Budget 2020 – Winners and losers
This week, Rishi Sunak has delivered the first Budget of the new Conservative government. With a large majority behind him, the theme of the Chancellor’s speech was to deliver the promises made in the party’s election manifesto or, as Sunak himself repeatedly said, to ‘get things done’.
Of course, the coronavirus outbreak has significantly changed
the Chancellor’s plans. Opening his speech, Sunak said: “We will rise to this
challenge – this virus is the key challenge facing our country today.”
With a package of measures designed to support the economy
through the spread of coronavirus, plus a pledge to deliver manifesto promises,
who were the winners and losers in the 2020 Budget?
Winners
Borrowers
Even before the Budget began, the Bank of England had
already announced measures to support the economy, including an emergency
reduction in the Base rate from 0.75% to 0.25%.
The outgoing Governor of the Bank of England, Mark Carney,
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.”
If you have a tracker mortgage – where your interest rate is
directly linked to the Base rate – you should immediately see a reduction in
your repayments.
If your mortgage is linked to your lender’s Standard
Variable Rate (SVR) then you may have to wait and see if you benefit. There is
hope, as after the Base rate was last cut in 2016 eight of the UK’s top 10
lenders reduced their SVR by the same amount soon after.
Small businesses
With experts predicting that the coronavirus outbreak is
likely to have a negative effect on the economy, the Chancellor announced a £12
billion package of support to respond to the economic impact of the virus.
Much of this support was aimed at small businesses,
particularly those in the retail, leisure and hospitality sectors who are
likely to be most significantly impacted by the public having to stay at home
and self-isolate.
For businesses with fewer than 250 employees, 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.
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 - £2.2 billion of funding for local authorities in
England would be provided, to enable grants of £3,000 to be made to around
700,000 business currently eligible for Small Business Rate Relief - A new Coronavirus Business Interruption Loan
Scheme will see banks offer loans of up to £1.2m to support SMEs, with the
government providing a guarantee of 80% on each loan.
In addition to emergency measures to tackle the coronavirus
outbreak, there was other good news for small businesses.
The government also confirmed that it is delivering on its
commitment to increase the Employment Allowance to £4,000. This means that
businesses will be able to employ four full-time employees on the National Living
Wage without paying any employer National Insurance contributions (NICs).
The Chancellor also confirmed that Corporation Tax rate
would remain at 19%.
Those paying National insurance contributions
Delivering on a manifesto commitment, the Chancellor
announced that the threshold for paying National Insurance contributions would
rise, from £8,632 to £9,500.
This equates to a tax cut for around 31 million people,
saving a typical employee more than £100 a year.
Low earners
The Chancellor confirmed that, by 2024 (and economic
conditions permitting), the National Living Wage should reach two-thirds of median
earnings, equivalent to over £10.50 an hour.
Many people affected by the Tapered Annual Allowance
In recent months, the issue of the pensions Tapered Annual
Allowance has made the headlines. Large numbers of NHS staff were refusing to
work additional shifts because of the taper, which left many facing large tax
bills.
Having promised an urgent review into the taper, the
Chancellor announced that the thresholds at which the Tapered Annual Allowance
came into effect would rise by £90,000.
Now, if your threshold income is above £200,000, then you
need to check if your ‘adjusted income’ (essentially all income that you are
taxed on including dividends, savings interest and rental income, before tax
plus the value of your own and any employer pension contributions) is over £240,000.
If it is above £240,000, the annual allowance will reduce by
£1 for every £2 that your ‘adjusted income’ exceeds £240,000.
According to the Chancellor, this will take 98% of NHS
consultants and 96% of GPs out of the taper.
People saving for children
In the 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 support 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 adult ISA subscription limit will remain at £20,000.
Anyone driving on the A303
For more than five years there have been plans to improve
the long stretch of A-road that passes the UNESCO World Heritage site at
Stonehenge.
After years of delay, drivers heading to or from the South
West received some good news with the Chancellor announcing that the government
will build a new, high-quality dual carriageway and a two-mile tunnel in the
South West to speed up journeys on the A303, and to remove traffic from the
iconic setting of Stonehenge.
For drivers in the area, there is finally light at the end
of the (two-mile) tunnel.
Readers
To support learning, the government will introduce
legislation on 1 December 2020 to remove VAT on e-publications such as
magazines and e-books.
Women
Now that the UK has left the EU, the Chancellor says that the
country can reduce the cost of essential sanitary products 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.
Drivers and drinkers
While there were no tax cuts for drivers and drinkers, the
Chancellor announced that he was freezing:
- Spirits duty
- Duty on beer
- Duty on cider and wine
- Fuel duty
Losers
Savers
With the Base rate falling to 0.25%, it’s reasonable that long-suffering
savers will see yet more falls in interest rates.
Moneyfacts reported
that, after the Bank of England last reduced the Base rate in 2016, the average
savings rate for an easy access bank account fell by 0.14% in the ensuing three
months.
Savers will also see no increase
in the amount they can contribute to an ISA in the 2020/21 tax year, and so the
limit of £20,000 remains.
Non-UK nationals buying UK property
As widely predicted, a 2% Stamp Duty Land Tax surcharge on
non-UK residents buying a residential property in England and Northern Ireland
will come into force in 2021.
The aim of this measure is to help to control house price
inflation and to support UK residents who want to get on onto and move up the
housing ladder.
The Chancellor says that the money raised from the surcharge
will be used to help address rough sleeping, with the government having
committed to ending rough sleeping in this parliament.
Business owners and entrepreneurs
Entrepreneurs’ relief offers a reduced 10% rate of Capital
Gains Tax on qualifying disposals.
With immediate effect, the lifetime limit on gains that are
eligible for Entrepreneurs’ Relief will reduce from £10 million to £1 million.
The Chancellor says that 80% of small business owners will be unaffected, but
larger businesses or those realising significant gains on disposals will pay
more tax.
High earners making pension contributions
While the threshold earnings level for the Tapered Annual
Allowance coming into effect have been raised by £90,000, those on the very
highest incomes will see a significant reduction in the amount they can
contribute to a pension and retain tax relief.
The minimum level to which the annual allowance can taper
down will reduce from £10,000 to £4,000 from April 2020. This reduction will
only affect individuals with total income (including pension accrual) over
£300,000.
However, the lifetime allowance, the maximum amount someone
can accrue in a registered pension scheme in a tax-efficient manner over their
lifetime, will increase in line with CPI for 2020-21, rising to £1,073,100.
Manufacturers using plastic
The Chancellor announced that the government will introduce
a new Plastic Packaging Tax from April 2022 to incentivise the use of recycled
plastic in packaging.
The Budget set the rate at £200 per tonne of plastic
packaging that contains less than 30% recycled plastic, and will apply to the
production and importation of plastic packaging.
Potholes
Potholes are likely to face a difficult year, with the
Chancellor announcing a Potholes Fund of £500 million for each of the next five
years.
He expects 50 million potholes to be filled in during that
time.
Get in touch
If you have any questions about the Budget and how it might affect you, please do not hesitate to get in touch.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.
