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LONGHILL Accounting Ltd

April 3rd, 2020

As is by now customary we attach our take on the Chancellors spring Budget and bring you up to date both with current and postulated changes to the tax system within the foreseeable future.
We start off with a summary of the main changes that came out of this year’s budget. This is not a comprehensive overview and I have omitted various fairly specialist measures and other matters that do not seem to apply to our clients. I have also omitted lifestyle changes like duty on alcohol and fuel. We do not deal with benefits and I have omitted
discussion of changes to these.
I will try and pick up particular issues with individual clients who appear to be affected by them but if you have any queries with any of the points raised please do let me know and I will do my best to find out the answers.
This was an unusual budget for several reasons:
Firstly, it is the first Budget for 18 months. 2 Chancellors and a General Election have come and gone since then. The UK is out of the EU and the new Chancellor has been in post 4 weeks and is someone most of us have never heard of (indeed has only been an MP for 4 years).
Secondly and obviously the country is in the early stages (according to medical professionals) of a coronavirus (‘CV’) epidemic. Several measures to support business, mainly small business, were announced in the Budget, of which more below.
Thirdly and most bizarrely the main body of the Budget felt more like a Labour party spending manifesto than a traditional cautious Conservative one. Vast amounts of money were pledged on infrastructure improvements (roads, housing railways etc), much of which will be paid for by borrowing, which we suppose to be (just about) supportable if
interest rates remain low but will risk another credit crisis a few years down the line. The traditional line taken by Conservative chancellors Osborne and Hammond – that balancing the budget is the priority – has now been very definitely abandoned.
Much was made by the chancellor of planting new trees and other ‘green’ measures. In this context we note that that monies set aside for green measures is 1/10 of that set aside for infrastructure.
Whatever was said on Wednesday, in reality all bets are off for 2020 due to the impact of CV-prevention measures on the economy. Before the CV crisis the OBR was predicting weak growth in the UK and globally but it is far more likely now there will at least 3 months of severely reduced global economic output and that consumer confidence will take time to recover. Some of this may be recovered later on but most will be lost (the last
sentence is my take not the Government’s).
As I write stock markets have fallen to their lowest point since 2011 and economic activity in the travel and hospitality sectors is already badly affected. In addition, we have no idea what a trade deal with the EU might look like or even whether CV-19 will allow sufficient
time for one to be negotiated.
Covid-19 measures
– Currently Statutory Sick Pay (SSP) is payable only from the 4th day of illness. As a temporary measure this will be payable from the 1st day of illness for those who have CV-19 or who are self-isolating in accordance with government guidelines, either because they may have been exposed or because they are caring for a member of the same household.
– In addition, employers with < 250 employees will be able to claim SSP costs back from the government at a rate of 2 weeks per employee for SSP payable as a result of CV-19
– The self-employed and those earning below the NI Lower Earnings Limit (about £6000) would not normally be eligible for SSP; they now have access to a ‘new style’ Employment Support Allowance plus Universal Credit (which I guess they have access to already)
– Business rates for small (< £51000 rateable value) retailers (my notes suggest that this includes all businesses in the leisure & hospitality sector) will be reduced to zero for 2020-21.
– Other small businesses eligible for Small Business Rate Relief (definition as above) are eligible for a cash grant of up to (?) £3000, though it is not yet quite clear exactly who qualifies or how you go about making the claim.
– HMRC is supposed to be more sympathetic towards ‘time to pay’ applications, on any type of tax though I would take that with a certain pinch of salt. Our normal advice in this area still stands; tell HMRC about cashflow difficulties as early as possible and don’t let the deadline go by before making the application.
– The government will launch a new Coronavirus Business Interruption Loan Scheme, backed by an 80% Government guarantee and through the British Business Bank.
No guarantees are offered on levels of finance or the terms on which the finance is offered.
Personal tax & National Insurance
– The Personal allowance for 2020-21 will remain at £12,500.
– The Higher Rate threshold for income tax will also remain at £50,000
– National Insurance primary threshold for 2020-21 will be £9,500 (up from £8,632) in 2018-19; upper earnings limit will remain at £50,000 along with the higher rate personal tax threshold.
– Weekly homeworking allowance for employees to be increased from £4 to £6.
– Tax return late submission penalties. Reforms to the current penalty system are not due to come into force until next year and we don’t yet know what these will look like.
– No changes were announced to the way in which dividends are taxed (so 1st £2,000 remains taxable at 0%, and others taxable at 7.5%/32.5%/38.1% depending on whether you are a basic/higher/top rate tax payer.
Company tax
– The headline rate of Corporation Tax remains% with effect from 1 April 2020; the current rate remains at 19% for all companies.
– Annual Investment Allowance (AIA) remains at £1,000,000 up to 31 December 2020. This is the maximum amount of capital expense that can be written off against profits for a given period. From 1 January 2021 the level will revert to £200,000.
– Employment Allowance (EA). This allowance gives small companies relief from their first £3000 of Employer NIC in a given tax year. From April 2020 this relief will be restricted to companies with an NIC bill of <£100k in the previous tax year; this is presumably to prevent a giveaway to larger employers. The current budget blocked the loophole that would have allowed large employers to split their workforce across several companies in the same group to claim one or more EAs.
In addition, the allowance to eligible employers will be increased to £4,000.
– R&D relief. From April 2020 the amount of payable R&D tax credit will be restricted to 3x the company’s total PAYE & NIC for the previous year. Not many of our clients claim R&D credit and I am not entirely sure whether this is likely to have a practical effect on those that do (depends on their individual circumstances).
– Large business notification. Luckily this doesn’t affect our customers but from April 2021 large businesses will be required to notify HMRC whenever they take a tax position that HMRC is likely to challenge. So in other words large businesses must turn themselves in every time they do some tax planning!
– The VAT registration threshold has been frozen at £85,000 for 2020-21; no
adjustment to this level is currently expected until 2022.
– A ‘reverse charge’ VAT levy is to be brought in affecting the building industry. This was announced in 2018 and was originally due to come into force on 1 October 2019 but was put back a year until October 2020. This will affect the supply of services (i.e. labour) in the construction industry where both contractor and subcontractor are VAT-registered and is designed to combat perceived VAT fraud in the building industry.
The list of services affected is the same as those affected by the Construction
Industry Scheme.
Under these new arrangements, a subcontractor will no longer charge the
contractor VAT if the contractor is VAT-registered. The contractor will account for both sales and purchase VAT on its own VAT return (so a nil net position). This prevents the situation arising where the contractor claims back the subcontractor VAT but the subcontractor does not declare it to HMRC (clearly HMRC think that this is happening). If a contractor is not VAT-registered then the subcontractor presumably charges VAT as normal.
Both subcontractor and contractors will have to ensure that VAT is charged and declared correctly. We will pick this issue up separately with all clients likely to be affected.
– VAT is an EU tax but that does not mean that it is going to disappear any time soon. The Budget paid lip service to making the ‘VAT & excise system more business-friendly’ but without providing details. Clearly the UK does have some flexibility on how it administers VAT but no decisions appear to have yet been taken.
IR35 & private sector
As those working in the sector will know the supply of time through a personal services company (the company typically supplies the services of the owner to its customers) has long been a target of HMRC who see these companies as a way of avoiding National Insurance.
The IR35 rules are designed to apply where the relationship between customer and supplier would be one of employer-employee but for the existence of the limited company and basically taxes receipts from the affected customer as if they were PAYE earnings (this tends to increase the amount of tax & NI paid by the company and its owner). The decision as to whether these rules apply has basically been left to the service
company which in the view of HMRC is a bit like a turkey deciding whether Christmas should be celebrated, and in their view basically doesn’t work.
For the last 2 years and in the public sector only the decision and responsibility for applying the rules correctly has been moved from service company to ultimate customer; 
with effect from 5 April 2020 this will also apply in the private sector for large & medium-sized companies (‘small’ means <50 employees, <3.26m balance sheet, < 6.5m sales)
– If a customer decides that IR35 rules apply it will deduct personal income and NI from the supplier’s invoice and pay the net amount to the service company. The individual will be given payslips and other payroll related tax information but will not necessarily be entitled to holiday or sick pay.
– Accounting in the service company is too complicated to go into here but basically the accounts ignore turnover treated in this way and the income is treated as the personal income of the director-shareholder. Ultimately this may leave the company with costs that it cannot offset against income.
– The Budget stated that this measure would apply to larger companies only
(presumably they mean the service company customers) and that the smallest 1.5m companies would not be affected; we do not yet know how these bands will be defined.
– We expect some initial teething troubles as the measure is rolled out, especially with customers trying to apply the rules to suppliers undertaking work that does not fall within IR35
Our take is that many people formerly working as subcontractors through limited companies will simply be offered short-term employment contracts instead.
– Nothing was said in the Budget beyond confirming the arrangements that will came into force a year ago, that is to say that VAT-registered businesses whose turnover is also above the VAT threshold need to submit VAT returns digitally. That means to all intents and purposes means using software. There have been some teething issues as you might expect but in general the system has bedded down.
For the 1st 12 months HMRC elected not to charge penalties for VAT returns
submitted late under MTD. That period expires at the end of this month.
– No other aspect of MTD is expected to come into force before April 2021. We still do not have clarity on the size of businesses to be affected or whether income or corporation tax will be affected first.
– In reality it seems unlikely that either government or small business is likely to be fully prepared for the extra burden of MTD by 2021, especially in light of business difficulties arising out of CV-19
DIVIDENDS. No new measures
PENSIONS. Not really our area but following changes:
– The maximum you can pay into a private pension remains at £40,000 per year. For those individuals earning > £110,000 a year this maximum is tapered at a rate of £1 for every £2 earned above the maximum. This upper rate is set to increase to £200,000 for 2020-21.
– Lifetime allowance increases from £1,055k to £1,073k
(Not all of these measures were announced in this Budget but they do now come into force)
– From April 2020 there will be a change to the lettings relief currently available on main residences. As matters stand if you rent your main property out and then later move back into it the first £40000 of any gain incurred during letting is exempt for CGT purposes. Now it appears that this will only apply where owner and tenant are sharing occupation (in which case presumably the owner is living in the property anyway).
– Also from April 2020 the deemed occupation period applied to a property which was once a taxpayers main residence will be cut from 18 months to 9; this basically means that if you move out of a property and into a new one to assist the sale process you now have 9 months to sell the old property before having to consider Capital Gains Tax rather than 18.
– From 2020-21 the transitional period for changing the way in which mortgage interest is treated will have come to an end, and those of you will rental properties subject to mortgages should already be familiar with the staged arrangements in place for the last few years. As noted before these arrangements are unlikely to change your tax bills unless you are a higher rate tax payer or close to the top of the basic rate band.
See also the change in CGT reporting on disposals of residential property (below – also not new but coming into force this April)
– A cut to Entrepreneurs Relief (ER) was announced in the Budget. ER basically allows business owners to sell their businesses at a CGT rate of 10% rather than the current rate of 18%
Up to this point there has been a lifetime allowance of £10m (i.e. a lifetime
maximum of gains on business disposals of £10m subject to this lower rate of tax.
This allowance is reduced to £1m from April 2020.
– With effect from 5 April 2020, any CGT payable on the disposal of residential properties will be due 30 days after sale. This will be an ‘on-account’ payment, supported by a special return for each disposal, and the gain will still need to be reported through the taxpayers return for the year. There is no doubt that many small landlords will be caught out by this relatively short window but there seem to be two other problems:
o The deemed date of disposal is the date of contract exchange not the date
of completion. So it is entirely possible that CGT will be due before the
taxpayer has actually received the disposal proceeds or even knows what
the final costs of sale are.
– While CGT refunds on losses on other residential properties will be processed through the special return system there is no in-year relief for other CGT losses
(e.g. on quoted shares). So tax may be due on a property disposal but the refund delayed for 18 months.
So it is more important than ever that you tell us about the sale of residential property as it happens.
In contrast to his predecessors this Chancellor has made no forward announcements about changes to the tax system that will take place in a year’s time or further ahead. I guess that the twin (largely unknown) impact of CV and EU trade negotiations adds up to the Government wanting to keep all of its options open.

The content of this article is for general information only. It should not be relied on and action which could affect your business or personal circumstances should not be taken without appropriate professional advice.