget.
We did get the expected confirmation that the changes to the off-payroll working (IR35) rules announced in
Budget 2018 will go ahead as planned, albeit with some changes to “support its smooth and successful
implementation”. There was, however, only a brief note on the government’s Making Tax Digital project:
we are now expecting publication of an evaluation of the move to digital reporting for VAT before we see
any further changes.
Robert Langston
National Tax Partner
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Measures announced at Budget 2020
Personal taxation
Income tax rates and bands
For 2020-21 the higher rate threshold is £50,000, and the personal allowance is £12,500.
From 2021-22 onwards, the personal allowance and higher rate threshold will be indexed in line with the
Consumer Price Index (CPI).
The rates and bands of income tax are set out in the table below. Different thresholds apply in Scotland
this tax year – see below.
Tax rate Taxable income Taxable income
2020-21 2020-21 2019-20
£ £
Starting rate for savings only: 0% 1 – 5,000 1 – 5,000
Basic rate: 1 – 37,500 1 – 37,500
Income other than dividend income: 20%
Dividend income: 7.5%
Higher rate: 37,501 – 150,000 37,501 – 150,000
Income other than dividend income: 40%
Dividend income: 32.5%
Additional rate: Over 150,000 Over 150,000
Income other than dividend income: 45%
Dividend income: 38.1%
Dividends are treated as the top slice of income.
The trust rate of income tax remains at 45%, with the trust dividend rate at 38.1%, where total trust
income exceeds £1,000.
Income tax allowances
There are various tax allowances which are set out in the table below.
Allowance 2020-21 2019-20
£ £
Personal allowance * 12,500 12,500
Income limit for personal allowance 100,000 100,000
Marriage allowance ** 1,250 1,250
Married couple’s allowance at 10% ***
For people born before 6 April 1935 9,075 8,915
Minimum amount 3,510 3,450
Income limit for married couple’s allowance 30,200 29,600
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Blind person’s allowance 2,500 2,450
Dividend allowance (regardless of level of non-dividend income) 2,000 2,000
Personal savings allowance
For basic rate taxpayers 1,000 1,000
For higher rate taxpayers 500 500
For additional rate taxpayers Nil Nil
*Allowance reduced by £1 for every £2 over limit (where applicable). For those with income over £125,000
in 2020-21 the personal allowance is reduced to nil.
** A spouse or civil partner may transfer up to this amount of their personal allowance to their spouse or
civil partner, provided neither is liable to income tax above the basic rate. Only available to people born
after 6 April 1935. Relief is restricted to 20%.
*** Allowance reduced by £1 for every £2 over limit.
Scottish taxation
The current income tax rates for Scottish taxpayers, chargeable on non-dividend and non-savings income,
are as below.
Tax rate Taxable income Taxable income
2020-21 2019-20
£ £
Starter rate: 19% 0 – 2,085 0 – 2,049
Basic rate: 20% 2,086 – 12,658 2,050 – 12,444
Intermediate rate: 21% 12,659 – 30,930 12,445 - 30,930
Higher rate 41% 30,931– 150,000 30,931– 150,000
Top rate 46% Over 150,000 Over 150,000
Welsh taxation
The Welsh government has announced that it will set the Welsh rates of income tax for 2020-21 at a level
that will keep rates of tax for Welsh taxpayers at the same rate as English and Northern Irish taxpayers.
Capital gains tax rates
The capital gains tax rates remain unchanged and are set out in the table below.
From 6 April 2020 Capital gains tax Capital gains tax on residential
property and carried interest
Basic rate 10% 18%
Higher and additional rate 20% 28%
Trustees 20% 28%
The annual exemption for 2020-21 is £12,300 for individuals and £6,150 for trustees.
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ISAs and Junior ISAs
The annual subscription limit for adult ISAs will remain at £20,000 for 2020-21. The subscription limit for
Junior ISAs will be increased from £4,368 to £9,000.
National Living Wage and National Minimum Wage
National Living Wage (NLW) will increase by 6.2% in April to £8.72 an hour. Additionally, the government
announced an intention for NLW to reach of two-thirds of median earnings by 2024, provided economic
conditions allow. Following recommendations made by the Low Pay Commission, the NLW will apply to
workers aged 23 and over in April 2021, with a target for it to apply to workers aged 21 and over by 2024.
HMRC also announced last month that they will resume their ‘name and shame’ policy for employers who
fail to pay their employees the National Minimum Wage from 6 April 2020.
Hourly rates 2020-21 2019-20
National Living Wage for workers aged over 25 £8.72 £8.21
National Minimum Wage for workers aged 21-24 £8.20 £7.70
National Minimum Wage for workers aged 18-20 £6.45 £6.15
National Minimum Wage for workers aged 16-17 £4.55 £4.35
National Minimum Wage for apprentices aged under 19 or £4.15 £3.90
in their first year of apprenticeship
National Insurance Contributions
Rate/limit 2020-21 2019-20
Employee’s Class 1 NIC on earnings between primary 12% 12%
threshold and upper earnings limit
Employer’s Class 1 on earnings above upper earnings limit 2% 2%
Employer’s Class 1 on earnings above secondary threshold 13.8% 13.8%
Primary threshold (weekly) £183 £166
Secondary threshold (weekly) £169 £166
Upper earnings limit (weekly) £962 £962
Self-employed Class 4 on profits between lower and upper 9% 9%
profits limits
Self-employed Class 4 on profits above upper profits limit 2% 2%
Lower profits limit (annual) £9,500 £8,632
Upper profits limit (annual) £50,000 £50,000
Class 2 (per week) £3.05 £3
Annual Tax on Enveloped Dwellings charges
The ATED charge increases in line with CPI each year. The rates for the 2019-20 and 2020-21
chargeable periods are:
Property value Annual charge for the 2020- Annual charge for the 2019-
2021 chargeable period 2020 chargeable period
£500,001 to £1,000,000 £3,700 £3,650
£1,000,001 to £2,000,000 £7,500 £7,400
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£2,000,001 to £5,000,000 £25,200 £24,800
£5,000,001 to £10,000,000 £58,850 £57,900
£10,000,001 to £20,000,000 £118,050 £116,100
£20,000,001 and over £236,250 £232,350
Entrepreneurs’ Relief
Entrepreneurs’ Relief (ER) allows a reduction in the rate of capital gains tax from disposals of certain business
assets, from 20% to 10%. It is available to taxpayers making a material disposal of business assets, and can
include the whole or part of a sole trade or partnership business, a disposal of an asset used in the business,
or a disposal of shares or securities in a company.
The gains on which ER can be claimed are subject to a lifetime limit per individual claimant and this has been
reduced in the Budget from £10,000,000 to £1,000,000, effective from 11 March 2020.
The maximum tax saving from ER has therefore reduced from £1,000,000 to £100,000 per claimant.
It was widely anticipated that ER would be targeted in the Budget due to mounting speculation in the press
and various government announcements contending that the relief was targeted at the wealthiest in society
but without providing the incentive to encourage the entrepreneurial activity that it was designed to
promote. The government has stated that the change in lifetime limits will not affect 80% of those claimants
who benefit from ER.
The government contends that the change ensures that genuine risk takers and entrepreneurs are
encouraged in a fair way and will continue to support the business investment and growth of new
enterprises.
The reduction of the lifetime limit is expected to provide an additional £1.8bn of tax revenue per annum for
the government by 2024-25.
Anti-forestalling measures
Given the expectation of a Budget announcement on the restriction or abolishment of ER, many business
owners have considered ways to ‘lock-in’ ER at 10% on up to £10,000,000 of capital gains prior to 11 March.
Cognisant of this, the government has introduced a range of ‘anti-forestalling’ measures to counteract what
are perceived to be existing ‘loopholes’ in the capital gains tax legislation.
These anti-forestalling measures include a counteraction against certain ER tax planning designed to bring
forward the date of disposal for capital gains tax purposes before 11 March without any economic risk but
locking in the higher lifetime limit. The anti-forestalling measures counteract the use of planning around:
• Rescindable contracts; and
• Exchange of securities.
Rescindable contracts
There are different variants of rescindable contract planning but they essentially involved entering into an
unconditional contract for transfer of an asset before 11 March with completion, or conveyance, of the asset
not taking place until a later date. Under normal tax principles the tax point for the disposal is the date the
contract was entered into, rather the date of transfer/conveyance, and therefore the ER could be claimed
based on the higher lifetime limit applying before 11 March. The planning was intended to provide the
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taxpayer with further flexibility to rescind the arrangements at a later date without a tax charge, depending
on the nature of any changes to the ER legislation made in the Budget.
However, the anti-forestalling rules ensure that the tax point for unconditional contract planning is the date
the asset is transferred or conveyed and therefore such arrangements (assuming they complete) will now
be subject to tax based on the new lower lifetime limit.
The taxpayer may, however, still have the option (depending on the terms) to rescind the contract without
a tax charge if they do not now wish to proceed with the disposal.
There are exemptions from the anti-forestalling rules where the disposal is to unconnected third parties and
the purpose of entering into the transaction was not to obtain a tax advantage. The taxpayer must also
make a claim including a statement confirming their reliance on the exemption, and stating that “no
purpose” of entering into the contract was obtaining a tax advantage. The requirement to make such a
positive statement when claiming a tax relief is new, and something we may see more of in future.
Exchange of securities
The exchange of securities anti-forestalling measures are designed to prevent the misuse of ER in relation to
‘paper for paper’ transactions, such as the insertion of a holding company above an existing trading
company.
Generally a paper for paper transaction is not treated as a disposal for capital gains tax purposes but it is
possible for a taxpayer to elect to disapply the rules so that a disposal for capital gains tax purposes does
occur. This in turn allows the taxpayer to claim ER in relation to the transaction. The election could be made
by the taxpayer in the ordinary course of completing their tax return.
In anticipation of a change to ER the government felt that certain taxpayers were entering into paper for
paper transactions with the intention of making an election to lock in ER at the current rates. Furthermore
the decision to make the election could be taken after the Budget and if there were no changes to ER then
the taxpayer could decide to not make the election and no charge to tax would arise.
The anti-forestalling measures apply to disposals on or after 6 April 2019 but before 11 March 2020 and,
where the rules apply, the disposal is deemed to be made at the time the election is made, rather than the
date of the exchange of securities. This means that ER will only be available up to the new lifetime limit of
£1m, even if the exchange of securities occurred before 11 March 2020.
There are certain limits to the anti-forestalling legislation, which, very broadly, do not apply unless the
majority of shareholders in the new entity are the same as the shareholders in the old entity.
The legislation applies to disposals from 6 April 2019 when a change to ER was not contemplated and
therefore taxpayers who entered into an exchange of securities transaction earlier in the tax year without
any intention of obtaining a tax advantage will now be subject to the lower £1m lifetime limit under the anti-
forestalling rules if they wish to make an election for ER to apply in relation to that transaction and the
election had not been made prior to 11 March 2020.
Top slicing relief on life insurance policy gains
Individuals are subject to income tax on gains arising when a chargeable event takes place in respect of a life
insurance policy (such as the sale or surrender of a policy). These are known as chargeable event gains.
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Where a chargeable event gain arises, a gain will be subject to income tax in a single tax year even though it
may have arisen over many years. This can result in the individual being pushed into the higher (40%) or
additional (45%) rates of income tax in the tax year of the chargeable event.
Top slicing relief is aimed at alleviating part of the tax liability arising by adjusting the tax due to reflect the
fact that the gains arose over many years. The calculation of the relief due is complicated but broadly works
by envisaging what income tax would be due if the chargeable event gain were received over the life of the
policy.
In the case of Marina Silver v HMRC in 2019, the First-tier Tribunal found that an individual who was
otherwise entitled to no or a reduced personal allowance (because their total income, including the
chargeable event gain, was over £100,000), was entitled to take into account the full or a larger personal
allowance for the purposes of calculating top slicing relief.
This position will now be enshrined in law to put the position beyond doubt. In addition, the changes confirm
that when calculating top slicing relief, allowances and reliefs should be treated as being set against other
income in preference to the chargeable event gain.
Pensions – annual allowance
Prior to changes introduced from 6 April 2016, an individual could get tax relief on pension contributions of
up to £40,000 in any tax year. From 6 April 2016 this £40,000 limit was reduced by £1 for every £2 for those
with income in excess of £150,000 and was subject to a minimum contribution allowance of £10,000. This
meant that someone with income of more than £210,000 could claim tax relief on a maximum of £10,000.
Following government review, they have announced in the Budget that from 6 April 2020, the limit at which
the annual allowance of £40,000 will start to be tapered will be increased to £240,000 and the minimum
contribution limit will be reduced from £10,000 to £4,000.
This means that the majority of people with income over £150,000 will be able to make a higher level of
pension contributions, However, those with income of over £312,000 will face a greater restriction on their
ability to make pension contributions.
Unused allowances can still be carried forward for three years.
Non-resident Stamp Duty Land Tax (SDLT) surcharge
At the 2018 Conservative Party conference, Theresa May announced a SDLT surcharge for non-UK residents.
The rate was announced at 1%, with the proceeds promised to help fund a reduction in rough sleeping. The
move was quite controversial, with the additional charge intended to be in excess of the 3% higher rate for
additional dwellings which was levied from 2016.
A consultation was held in February 2019 and contained an outline of the government’s intentions. One of
the most eye-catching features of the new rules was that the test of being a non-resident individual was
different to the Statutory Residence Test for income tax and capital gains. For SDLT purposes a person was
intended to be a non-UK resident if they spent fewer than 183 of the last 365 midnights in the UK. It was
therefore relatively easy to construct situations of perceived unfairness in the rules, where a person might
be considered to be resident in the UK for income tax (for example by spending 120 or more days in the UK
under the ‘sufficient ties’ test) and yet be liable to the non-resident SDLT charge.
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There were other anomalies in the rules, such as the application to UK companies requiring two residence
tests – a normal corporation tax test, and also a test to catch UK close companies with non-UK resident
shareholders. In the latter case it was in theory possible to have a family company where only one minority
shareholder is outside the UK, but the company would be considered to be non-resident for SDLT purposes.
Perhaps deterred by the consultation response the matter was dropped when the 2020 Finance Bill emerged
in July 2019, but it has been revived by the new Conservative government, and with a 2% rate instead of 1%.
It remains to be seen whether the rules adopted will be the same as those which were considered to be so
fraught with problems this time last year, but there is some hope that, given the implementation date
(transactions taking place on or after 1 April 2021), there is scope for representations to be made.
Official rate of interest
From 6 April 2020, the official rate of interest will be reduced from 2.50% to 2.25%.
The official rate of interest is used to calculate the benefit in kind received by employees with loans from
their employer bearing nil interest or interest at a lower rate.
Additionally, the official rate of interest is used to calculate the value of capital payments received from a
trust where a beneficiary has borrowed money from a trust structure and is paying no interest or interest at
below this rate. As a result, the tax payable in relation to these loan calculations will be reduced.
Finally, this change will impact settlor interested trusts set up by individuals who are now deemed to be UK
domiciled, having been resident in the UK during at least 15 of the previous 20 tax years. The income and
capital gains of such trust are not taxed as that of the settlor as long as they have not been ‘tainted’. Tainting
of a trust can arise as a result of loans between the settlor and the trust. For example, if the trust has made
a loan to the settlor and the settlor is paying 2.50% interest on the loan, from 6 April 2020, this may result
in the trust being tainted because the settlor if paying interest above the official rate. Trustees and settlors
of such trusts may therefore wish to review any loan arrangements and consider adjusting the rate of
interest charged from 6 April 2020 to 2.25%.
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Business taxation
Making Tax Digital
April 2019 saw the introduction of Making Tax Digital (MTD) for VAT, the first step in the wider digitisation
of tax reporting. The government had previously announced that there would be no further extension of
MTD until April 2021 at the earliest, and only then if digital reporting for VAT had been shown to “work well”.
What had been lacking, however, was any indication of what “working well” might look like in practice, or
when the government intended to undertake their evaluation.
The Budget has taken us a step further forward: we now know that the government is to publish an
“evaluation of the introduction of Making Tax Digital for VAT”, presumably before making any further
announcements on the timing of MTD for income and corporation tax.
This decision is a welcome one: any extension of MTD from VAT to other taxes will be more likely to deliver
the intended outcome both for HMRC and taxpayers if the government takes this chance to evaluate how
well the first stage has delivered against its objectives.
We do hope, however, that the evaluation is published soon and that the government follows this quickly
with confirmation of when MTD will be extended to other taxes, and that their timescale allows for sufficient
time for businesses to evaluate their current record-keeping and reporting capabilities, and make any
required changes to be MTD-ready.
Our experience of MTD for VAT has generally been that once businesses have moved to the new regime,
submissions have gone smoothly; however, digital reporting was rolled out on such a tight timescale that
there was insufficient time for testing and that some aspects of (for example) the sign-up process did not
work as well as could be hoped. It is also unclear at this stage whether MTD for VAT is preventing taxpayer
errors and reducing costs in the way that was promised.
MTD for income tax will represent a much more significant change in tax reporting – with affected businesses
moving from one tax return prepared and submitted after the year end to four in-year reports as well as an
end-of-year summary. Businesses – and their advisers – may need to make significant investment in both
process and technology change to ensure that they are ready not just to meet, but to benefit from, the move
to more digital reporting. Whilst a trial of MTD reporting for business income tax has been underway since
April 2017, this is still very restricted. It will be vital for there to be proper time for this trial to be expanded
to cover more complex businesses and allow the full development of a wider range of MTD-compatible
software to ensure a smooth transition.
Notification of uncertain tax treatment
As part of the Government’s plan to tackle tax avoidance, evasion and other forms of non-compliance, it was
announced that from 1 April 2021, large businesses will be required to notify HMRC if they have taken a tax
position, which relies on an uncertain legal interpretation that HMRC is likely to challenge. It is not yet clear
how businesses and their advisors will be required to judge whether a particular tax position taken is
“uncertain” or “likely” to be challenged by HMRC.
For these purposes, a large business will be one with a turnover of more than £200 million per year, or a
balance sheet total of more than £2 billion. We would expect that the notification would form part of the
business’ tax return.
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We have seen a pattern in recent years with anti-avoidance measures being trialled in one sector before
being expanded elsewhere (eg off payroll working changes being introduced in the public sector before being
introduced universally), and so it is likely that this will affect more taxpayers in future.
Changes to Employment Allowance
The Chancellor has announced an increase in the rate of the Employment Allowance (EA) – an employer’s
NIC annual exemption – from £3,000 to £4,000 from April 2020. In addition, the eligibility rules will also be
changing as a result of an earlier announcement.
From 6 April 2020 EA can only be claimed for periods where the employer’s annual National Insurance
liability was £100,000 or less in the prior tax year. Deemed payments subject to NIC under the new off-
payroll rules will not count towards this limit.
The allowance will also count towards de minimis state aid thresholds, so restricting the level of other state
aid that can be claimed.
Employee benefits in kind on company cars and vans
Currently employee benefits in kind on the use of company cars are based on the car’s ‘list price’ being
multiplied by a percentage based on the car’s CO2 emission level.
As announced in previous years, a new method of measuring these levels has been introduced from 6 April
2020 for new cars registered on or after that date, with the result that most company car tax rates will be
reduced by two percentage points in comparison to similar cars registered prior to this date. The percentages
will then be increased by one percentage point for each of the tax years 2021/22 and 2022/23.
There will be a new zero percentage rate for electric only cars, and significantly reduced benefits for some
hybrid models.
Since it is possible to undertake a valid salary sacrifice for an electric car, we are seeing a number of clients
exploring the possibility of providing electric cars for senior staff as a method of providing remuneration.
Combined with the capital allowances rules (see below), it is possible to achieve this tax efficiently.
Where the employer pays for any private fuel, there is a further benefit in kind based on the company car
percentage for the model concerned being multiplied by a fixed number. The value of the multiplier for
calculating the cash equivalent of the fuel benefit for a car will increase to £24,500 for 2020-21 (£24,100 for
2019-20) for all company cars.
The cash equivalent where a van is made available to an employee for private use will increase to £3,490 for
2020-21, with the flat rate charge for the van fuel benefit will increasing to £666 (£655 for 2019-20). For
electric vans the zero benefit will only apply from April 2021, so a year later than for electric cars.
Capital allowances
In keeping with the government’s plans to move to a greener economy, the Chancellor committed to keeping
the 100% First Year Allowance available on ultra-low emission vehicles in place until 31 March 2025.
However, adjustments will be made to the emissions threshold at which business cars qualify for the 18%
main capital allowance rate. This threshold will be will be lowered from 110 g/km to 50 g/km with effect
from 1 and 6 April 2021 for corporation tax and income tax purposes respectively. Business cars acquired
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after this time with emissions exceeding this threshold will attract allowances at the reduced ‘special rate’
of 6% per annum.
Structures and Buildings Allowance
The Structures and Buildings Allowance (SBA), which may be available on costs of construction, renovation
or conversion of certain non-residential structures and buildings, has been increased from 2% to 3% from 1
April 2020 for corporation tax purposes and 6 April 2020 for income tax purposes.
A technical change will also be made to prevent SBAs being claimed where research and development capital
allowances are also available in respect of the same expenditure.
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Corporate taxation
Main rate of corporation tax
As had been previously announced, the Chancellor has abandoned his predecessor’s pledge to reduce the
main rate of corporation tax to 17% from 1 April 2020. The rate remains at 19%.
Research and development
The Chancellor dedicated a large section of his speech to announcing investment in innovation and cutting-
edge technologies. This includes plans to increase to the Research and Development Expenditure Credit from
12% to 13% from 1 April 2020. The RDEC is treated as taxable income of the recipient, so the post-tax value
of the increase is 0.81%.
Small and Medium sized entities (SMEs) can obtain an enhanced relief. Under these rules a company can
claim an ‘enhanced deduction’, meaning that a company spending £100 gets a deduction of £230 against its
profits. A loss-making company can either carry these deductions forward, or surrender the deduction and
claim a payable tax credit. At the 2018 Budget it was announced that from 1 April 2020 the amount of the
credit would be limited to three times the PAYE and NICs paid by the company during the accounting period.
The Chancellor has confirmed that this rule will be introduced as originally announced has been delayed by
a year to 1 April 2021.
A consultation has also been announced on whether qualifying R&D tax credit costs should include
investments in data and cloud computing.
Enterprise Management Incentives
The government has announced a review of the existing Enterprise Management Incentives (EMI) scheme
to ensure it provides support for high-growth companies to recruit and retain their best talent so they can
scale up effectively.
Interestingly, it also notes that the review will examine whether more companies should be able to access
the scheme. With EMI schemes currently falling within the scope of EU state aid, it is noteworthy that a
review is announced shortly after Brexit.
Changes to corporation tax treatment of certain older intangible fixed assets
Companies will be able to claim corporation tax relief for amortisation of certain intangible fixed assets
created before 2002 and acquired from related parties on or after 1 July 2020.
Presently the corporation tax rules relating to intangible fixed assets only apply to intangible assets that are
created- or acquired from an unrelated party- on or after 1 April 2002.
The measure is expected to positively impact businesses with older, well established intellectual property
rights such as trademarks, patents and design rights.
Digital Services Tax
The introduction of the Digital Services Tax (DST) – a 2% tax levied on revenues attributable to UK users and
generated from the provision of an online marketplace, a search engine or a social media platform remains
set to be introduced from 1 April 2020 following the announcement in the 2018 Budget despite opposition
from the US.
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The originally proposed legislation intended for reporting and payments of the DST to be made quarterly -
however, the Chancellor has announced that the requirement to report and pay will now be annual.
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VAT and indirect taxation
Registration thresholds
A Value Added Tax (VAT) registration will continue to be required where taxable turnover exceeds £85,000.
The de-registration threshold remains unchanged at £83,000.
The Government has previously indicated that the registration and de-registration thresholds will remain at
this level until at least 31 March 2022.
Agricultural Flat Rate Scheme (AFRS)
AFRS is a VAT simplification scheme that is an alternative to VAT registration for farming businesses. It allows
qualifying businesses with farming related activities to add a flat rate of 4% to their sales invoices. These
businesses retain the 4% collected to compensate them for being unable to recover VAT on their costs.
New entry and exit rules will be introduced for AFRS from 1 January 2021. Businesses with annual turnover
for farming related activities below £150,000 will be permitted to join AFRS. Businesses with annual
turnover for farming related activities over £230,000 will need to notify HMRC and deregistered from AFRS
and be registered for VAT in the normal way. If a business has turnover that exceeds £85,000 for non-
farming related activities it needs to VAT register in the normal way and will be ineligible to use AFRS.
Zero rating of e-publications
Further to HMRC’s defeat in the News Corp case, the zero rate will be applied to qualifying ‘e-publications’
from 1 December 2020. The new measure will seek to apply zero-rating so that the electronic version of the
publication enjoys the same existing zero-rated treatment as its physical counterpart.
The Government will consult on the details of the new legislation ahead of its implementation.
Zero rating of sanitary products
The zero-rate of VAT will apply to sanitary products from 1 January 2021.
Brexit
The UK is expected to leave the EU VAT and Customs Unions on 31 December 2020 at the end of the
transitional period.
One of the key changes to be introduced from 1 January 2021 is postponed VAT accounting. From this date,
VAT registered businesses will be able to account for VAT on goods they import from all countries, including
the EU, through their VAT return. Currently, import VAT import VAT must be paid first and can only be
reclaimed subsequently (if recoverable under normal VAT rules) through the business’s VAT return.
VAT gap and avoidance measures
As part of its anti-avoidance programme, it was confirmed that the proposed reverse charge in the
construction sector will now go ahead from 1 October 2020, a year later than originally planned.
The reverse charge means that the customer, rather than the supplier accounts for VAT. The customer can
also recover this VAT if it would have been able to if the supplier had invoiced with VAT.
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The objective is to stop fraudulent traders going ‘missing’ in the supply chain without accounting for VAT on
their supplies. However, it is wide ranging and all businesses involved in the construction supply chain could
be affected. There is an exclusion from the reverse charge for end-users of construction services such as
individuals, housebuilders and housing associations where the work is to the customer’s land or building.
Call-off stock and goods traded between the UK and EU
The UK has operated a call-off stock simplification for many years. The simplification allows an overseas EU
supplier to ship their own goods cross border to the UK for storage. The goods must be destined for sale to
a single UK customer, who calls them off as required. The overseas supplier is not required to UK VAT
register under the simplification. The responsibility for UK VAT accounting is placed on the UK customer.
The new rules are being introduced to standardise the VAT treatment across all EU member states. The
changes have retrospective effect in the UK from 1 January 2020, which coincides with the EU’s introduction
of the measure across all member states from the same date. The new rules impose some additional
requirements on businesses using call-off stock, including the requirement for the supplier and customer to
enter into a call-off stock agreement.
Call-off stock treatment may come to an end on 31 December 2020 when the UK is expected to leave the
EU VAT union.
VAT exemption for Special Investment Funds
As previously announced in July 2019, the Government will legislate to apply a wider VAT exemption for the
management of Special Investment Funds.
Other indirect tax changes
Fuel duty, Alcohol Duty and Aggregates Levy will remain frozen for the tax year 2020 to 2021.
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Support for those affected by coronavirus
One of the main themes of this Budget was the announcement of a suite of temporary measures to support
small businesses in light of the anticipated disruption the coronavirus will cause.
Business rates
Several changes have been announced regarding business rates in England which include the following:
• Currently the government provides a business rates discount for occupied retail properties
with a rateable value of less than £51,000. This reduces the bill by 33% and was set to increase
to 50% from 2020-21. This will however be increased to 100% for the 2020-21 tax year and,
in addition, be temporarily extended to hospitality and leisure sectors (including cinemas,
theatres, museums, nightclubs, music venues and gyms).
• The expected 2020-21 business rates discount of £1,000 for pubs with a rateable value of less
than £100,000 has been increased to £5,000.
• A one-off grant of £3,000 will be available to small businesses which do not currently pay
business rates because they qualify for Small Business Rate Relief (SBRR) (which provides full
relief for businesses using a single property with a rateable value of £12,000 or less). This will
also be available for businesses currently eligible for Rural Rate Relief.
Those that have already paid their business rates for 2020-21 will be refunded but they may be required to
apply to their local authority.
Larger retail and leisure chains are unlikely to benefit from this as there is a cap on tax relief in the state aid
rules and larger firms will have already reached this limit.
A review of business rates in general will be undertaken and it is possible that further reforms on business
rates may be undertaken. It is expected that the report will be completed in the autumn.
Time to Pay
To further support businesses through the difficulties arising due to the coronavirus the government has
confirmed that additional resources will be provided in agreeing bespoke Time to Pay arrangements.
TTP arrangements are already in place for individuals and companies and can be highly personalised,
depending on the taxpayer’s ability to obtain funds. We often advise clients in difficulty to negotiate with
HMRC as this prevents them taking action to recover the debt and HMRC officers are often reasonable over
payment terms. There is now a dedicated coronavirus HMRC helpline open from 11 March and HMRC have
announced that a further 2,000 experienced TTP call handlers will be available.
Coronavirus Business Interruption Loan Scheme
The government has confirmed that it will guarantee of 80% on each new loan made by banks to SMEs under
this scheme. This is subject to a per lender cap and will be provided through the British Business Bank. This
scheme will apply to loans of up to the value of £1.2m and they anticipate this will provide up to £1 billion
of lending in addition to current support offered.
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Statutory Sick Pay
As well as the previously announced change to the rules, where statutory sick pay (SSP) will be paid from
day one of illness, eligibility will also be extended to all those advised to self-isolate even if they had not yet
presented with symptoms.
There will also be no requirement to go to the doctors for a sick note as these will be made available by the
NHS 111 service.
Employers with fewer than 250 employees will have the cost of SSP for any employee off work due to
coronavirus for up to 14 days refunded by the government in full.
The rate of statutory sick pay, currently £94.25 per week is due to increase to £95.85 on 6 April 2020.
There will also be additional benefit entitlement to self-employed and gig-economy workers who would not
be entitled to SSP.
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Measures announced at previous Budgets
Off-payroll working for the private sector
The off-payroll working rules for the private sector will be implemented from 6 April 2020 in their current
proposed form. This will impact on medium or large businesses who will have responsibility for determining
the deemed employment status of workers whose services are provided through an intermediary. For
impacted workers the fee payer (the entity who pays the personal services company) will be responsible for
withholding PAYE and NIC as well as meeting the employer NIC cost.
For the purposes of this legislation any company classed as small under the Companies Act definition will
not need to undertake the deemed employment status determinations. The small company definition
currently requires a company to satisfy two of the following three conditions:
• An annual turnover of not more than £10.2 million;
• A balance sheet of not more than £5.1 million; and
• Not more than 50 employees.
Of course, it is not only incorporated businesses which engage contractors, and the draft legislation has
determined that the turnover test only will apply in determining whether non-incorporated businesses as
considered small.
There are also specific rules for joint ventures and groups of companies (the small definition only applies if
all parties meet the definition).
Recent communications from HMRC have confirmed that the rules will only apply to services provided from
6 April 2020 (and not payments as initially announced, effectively pushing back the implementation date to
the end of April in many cases) and that there will be a ‘soft landing’ in respect of compliance in the first 12
months. This will not remove the PAYE and NIC exposure in respect of non-compliance, though, only remove
the application of penalties for compliance failures which are considered to be deliberate.
Private Residence Relief – changes to lettings relief and final period relief
Private Residence Relief (PRR) exempts the capital gain arising on the sale of a main residence from capital
gains tax. As previously announced, two changes to PRR will take effect from April 2020.
Lettings Relief, which is currently available on up to £40,000 of the gain when a taxpayer lets out their former
main residence, will only be available to those who are in shared occupancy with their tenants.
In addition, the final period exemption, which currently exempts the final 18 months of ownership of
property which has been an individual’s main residence, will be reduced to nine months. This was reduced
from 36 months in April 2014.
Capital gains tax relief on loans to traders
Capital gains tax relief is currently available when a taxpayer makes a loan to a UK ‘trader’ which
subsequently becomes irrecoverable. Assuming the necessary criteria are met, the taxpayer can use the loss
to offset their capital gains (which would not normally be possible for losses incurred on loans).
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Currently, the relief is only available where the borrower is a UK resident company, sole trader or
partnership. However, the relief has been extended so that it applies to borrowers who are located
anywhere in the world.
This change has effect from 24 January 2019.
Inheritance tax treatment of trust additions and transfers between trusts
The Finance Bill will include measures which confirm the IHT treatment of additions to existing trusts and
transfers between trusts.
Where a trust has been settled by an individual who is not domiciled or deemed-domiciled in the UK (ie is a
‘non-dom’) then the trust will own ‘excluded property’ to the extent that non-UK situs assets are held directly
by the trustees.
The legislation confirms that additions of assets by UK-domiciled or deemed domiciled individuals to a trust
which was originally settled by a non-dom will not also be excluded property. In addition, the legislation
provides details of when transfers from an excluded property trust to another trust will result in the assets
transferred ceasing to be excluded property for IHT purposes.
Corporation tax on property income of non-resident companies
As previously announced, from April 2020, all non-resident companies in receipt of property income will
cease to be subject to income tax and will instead be subject to corporation tax.
This will mean a reduction in the rate of tax on property income from 20% (basic rate income tax) to 19%
(corporation tax), but variations in the way in which income tax and corporation tax are calculated may have
an additional impact on the final tax liability.
Restriction on the use of corporate capital losses
Since 1 April 2017, groups with profits of more than £5 million can only offset brought forward losses against
50% of the profits above this amount. As previously announced, from 1 April 2020 these rules will be
extended to include capital losses.
The 2020 Budget introduces measures to remove the potential restriction in respect of brought forward
capital losses to companies which are under insolvent liquidation during the period.
Stamp Duty on shares
In the 2018 Budget it was announced a new market value rule for Stamp Duty and Stamp Duty Reserve Tax
where listed company shares were transferred to a connected company. This took effect from 29 October
2018, and it was confirmed at the time that this rule would be extended to shares in unquoted companies
with effect from 1 April 2020. The Chancellor has now confirmed that this will go ahead.
Draft legislation was released as part of the July 2019 Finance Bill, and assuming there are no material
changes the new rules for unlisted securities will be narrower than those which are in place for listed shares.
The main difference is that these new rules applied only to transfers of unlisted securities where all or part
of the consideration consisted of the issue of shares. This differs from the market value rule for listed shares
which applies whatever form the consideration takes.
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The main effect of the new rules for unlisted shares is expected to be the effect on ‘swamping’ planning.
This has been around for some time and involves manipulating the share capital of a new company to reduce
the Stamp Duty applying on a group reorganisation or demerger which falls outside the usual exemptions.
Such planning is not expected to work going forward.
The date the new rules will come into force was not announced in the Budget, but the draft legislation
indicates that it will take effect from Royal Assent.
We also expect a slight loosening of the anti-avoidance rule which imposes a Stamp Duty charge in certain
reorganisations which take place prior to a change of control. The new rule will mean that a double charge
to stamp duty should not apply.
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Saffery Champness’ Budget Seminar Notes are published on a general basis for information only and no liability
is accepted for errors of fact or opinion it may contain. Professional advice should always be obtained before
applying the information to particular circumstances. J7740. © Saffery Champness LLP March 2020.
Saffery Champness LLP is a limited liability partnership registered in England and Wales under number
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