The Chancellor of the Exchequer presented the United Kingdom (UK) Budget 2020 to Parliament on March 11, 2020. As mentioned in the budget statement, employment growth remains strong; and earnings growth continues in the UK above the inflation rate while the employment rate has reached a record high since December 2019. The Budget also has allocated a whopping GBP 12 billion plan in support of public services, individuals and businesses, whose finances are affected negatively due to COVID-19.
As per Budget 2020, key rates are unchanged- The Corporation Tax Rate is maintained at 19 percent from April 2020, and employer and employee NIC rates unchanged. Income Tax, Capital Gains Tax, Dividend Tax rates also remain unchanged. The VAT rates and thresholds remain the same as well. The highlights of the 2020 budget are as follows:
- With effect from April 2020, Increase in the threshold of National Insurance Contributions (“NICs”) (i.e. the amount at which employees start paying for the Contributions- ‘NICs’) from GBP 8,632 to GBP 9,500.
- With effect from April 2020, the maximum flat-rate deduction available to employees working from home under homeworking arrangements to cover additional household expenses increased from GBP 4 per week to GBP 6 per week.
- Three social security benefits introduced by the Scottish government are exempt from income tax. These benefits are viz., Job Start; Disability Assistance for Children and Young People; and, the Scottish Child Payment
- The threshold for pension’s tax relief raised by GBP 90,000. This means that from 2020-21 the “threshold income” will be GBP 200,000, so this should now only impact individuals earning in excess of GBP 200,000 per annum and the annual allowance (GBP 40,000) will only begin to taper down for individuals who also have an “adjusted income” above GBP 240,000.
- The budget has highlighted the off-payroll working rules (commonly known as IR35) that will be implemented on April 06, 2020 (as previously announced). The government has recently concluded a review of the reform and is making a number of changes to support its smooth and successful implementation and the reform will, therefore, be legislated in Finance Bill 2020. Under these rules, companies employing contractors will now need to decide if they are employees and not contractors and apply National insurance (NIC) and withhold taxes (PAYE) accordingly. In case of small companies this burden to determine if the he / she is an employee or contractor shifts on the contractor. The need for documentation to prove if a contractor is indeed a contractor not needing NIC / PAYE or is an employee will be critically important.
- The budget highlighted the announcement made by the Prime Minister in light of COVID-19 bill, allow Statutory Sick Pay (“SSP”) payable by employers is allowed to be paid from the first day of sickness absence, rather than the fourth day, for people who have COVID-19 or have to self-isolate, in accordance with government guidelines, temporarily.
- From April 2020, the National Living Wage (minimum wages) will increase from GBP 8.21 to GBP 8.72.
- From April 2020, the Employment Allowance for Employer National Insurance Contributions is increasing from GBP 3,000 to GBP 4,000.
- Corporation Tax Rate is continued will be maintained at 19% from April 2020.
- The budget has highlighted that, as announced at Budget 2018, the government will introduce a new 2% the Digital services tax (“DST”) on the revenues of certain digital businesses (search engines, social media services, and online marketplaces, etc.) effective from April 01, 2020. DST will apply when the group’s worldwide revenue from the digital activities is above GBP 500 million and the amount above GBP 25 million is derived from UK users. If the group’s revenues exceed the above thresholds, the revenues derived from UK users will be taxed at 2%. The group’s first GBP 25 million revenue from the UK users will not be subject to digital services tax (“DST”).
- The budget has highlighted that, as set out in July 2019, the government will reduce most Company car tax (“CCT”) rates by 2% in 2020-21 for cars first registered from April 6, 2020, with a new zero percentage rate for pure electric vehicles (EVs). Rates will be increase in the next 2 years, i.e. increase by 1% in 2021-22 and another 1% in 2022-23.
- The budget has highlighted that, as announced on October 31, 2019, the government will legislate to confirm that HMRC may use automated processes to issue taxpayers with notices to file tax returns and penalty notices.
- UK to introduce legislation for a zero rate VAT on e-publications w.e.f. December 1, 2020, to make it clear that e-books, e-newspapers, e-magazines, and academic e-journals are entitled to the same VAT treatment as their physical counterparts.
- From January 1, 2021, postponed accounting for VAT purposes will be applicable on all imports of goods (including the imports from the EU).