Building a path for tomorrow
How it could affect the Channel Islands
The Chancellor of the Exchequer, Rishi Sunak, delivered the new government’s first Budget today – exactly 500 days since the last in 2018.
Below is a summary of the key announcements that could impact or be of interest to Islanders:
Increasing National Insurance Thresholds
The Budget confirms the government’s commitment to increase the thresholds at which employees and the self-employed start paying National Insurance contributions to £9,500 from April 2020.
Increasing the Employment Allowance
The government will increase the Employment Allowance from £3,000 to £4,000 from April 2020. This will benefit around 510,000 businesses by reducing their costs of employment, with an average gain of £850 per year.
Tapered annual allowance for pensions
The pensions annual allowance is the maximum amount of tax-relieved pension savings that can be accrued in a year. The two tapered annual allowance thresholds will each be raised by £90,000. For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020.
Capital Allowances: Structures and buildings allowance (SBA) rate
The annual rate of capital allowances available for qualifying investments to construct new, or renovate old, non-residential structures and buildings will increase from 2% to 3%. The change will take effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax.
Annual exemption amount for Capital Gains Tax
This measure increases the Capital Gains Tax annual exempt amount to £12,300 for individuals and personal representatives, and £6,150 for trustees of settlements for the period 2020 to 2021.
From 11 March 2020, the lifetime limit on gains eligible for Entrepreneurs’ Relief (which offers a reduced 10% rate of Capital Gains Tax on qualifying disposals) will be reduced from £10 million to £1 million, in response to evidence that it has done little to incentivise entrepreneurial activity and that most of the benefit accrues to a small number of very affluent taxpayers.
Research & Development Expenditure Credit (RDEC) rate
The rate of RDEC will increase from 12% to 13% from 1 April 2020, supporting businesses investing in R&D and helping to drive innovation in the economy.
Consultation on R&D tax credit qualifying costs
The government will consult on whether expenditure on data and cloud computing should qualify for R&D tax credits.
Corporate Tax Rate
The government will legislate to retain the current 19% Corporate Tax Rate in April 2020 and for the financial year beginning 1 April 2021.
Digital services tax
As announced at Budget 2018, the government will introduce a new 2% tax on the revenues that certain digital businesses earn from 1 April 2020.
Corporate capital loss restriction
The government will restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%. This measure includes an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year.
Hybrid mismatch rules
The government will publish a consultation on the corporation tax rules that apply to hybrid mismatch arrangements that seek to exploit the differences in tax treatment between two jurisdictions. These have caused problems in the real estate market, especially for funds.
Non-resident landlords brought into corporation tax
A non-resident company’s UK property income and gains (previously chargeable to Income Tax and non-resident Capital Gains Tax respectively) are brought into Corporation Tax from April 2020. Legislation will be introduced in Finance Bill 2020 to bring through proposed revisions and reliefs on areas such as financing costs.
Non-UK resident Stamp Duty Land Tax (SDLT) surcharge
The government will introduce a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.
Annual Tax on Enveloped Dwellings (ATED) and SDLT
The government will introduce a relief for qualifying housing co-operatives from the ATED and the 15% flat rates of SDLT on purchases of dwellings over £500,000. The SDLT relief in England and Northern Ireland will take effect from Autumn Budget 2020 and the UK-wide ATED relief from 1 April 2021 with a refund available for 2020-21.
Review of the UK funds regime
The government will undertake a review of the UK’s funds regime during 2020. This will cover direct and indirect tax, as well as relevant areas of regulation, with a view to considering the case for policy changes. The review will also consider the VAT treatment of fund management fees.
Clarifying the treatment of Limited Liability Partnership (LLP) returns
The government will legislate prospectively and retrospectively in Finance Bill 2020 to clarify, beyond doubt that LLPs should be treated as general partnerships under income tax rules.
Tackling promoters of tax avoidance
The government will legislate in Finance Bill 2020-21 to take further action against those who promote and market tax avoidance schemes. The legislation will strengthen information powers for HMRC’s existing regime to tackle enablers of tax avoidance schemes.
Raising standards in the market for tax advice
The government will publish a call for evidence in the spring on raising standards for tax advice. This will seek evidence about providers of tax advice, current standards upheld by tax advisers, and the effectiveness of the government’s efforts to support those standards, in order to give taxpayers more assurance that the advice they are receiving is reliable.
Future of Making Tax Digital
The government will publish an evaluation of the introduction of Making Tax Digital for VAT.
Large business notification
From April 2021, large businesses will be required to notify HMRC when they take a tax position which HMRC is likely to challenge.
Additional compliance resources for HMRC
The government is investing in additional compliance officers and new technology for HMRC.
As announced on 31 October 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. This measure will apply prospectively and retrospectively.
The Budget builds on previous work and announces further action to tackle tax avoidance, evasion and other forms of non-compliance.
The government will legislate to prevent non-compliant businesses from using the CIS to claim tax refunds to which they are not entitled. The government is also publishing a consultation which introduces options on how to promote supply chain due diligence.
Abolition of tampon tax
From 1 January 2021 the government will use freedom from EU law to enable a zero rate of VAT to be charged on women’s sanitary products.
Plastic Packaging Tax
The government will introduce a new Plastic Packaging Tax from April 2022. The Budget sets the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic.
The government will freeze fuel duty for a tenth year in a row.
Alcohol duty rates
Duty rates on beer, spirits, wine and cider will be frozen.
Tax leader, PwC Channel Islands
Tel: +44 7700 838233
Tax Director, PwC Channel Islands
Tel: +44 7700 838284
Tax Director, PwC Channel Islands
Tel: +44 7781 138617
Tax Director, PwC Channel Islands
Tel: +44 7911 100121