Budget 2020 – what you need to know

Yesterday, the Bank of England announced an emergency cut in interest rates from 0.75% to 0.25% and the Chancellor, Rishi Sunak announced a range of new initiatives to support the economy.

We list out the key points that impact on small businesses and employer’s.  Not everything below takes immediate effect so before taking any action do get in touch

 

Small Businesses

  • Corporation tax rates are to remain at 19% for small businesses

 

  • Capital Allowances for qualifying investments in non-residential structures and buildings increases from 2% to 3%

 

  • The Business Rates Retail Discount for properties with a rateable value below £51,000 will increase to 50%. To support retail outlets during COVID-19, the retail discount will increase to 100% and expand to include hospitality and leisure businesses for 2021. The government will complete a fundamental review and report on business rates by Autumn

 

  • The government will have a helpline for businesses and the self-employed in financial distress that owe taxes. They can offer a bespoke Time To Pay arrangement to defer amounts owed to HMRC to a future period

 

  • The 100% first year allowance (deduction from corporation tax) for qualifying zero emission cars good vehicles and equipment has been extended for 4 years.

 

  • Coronavirus Business Interruption Loan Scheme to support up to a further £1 billion lending to SMEs, a £2.2 billion grant scheme for small businesses

 

  • Entrepreneurs’ Relief provides for a lower rate of Capital Gains Tax (10%) to be paid when disposing of all or part of a business where certain criteria are met. It was subject to a lifetime limit of £10 million of qualifying gains. The budget reduces the limit from £10 million to £1 million for Entrepreneurs’ Relief qualifying disposals made on or after 11 March 2020.  The relief is available to eligible director’s and employees of companies who meet certain criteria, for example you have to own at least 5% of the ordinary shares in the company.

 

  • The flat rate deduction for homeworking available to employees to cover additional household expenses increases from £4 per week to £6 per week from April 2020.

 

  • A £28m package and up to 10,000 Start-Up Loans to support entrepreneurs and businesses to start

Director’s earnings

  • The basic rate of tax is 20%. In 2019/20 and 2020/21 the band of income taxable at this rate is £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance of £12,500. Individuals pay tax at 45% on their income over £150,000.

 

  • The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:

  7.5% for basic rate taxpayers
  32.5% for higher rate taxpayers
  38.1% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance. To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Employment

  • The National Insurance Contribution threshold increases from £8,632 to £9,500, saving a typical employee around £104 a year from April.

 

  • The Maximum Employment Allowance for Employer National Insurance Contributions is increasing from £3,000 to £4,000. Your company has to be paying employer’s class 1 insurance to claim it. You cannot claim if you’re the director and the only employee paid above the Secondary Threshold (currently £8,632)

 

  • Businesses with fewer than 250 employees can reclaim the cost of providing Statutory Sick Pay (SSP) to employees off work due to the coronavirus. But the claim is limited to two weeks per employee.  This will come into effect when the regulations extending SSP to self-isolators come into force and you should keep records of COVID-19 related absences.

 

  • support through the welfare system for those who cannot claim SSP, as well as a hardship fund

 

  • National Living Wage (NLW) and National Minimum Wage (NMW) Significant increases in minimum wage rates take effect from 1 April 2020. From 1 April 2020, the new hourly rates of National Living Wage and National Minimum Wage are:

 

  • £8.72 for those over 25 years old
  • £8.20 for 21-24 year olds
  • £6.45 for 18-20 year olds
  • £4.55 for under 18s
  • £4.15 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship

 

  • There will be a new pay and leave entitlement for parents of babies who spend extended time in neonatal care

 

  • There’s no change to the personal allowance (how much people need to earn before paying income tax). It remains at £12,500. Income tax rates and bands were unchanged for those in England

There will be another budget in Autumn.

Please get in touch if you want to discuss any of the above

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