Chancellor’s summer economic update – details

Chancellor, Rishi Sunak, has announced a range of measures to try and kick-start the economy.

The big story is a cut in VAT for the hospitality sector from 20% to 5% and this will apply to eat-in or hot takeaway food from restaurants, cafes and pubs, accommodation in hotels, B&Bs, campsites and caravan sites, attractions like cinemas, theme parks and zoos. 

He also announced a temporary stamp duty holiday until January 2021 to stimulate the property market. This would exempt the first £500,000 of all property sales from the tax. 

The government will pay businesses a £1,000 bonus for every staff member that is kept on for three months when the furlough scheme ends in October. To qualify, the employee must be paid at least £520 on average, in each month from November to the end of January.

New schemes were announced to boost employment and training opportunities for 16 – 24 year olds.  This includes a ‘Kick Start’ scheme to assist those at risk of long term unemployment by funding six-month work placements to those on universal credit. Further support will be provided to young people in England: funding of £1,000 for each new work experience place; for apprenticeships – funding of £2,000 for each new apprentice aged under 25, and £1,500 for each new apprentice aged 25 and over, from 1st August 2020 to 31st January 2021. The apprenticeship payments will be in addition to the existing £1,000 funding that is provided for young apprentices.

There was also a scheme announced that will be launched in August to give 50% off to people dining out.  The scheme will mean 50% off meals eaten at any registered business between Monday to Wednesday in August, up to a maximum discount of £10 per head (including children).

COVID-19 – Help for the self-employed

If you have at least one year’s self-assessment history and have filed your 2018-19 tax return, you are eligible as long as you have trading profits of under £50,000 per annum.

You will receive a taxable grant of 80% of your average profits. You do not need to apply, you should receive details in the post and the grant in June.

COVID-19 – Employee homeworking expenses

In general, the reimbursement by an employer of employee expenses is treated for tax purposes as earnings from the employment for the tax year in which they are paid (ITEPA 2003 ss 70 and 72) and will be taxed in the normal way. There is, however, an exemption for ‘homeworking arrangements’ which covers payments made by an employer to an employee in respect of reasonable additional household expenses incurred in carrying out duties of their employment at home (ITEPA s 316A). This is currently up to £4 a week (or £18 a month) but, as announced in the Budget, will be increased to £6 a week from 6 April 2020. An exempt homeworking payment under s 316A can be made to employees who work at home under a voluntary homeworking scheme (which is a crucial difference to other expenses claimed by employees outside of these arrangements).

Costs that may be covered by such homeworking payments include additional costs of heating and lighting the work area or the metered cost of increased water use, provided that the additional household costs are reasonable and incurred in carrying out the employee’s duties. There might also be increased charges for internet access, home contents insurance, business telephone calls or the additional cost incurred as a result of business rates liability (EIM01474). Broadband costs will only be tax exempt if the employee is not already paying for a broadband connection (EIM01475). Payments for costs that would be incurred whether or not the employee worked at home – for example, mortgage interest, rent, council tax or water rates – will not be tax exempt.

COVID-19 Self-employed July payments deferred

The chancellor has announced that payments under income tax self-assessment, normally due on 31 July 2020, will be deferred until 31 January 2021.

During this period, individuals will not be charged any penalties or interest for late payment.

The deferral will apply automatically to all. Taxpayers who believe that their 2019/20 income will be lower than their 2018/19 income can make a claim to reduce their payments on account.  

COVID-19 VAT deferment

Deferment of VAT payments is effective immediately. Businesses should cancel their VAT direct debits to HMRC now; otherwise payments will still be taken automatically. 

These VAT direct debits should be restarted after 30 June 2020. The deferment applies to VAT payments due to be made to HMRC between 20 March 2020 and 30 June 2020.  HMRC says that interest will not be applied to the deferred VAT payments.

However, VAT returns must still be submitted on time: it is only the payment which is deferred. 

Budget 2020

We have summarised Mr Sunak the new Chancellor’s 2020 budget for you.

  • National Insurance (NI) threshold raised to £9,500 up from £8,632
  • Pension taper increased to £200,000 from £110,000 – this helps pension funding restrictions
  • Junior ISA annual limits increased to £9,000 from £4,368. Adult limit remains at £20,000.
  • In the UK the income tax rates and allowances remain at £12,500 for the personal allowance and £50,000 the higher rate threshold
  • The Capital Gains Tax (CGT) allowance has increased to £12,300 for individuals
  • The Inheritance Tax (IHT)  residence nil rate band increases to £175,000 taking the overall IHT allowance up to potentially £500,000 per person
  • Entrepreneurs Relief lifetime allowance reduced to £1million
  • Off-payroll working rules (IR35) reform still scheduled for April 2020
  • Corporation tax rate to remain at 19%

Making Tax Digital

Business owners across Britain from the start of April must file VAT returns online using government-approved software. It is the first phase in the flagship Making Tax Digital policy — and has been beset by delays and complications.

Small business bosses say the new requirements, which apply (with some exceptions) to those with a turnover above £85,000, coincide with an unprecedented cocktail of cost pressures. A hike in the national living wage and an increase in employer contributions to auto-enrolment pensions also start in the first week of April.

The measures all come into force days after Britain is due to leave the EU — and Brexit heaps further uncertainty on the future of companies, forcing entrepreneurs to change how they keep tax records feels to many like another unnecessary obstacle put in their way by the government.

 “It was not supposed to be like this. Making Tax Digital was hailed as a revolution in the tax system when it was unveiled four years ago by George Osborne, then chancellor, but the programme has struggled to live up to its billing. Plans to have all individual and business tax returns submitted digitally by 2020 were scrapped last year, with officials admitting their targets had been too ambitious.

Entrepreneurs’ Relief (ER) – share disposal update

The 2018 Budget has caused significant concerns for shareholders in companies that have multiple share classes carrying different rights and entitlements (also known as alphabet shares).

The new proposed rules change the definition of ‘personal company’ in the ER legislation in such a way as to prevent shareholders in a company with alphabet shares from claiming  ER.

On 21 December 2018, the Government proposed a significant amendment to the Finance Bill rules defining what constitutes a ‘personal company’ for ER purposes.

The revised legislation retains the old qualifying criteria (that the shareholder must have at least 5% of the ordinary share capital of the company and 5% of the voting rights) but adds in two new conditions, at least one of which will need to be met:

  • The shareholder must be entitled to 5% of the profits available for distribution to equity holders and 5% of the assets available for distribution on a winding up (these were the changes originally announced in the 2018 Budget);

AND/OR

  • In the event of a disposal of the ordinary share capital of the company the shareholder would be entitled to 5% of the disposal proceeds.

Additional provisions set out the process for determining whether the second test is met at any one time.  The legislation does not define the term ‘proceeds’, which implies that it may extend to some payments made to debt-holders on a sale of a company.

In its rationale for making the changes, the Treasury has stated that it has laid these amendments to ensure that the conditions for benefitting from the relief operate as intended and to continue ‘supporting enterprise creation and growth in the UK.’

Budget 2018 – Personal Changes

The Income Tax personal allowance will be increased to £12,500 from £11,850 on 6 April 2019. 

For higher rate taxpayers, the threshold above which higher earners start paying 40% tax is being increased to £50,000 from £46,350 in 2019-20.

The annual subscription limit for Junior ISAs and Child Trust Funds for 2019/20 will be increased in line with CPI to £4,368.

The Government has increased the limit of individual donations made under the Gift Aid small donations scheme from £20 to £30. 

The capital gains tax (CGT) annual exempt amount for individuals rises to £12,000 from £11,700 on 6 April 2019.

Corporation tax changes

The Government announced plans to reform the off-payroll working rules – known as IR35 – in the private sector from April 2020. Responsibility for operating the off-payroll working rules will move to the firm engaging the worker.  Small organisations will be exempt to ease the administrative burden for the vast majority of engagers, while medium and large organisations will be given support and guidance by HMRC.

In order to provide support to the high street, the Government is to reduce business rates by one-third for many retail properties with a rateable value below £51,000 for two years from April 2019, subject to state aid limits. The move is expected to save these struggling businesses £900m. Support for British high street will be supported by a £675m Future High Streets Fund to redevelop empty shops as homes and offices. There will be a new mandatory 100% business rates relief for public lavatories.