In March, Rishi Sunak delivered the first Budget of the new Conservative government. 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 pandemic 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.”

So, what are the main changes you and your clients need to know about?

1. Changes to Lifetime and Tapered Annual Allowance

Considering its effect on higher earners within the NHS, the pensions Tapered Annual Allowance has never been far from the headlines in recent weeks. The prospect of a large tax bill had seen many NHS staff decline additional shifts, increasing waiting times within the service.

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 a client’s threshold income is above £200,000, they need to check if their ‘adjusted income’ (essentially all income that they are taxed on including dividends, savings interest and rental income, before tax plus the value of their 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 their ‘adjusted income’ exceeds £240,000.

According to the Chancellor, this will take 98% of NHS consultants and 96% of GPs out of the taper.

However, while the threshold earnings level for the Tapered Annual Allowance coming into effect has 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 essentially means that any individual with total income (including pension accrual) over £300,000 will only be able to contribute £4,000 to a pension and retain tax relief.

The Chancellor also announced that 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.

2. Changes to lifetime limit on claiming Entrepreneurs’ Relief

Entrepreneurs’ Relief offers a reduced 10% rate of Capital Gains Tax on qualifying disposals. Introduced in 2008, it is aimed at incentivising people to create new businesses.

However, in recent years, the relief has been criticised. The Chancellor said that fewer than one in 10 claimants described the relief as an inducement to set up their business and said almost three-quarters of the cost went to 5,000 people. “Just because it’s called Entrepreneurs’ Relief, doesn’t mean that it’s entrepreneurs that mainly benefit,” he said.

With immediate effect, the lifetime limit on gains that are eligible for Entrepreneurs’ Relief will therefore 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.

3. Rise in Junior ISA limit

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. This means that clients will now be able to save up to £9,000 each tax year in a tax-efficient account for the benefit of their child.

The adult ISA subscription limit will remain at £20,000.

4. Support for small businesses during coronavirus outbreak

With experts predicting that the coronavirus outbreak is likely to have a devastating effect on the economy, the Chancellor announced a £12 billion package of support to respond to the economic impact of the virus. Rishi Sunak has since announced a raft of further measures designed to support companies through the challenging months ahead.

The most eye-catching announcement has been that the government is offering grants to employers across the country, covering wages for three months in 2020, for employees at risk of being made redundant.

The grants will be backdated to 1 March and pay up to 80% of at-risk employees’ salaries, up to individual totals of £2,500 a month. They are designed for employees who are kept on by their companies, despite effectively having no work to do as a result of the shutdown.

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 2020/21 for retail, leisure and hospitality firms will be abolished, as will business rates for nurseries
  • Businesses in the retail, hospitality or leisure sector with a rateable value of less than £51,000 will be eligible for a £25,000 cash grant from the government
  • Grants of £10,000 to be made to around 700,000 business currently eligible for Small Business Rate Relief or Rural Rate Relief
  • A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £5m 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 accounted 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 the Corporation Tax rate would remain at 19%.

5. National Insurance contributions threshold changes

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 around £100 a year.

Get in touch

If you or your clients would benefit from financial planning, or they want to know more about how the 2020 Budget will affect them or their business, please ask them to get in touch.

Email or call 0116 2407070.

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.