National Insurance Contributions

Nil rate of employer NIC for employees under the age of 21 and apprentices under 25, up to £962pw.

Employer contributions (at 13.8%) are also due on most taxable benefits (Class 1A) and on tax paid on an employees behalf under a PAYE settlement agreement (Class 1B).

Class 2 (Self employed)

Flat rate per week £3.05
Small profits threshold £6,475

Class 3 (Voluntary)

Flat rate per week £15.30

Class 4 (Self employed)

On profits £9,500  £50,000 9.0%
On profits over £50,000 2.0%

 

Income Tax Rates and Allowances

PA will be withdrawn at £1 for every £2 by which adjusted income exceeds £100,000. There will therefore be no allowance given if adjusted income is £125,000 or more.

£1,250 of the PA can be transferred to a spouse or civil partner who is no more than a basic rate taxpayer, where both spouses were born after 5 April 1935.

If gross income exceeds it, the limit may be deducted instead of actual expenses.

Rate Bands 2020/21 2019/20
Basic Rate Band (BRB) £37,500 £37,500
Higher Rate Band (HRB) 37,501-150,000 37,501-150,000
Additional rate over 150,000 over 150,000
Personal Savings Allowance (PSA)
Basic rate taxpayer 1,000 1,000
 Higher rate taxpayer 500 500
Dividend Allowance (DA) 2,000 2,000

BRB and additional rate threshold are increased by personal pension contributions (up to permitted limit) and Gift Aid donations.

Tax Rates 2020/21 and 2019/20
Rates differ for General, Savings and Dividend income within each band:
G S D
Basic 20% 20% 7.5%
Higher 40% 40% 32.5%
Additional 45% 45% 38.1%

General income (salary, pensions, business profits, rent) usually uses personal allowance, basic rate and higher rate bands before savings income (interest). To the extent that savings income falls in the first £5,000 of the basic rate band, it is taxed at nil rather than 20%.

The PSA will tax interest at nil, where it would otherwise be taxable at 20% or 40%.

Dividends are normally taxed as the top slice of income. The DA taxes the first £2,000 of dividend income at nil, rather than the rate that would otherwise apply.

High Income Child Benefit Charge (HICBC)

1% of child benefit for each £100 of adjusted net income between £50,000 and £60,000.

Income Tax  Scotland 2019/20 Rate 2020/21 2019/20
Starter Rate 19% £1 £2,085 £1 £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

The Scottish rates and bands do not apply for savings and dividend income, which are taxed at normal UK rates.

Remittance basis charge 2020/21 2019/20
For non-UK domiciled individuals who have been UK resident in at least:
7 of the preceding 9 tax years £30,000 £30,000
12 of the preceding 14 tax years 60,000 60,000
15 of the preceding 20 tax years Deemed to be UK domiciled for tax purposes

 

Registered Pensions (Table B)

2020/21 2019/20
Lifetime allowance (LA) £1,073,100 £1,055,000
Annual allowance (AA) 40,000 40,000

Annual relievable pension inputs are the higher of earnings (capped at AA) or £3,600.

The AA is usually reduced by £1 for every £2 by which relevant income exceeds £240,000 (2019/20: £150,000), down to a minimum AA of £4,000 (2019/20: £10,000)

The AA can also be reduced to £4,000, where certain pension drawings have been made.

Car and Fuel Benefits (Table C)

Cars

Taxable benefit: List price multiplied by chargeable percentage.

2020/21 percentage for petrol cars first registered
CO2 emissions
g/km
Electric range
Miles
Pre 06.04.2020
%
Post 05.04.2020
%
0 N/A 0 0
1-50 >130 2 0
1-50 70 – 129 5 3
1-50 40 – 69 8 6
1-50 30 – 39 12 10
1-50 <30 14 12
51-54 N/A 15 13

Then a further 1% for each 5g/km CO2 emissions, up to a maximum of 37%. Diesel cars that are not RDE2 standard suffer a 4% supplement on the above figures but are still capped at 37%.

Car Fuel

Where employer provides fuel for private motoring in an employer-owned car, CO2-based percentage from above table multiplied by £24,500 (2019/20 £24,100).

 

Tax Administration

No Budget would be complete without an announcement of a crackdown on tax avoidance and evasion. This time, there seemed to be no specific schemes for the Chancellor to close  instead, he announced a range of measures to make life difficult for people who promote and enable artificial tax avoidance schemes. There is also extra funding for HMRC to pursue tax avoidance.

Loan charge

The Budget confirmed that the Government will implement the recommendations of Sir Amyas Morses review of the disguised remuneration loan charge. This was intended to negate the benefit of tax avoidance arrangements going back to 1999. The effect on some individuals was severe, and many argued that it was unfair to tax twenty years worth of income in one year when HMRC had known about the scheme for years without challenging it. The charge will only apply to loans made from 9 December 2010 to 5 April 2019, and a number of other concessions will help those affected to settle their bills. Anyone who is concerned that the rules might apply to them should take advice on what ought to be a better outcome.

Insolvency

In 2018 the Government announced an intention to move HMRC up the order of preference when a business enters insolvency. This is intended to make sure that taxes that a business has deducted from someone else – PAYE, NIC and student loan deductions from employees and VAT from customers, for example – are used to pay for public services rather than going to other creditors. This measure will now be introduced (and will be extended to include Northern Ireland) but will be delayed to 1 December 2020.

The human face of HMRC

Tax law often refers to a decision being made by an officer. Some taxpayers have challenged notices that have been issued automatically by HMRCs computer on the basis that no human decision was involved. The law will be changed, with retrospective effect, to make sure that all notices issued by computer have their intended legal effect.

 

Business Tax

The Corporation Tax rate was previously set to fall to 17% from 1 April 2020. However, the Government decided to keep the rate unchanged at 19% for at least the two years from 1 April 2020 in order to make funds available for the NHS.

Capital Allowances on plant

The Annual Investment Allowance, on which a business can claim 100% relief on the cost of purchasing plant and machinery, was increased to £1 million for two years from 1 January 2019. It will fall back to the previous limit of £200,000 on 1 January 2021. There are complex rules where a period of account straddles the change, so anyone planning to spend more than £200,000 per year on plant should take advice to avoid the pitfalls.

At present, there are 100% first year allowances for cars with CO2 emissions of up to 50g/km. This was to run until 31 March 2021, then to be replaced by the normal rules for cars, which only enjoy writing down allowances (WDAs). The Budget provides that 100% allowances will continue to apply to wholly electric cars and goods vehicles (no emissions) until April 2025. From April 2021, cars with emissions up to 50g/km will be eligible for 18% WDAs (currently up to 110g/km); cars above that level will only qualify for 6% WDAs.

Capital Allowances on buildings

Structures and Buildings Allowance was introduced for expenditure on construction of new non-residential structures and buildings (not land) on or after 29 October 2018. The allowance was initially set at a flat rate of 2%. There is no balancing adjustment on a sale – the purchaser takes over the remainder of the allowances and the writing down period.

The rate is increased from 2% to 3% from 1 April 2020. Where a chargeable accounting period straddles this date, the allowance will be time-apportioned (e.g. it will be 2.5% for a 12 month period to 30 September 2020).

Capital losses

As previously announced, from April 2020 the offset of companies brought forward capital losses will be restricted. Only 50% of gains will be eligible to be relieved by brought forward losses, but there will be unrestricted use of the first £5m of total losses brought forward (capital and income losses combined), which means that 99% of companies will not be affected.

Research and Development (R&D)

Large companies carrying out qualifying R&D are eligible to claim Research & Development Expenditure Credit (RDEC), a percentage of qualifying expenditure that can be set against taxable profits. The rate of RDEC will increase from 12% to 13% for expenditure incurred on or after 1 April 2020.

The Government had intended to introduce a measure to prevent what is regarded as abuse of the R&D relief for small and medium enterprises by restricting the payable tax credit to the amount of the company’s PAYE liability for the period. Following representations from industry, this has been deferred until 1 April 2021 and will be subject to further consultation. The Chancellor also announced a consultation on whether expenditure on data and cloud computing should qualify for R&D tax credits.

Intangible assets

A new way of giving tax relief to companies for intangible assets such as patent rights was introduced in 2002. At that time, a distinction was made between assets that had been created before and after the change of rules. Where a company acquired pre-2002 intangible assets from a related party, the relief did not apply. This distinction will be removed for acquisitions of intangible property from related parties on or after 1 July 2020. There are transitional provisions to deal with transactions between 11 March and 30 June 2020.

Enterprise Zones (EZ)

Enhanced capital allowances for investment in new plant or machinery within designated Enterprise Zones were introduced in 2012, originally for 5 years from the designation of an area as an EZ, later extended to 8 years  so an EZ designated in 2012 would expire in 2020. These 100% first year allowances will now be made available in all designated areas until at least 31 March 2021.

 

Savings and Pensions

The ISA investment limit for 2019/20 remains £20,000 for a standard ISA. The limit for Junior ISAs and Child Trust Funds rises from £4,368 to £9,000.

The first Child Trust Funds were opened for children born in September 2002; they will mature in September 2020 when the child turns 18. The balance can be transferred to an adult ISA without affecting the annual ISA investment limit for that person.

Pension contributions (Table B)

There has been speculation that the Chancellor might reduce pension tax relief, which costs the Exchequer a great deal. However, the most significant change has been to reduce the impact of tapering of the maximum contribution to a pension scheme  the Annual Allowance (AA). People with salaries over £110,000 and total income (including pension contributions) over £150,000 currently suffer a reduction in the normal AA of £40,000 down to a minimum of £10,000; the charge on contributions or increases in pension benefits above the reduced AA can create an effective tax rate of more than 100% for someone at that level who takes on extra work. Senior doctors have protested that it is not worth them carrying out operations, and the Government considered special measures to address that particular problem.

In the event, the Chancellor has changed the rules for everyone, raising the thresholds from April 2020 by £90,000 to £200,000 and £240,000. For someone above those higher levels, the AA of £40,000 will now be tapered down to a minimum of £4,000. The Government estimates that 250,000 people are affected by the AA charge, and the increases in the taper threshold will exempt many of them.

The Lifetime Allowance (LA) is the maximum amount that a person can save in tax-advantaged pension schemes. The value of benefits is measured against the LA when benefits are first taken from a pension, and also on some other occasions, including the individual 75th birthday. The LA will increase in line with inflation from £1,055,000 to £1,073,100 from 6 April 2020.

 

Employees

The basis for taxing company cars and fuel provided for private use is set out in the Table. This has been complicated by a change in the way CO2 emissions are measured: this has led to different rules applying to cars registered before and after 6 April 2020. The taxable benefits will be different for the next two years, after which there will be a single set of rates again. Fully electric cars will give rise to no tax charge in 2020/21, increasing to tax on just 2% of their list price by 2022/23.

There have been other changes to the taxable figures for vans with private use, including removing the charge on electric vans with effect from 6 April 2021.

Off payroll working

HMRC has been concerned about individuals working through personal service companies (PSCs) for two decades: they regard this as a way of avoiding PAYE and Class 1 NIC where in reality (in HMRCs view) the individual is acting as an employee.

The IR35 rules required PSCs to pay PAYE and NIC on income from engagements that were effectively employments. From 6 April 2017, where the individual behind the PSC works in the public sector, the responsibility for paying this tax was transferred to the person paying the PSC, and the responsibility for deciding what is effectively employment’ was imposed on the public sector engager. HMRC is convinced that this has reduced non-compliance, and as announced in 2018, will from April 2020 extend the same rules to large and medium-sized employers in the private sector.

This is a very significant and potentially contentious change for all those who work through PSCs and those who use them. It will be important to understand the decisions that have to be made and who has the responsibility for taking them, and what to do if the parties to a contract do not agree about its status.

 

Tax rates and allowances

It may be unprecedented for a Budget speech not to mention personal income tax. Philip Hammond made big increases in allowances for 2019/20 in his last Budget, and the main ones have been frozen for 2020/21. Income Tax rates are now extremely complicated. An individuals total tax on any given amount will vary depending on the types of income they receive (for example, salary, profits, rent, interest, dividends), but at least someone on the same income will pay the same tax next year as they did this year.

The level of income at which the personal allowance is withdrawn has been £100,000 since the rule was introduced in April 2010, and inflation means that far more people are now affected. Every £2 of income over that level reduces the allowance by £1. This results in an effective marginal rate of tax of 60% in the band of income up to £125,000 in 2020/21, above which the taxpayer will have no personal allowance.

The Scottish Parliament has set different tax rates and thresholds for general income of Scottish taxpayers (details in Table A). The Welsh Government also has the power to set a different rate of income tax for non-savings, non-dividend income for Welsh taxpayers, but has announced that it will not vary the UK rates.

 

The ATED trap

The Annual Tax on Enveloped Dwellings (ATED) applies when a company (and certain other bodies) owns a UK residential property worth over £500,000. The charge applies for the year from 1 April, but the ATED return, and any payment due, must reach HMRC by 30 April within that period (i.e., by 30 April 2020 for 2020/21).

This annual charge starts at £3,650 and increases, through valuation bands, up to £232,350 for 2019/20. The charge is based on the property’s value as at 1 April 2017, or the purchase date if later.

The owner can claim 100% relief from ATED if the property is let commercially, is under development, or if certain other conditions apply, but the relief must be claimed on an ATED relief form by 30 April for each year.

There are steep penalties for late submission of ATED returns, which are payable even if there is no ATED charge to pay. HMRC can check whether an ATED return is due by accessing the Land Registry database to see who owns which properties.

Action Point!
Remember to claim ATED relief when developing or letting high value homes owned by a company.

 

Money for miles

If you use your own car for a business journey, perhaps to travel to a customer, you can claim mileage expenses for that journey. Many employers pay the full taxfree amount of 45p per mile, which drops to 25p for miles in excess of 10,000 in one tax year.

If your employer doesnt pay the full rate, you can claim tax relief on the shortfall, either on your tax return or on form P87. You need to submit your claim within four years of the end of the tax year in which you made the business journey. Claims for 2015/16 must reach the tax office by 5 April 2020.

Once HMRC has accepted your mileage claim for one tax year, subsequent claims for up to £1,000 per year can be made by phoning the tax office on 0300 200 3300.

Action Point!
Are you due a tax refund for business journeys?