On Wednesday 11th March, Rishi Sunak delivered the 2020 Budget – the new Conservative government’s first budget. Backed by a large majority, the essence of the Chancellor’s speech was to deliver the promises laid out in the party’s election manifesto or, as Sunak himself emphasised repeatedly, to ‘get things done’.
Adrian Moy, Independent Financial Adviser at Pembroke Financial Services says “Without doubt, the Coronavirus outbreak will have significantly changed the Chancellor’s plans. As he opened his 2020 Budget speech, Sunak said: “We will rise to this challenge – this virus is the key challenge facing our country today.”
In considering a package of measures designed to ensure the economy is supported throughout the spread of the Coronavirus, together with a pledge to honour manifesto promises, who were the winners and losers in the 2020 Budget?”
Even prior to the initiation of the 2020 budget, The Bank of England had already announced measures with the aim of supporting the economy, which included an emergency reduction in the Base rate from 0.75% to 0.25%.
Mark Carney, the outgoing Governor of the Bank of England, said: “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”
For those who have a tracker mortgage, with your interest rate directly linked to the Base rate, you should expect to see an immediate reduction in your repayments.
If however, your mortgage is linked to your lender’s Standard Variable Rate (SVR) then it’s possible that you will have to wait to see if this is beneficial. There is optimism, as following the last Base rate cut in 2016, within UK’s top 10 lenders eight reduced their SVR by the same amount soon after.
Following the prediction of experts that the Coronavirus outbreak is expected to negatively effect the economy, the Chancellor announced a £12 billion package of support to counteract any economic impact of the virus.
Much of this focused on supporting small businesses, principally those in the retail, leisure and hospitality sectors who are considered to be significantly impacted by the public having to remain at home and self-isolate. The cost of any Statutory Sick Pay caused by the Coronavirus (up to a limit of 14 days per individual) will be refunded to the company, in full, by the government for businesses with fewer than 250 employees.
The Chancellor also announced that:
- Business rates for the next financial year for retail, leisure and hospitality firms with a rateable value of less than £51,000 would be abolished
- Funding of £2.2 billion for local authorities in England would be provided, enabling grants of £3,000 to be made available to approximately 700,000 businesses currently eligible for Small Business Rate Relief
- The introduction of a Coronavirus Business Interruption Loan Scheme has the potential for banks to offer loans of up to £1.2m to support SMEs, with 80% of each loan guaranteed by the government.
To tackle the Coronavirus outbreak, in addition to emergency measures there was other positive news for small businesses.
The government also reported that it will deliver on its commitment to increase the Employment Allowance to £4,000. This will enable businesses to employ four full-time employees on the National Living Wage without having to pay any employer National Insurance contributions (NICs).
There was also confirmation by the Chancellor that the Corporation Tax rate would remain at 19%, the lowest level in the G20.
Those paying National insurance contributions
Delivering on a commitment made in the manifesto, the Chancellor announced that the National Insurance contributions threshold would rise, from £8,632 to £9,500.
Equating to a tax cut for around 31 million people, this will save the average employee more than £100 a year.
By 2024 the Chancellor confirmed that economic conditions permitting, the National Living Wage should reach two-thirds of median earnings, equivalent to over £10.50 per hour.
Many people affected by the Tapered Annual Allowance
The issue of the pensions Tapered Annual Allowance has made the headline in recent months. A high percentage of NHS staff were refusing to work additional shifts due to the taper, which had resulted in many facing large tax bills.
Having promised the taper would be urgently reviewed, the Chancellor announced that the thresholds at which the Tapered Annual Allowance came into effect would be increased by £90,000.
Should your threshold income be above £200,000, then you will need to clarify whether your ‘adjusted income’ (essentially all taxable income including dividends, rental income and savings interest before tax, plus the value of your own and any employer pension contributions) is in excess of £240,000.
If this is more than £240,000, there will be a reduction in the annual allowance of £1 for every £2 that your ‘adjusted income’ is over £240,000.
The Chancellor believes this will release 98% of NHS consultants and 96% of GPs out of the taper.
People saving for children
In the 2020 Budget statement, the government said: “By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.”
To re-enforce this, the annual subscription limit for the Junior ISA (JISA) and Child Trust Fund (CTF) will more than double in the 2020/21 tax year, from £4,368 to £9,000.
The ISA subscription limit for adults will remain at £20,000.
Anyone driving on the A303
There have been plans for more than five years to improve the long stretch of A-road passing the UNESCO World Heritage site at Stonehenge. Following years of delay, drivers heading to or from the South West were given some long-awaited and welcomed news with the Chancellor reporting that the government will construct a new, high-quality dual carriageway with a two-mile tunnel in the South West which will reduce journey time on the A303, and divert traffic from the iconic Stonehenge setting.
For drivers passing through this area, at last there is light at the end of the (two-mile) tunnel.
To support learning, legislation will be introduced on 1 December 2020 by the government to remove VAT on e-publications such as e-books and magazines.
Now that the UK has departed the EU, the Chancellor says that the cost of essential sanitary products can be reduced for women in the UK.
This means that from 1 January 2021, the ‘tampon tax’ will be abolished through the application of a zero rate of VAT on women’s sanitary products.
Motorists and drinkers
While there were no tax cuts for motorists and alcohol consumers in the 2020 Budget, the Chancellor announced that he was freezing:
• Fuel duty
• Duty on beer
• Duty on cider and wine
• Duty on Spirits
With the Base rate falling to 0.25%, disadvantaged savers can expect to see further falls in interest rates.
It has been reported by Moneyfacts that after the last reduction in the Base rate by the Bank of England in 2016, the average savings rate for an easy access bank account fell by 0.14% in the following three months.
There will also be no increase in the amount savers can contribute to an ISA in the 2020/21 tax year, therefore the limit of £20,000 remains.
Non-UK nationals purchasing UK property
As has been broadly predicted, a 2% Stamp Duty Land Tax surcharge for non-UK residents purchasing a residential property in England and Northern Ireland will be enforced in 2021.
This measure is intended to assist in controlling the inflation of house prices and to support UK residents who wish to get a step onto and move up the housing ladder.
The Chancellor states that the funds raised from the surcharge will be allocated to help resolve the rough sleeping crisis, with the government having committed to eradicating rough sleeping during this parliament.
Business owners and entrepreneurs
Entrepreneurs’ relief offers a reduced 10% rate of Capital Gains Tax on qualifying disposals.
Effective immediately, the lifetime limit on gains that are eligible for Entrepreneurs’ Relief will be scaled back from £10 million to £1 million. The Chancellor reports that 80% of small business owners will be unaffected, but larger businesses or those profiting from disposals will be liable to pay more tax.
High earners making pension contributions
While the earnings level threshold for the Tapered Annual Allowance shortly to take effect has been increased by £90,000, for those on the very highest incomes, the amount they can contribute to a pension and retain tax relief will be significantly reduced.
From April 2020 the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000. Only individuals with total income (including pension accrual) over £300,000 will be affected by the reduction.
Nevertheless, the lifetime allowance which relates to the maximum amount someone can accrue in a registered pension scheme tax-efficiently over their lifetime, will increase in line with CPI for 2020-21, rising to £1,073,100.
Manufacturers using plastic
In the 2020 Budget The Chancellor announced that as an incentive to use recycled plastic in packaging, the government will introduce a new Plastic Packaging Tax from April 2022.
The Budget applied the rate at £200 per tonne of plastic packaging containing less than 30% recycled plastic, and this will be applicable to the importation and production of plastic packaging.
Potholes are likely to face challenges in the year ahead, with the Chancellor pledging a Potholes Fund of £500 million for each of the next five years.
He anticipates 50 million potholes to be filled in during that period.
If there are any questions regarding anything in the Chancellors recent budget please get in touch. Call us on 01273 774855 or email us by clicking here.
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