Budget 2020 – How It Affects You

budget 2020

Key Points For The Budget 2020

Whilst the Chancellor’s budget 2020 was heavily focused on boosting the economy to mitigate the effect of coronavirus, it didn’t stop him from implementing a number of pledges.

To help our clients understand the impact this will have on them and their businesses, we’ve identified a few key points that may be of interest.

Base Lending Cut From 0.75% to 0.25%

Before Rishi Sunak got the chance to deliver his debut Budget, The Bank of England opened up proceedings with an announcement that £10bn will be deployed from business and bank support reserves to underwrite business lending for the next five years.

It’s a historic low for interest rates intended to soften the blow of coronavirus on UK small businesses.

Incentives for high street banks to support additional lending have been set out by the Financial Policy Committee (FPC) intended to support businesses and households most at risk of an economic downturn.

Entrepreneurs’ Relief Capped At £1m

Whilst rumours that it would be abolished had been rife in the run-up to the Budget, the Chancellor stopped short of scrapping entrepreneurs’ relief entirely. Instead, the lifetime gains limit for any one person has been reduced from £10 to £1m.

Previously, business owners would benefit from a capital gains tax break, paying 10% when they sell at a gain of less than £10m. The rules now require that capital gains tax is paid at the full rate (20%) for gains in excess of £1m.

Rate Of Corporation Tax Remains At 19%

Whilst the Government had initially committed to reducing corporation tax by 2% in Budget 2016, the main rate will remain at 19% for the financial years commencing 1 April 2020 and 2021.

For those companies that bring forward corporate losses, the ability to offset those losses against capital gains tax will be restricted to 50%.

Mr Sunak explained that whilst reductions were promised in the Conservative manifesto, the corporate tax rate of 19% is still the lowest tax rate in the G20.

National Insurance Threshold To Rise From April

The starting point for employees’ Class 1 National Insurance contributions (NIC) and Class 4 contributions (for the self-employed) is to be raised to £9,500 from £8,632 for 2020/21.

Chancellor Rishi Sunak said, “That’s a tax cut for 31 million people, saving the typical employee over £100”.

Whilst employees are set to gain, the starting point for employers’ secondary Class 1 NIC remains set at the lower level of £8,788.

The personal allowance is to remain frozen at £12,500 meaning that the PAYE threshold is unchanged at £240 per week.

Increased R&D Tax Relief

Ambitious measures to increase the rate of the R&D expenditure credit (RDEC) from 12% to 13% were announced as the Government looks to encourage businesses to invest in research and development.

It’s not just for large businesses, SME’s can claim RDEC tax credits that will (as of April) cover 13% of expenditure on qualifying research and development.

If you’re not sure, just ask!

So that’s our round-up.

If there’s anything that’s got you thinking, or if you want to know more about any of the topics covered in the Budget, get in touch.