Tax Tuesday, today, sticks its neck out and predicts (ok, guesses) the ten most important tax changes affecting our clients, which Mr Sunak will announce tomorrow.
Shall we say the pass mark is 40%?….
1. Entrepreneurs’ Relief (ER)
The ER 10% rate of tax currently applies to £10m of qualifying lifetime gains, per individual.
Short of scrapping the relief altogether, this lifetime limit will plummet to just £1m of qualifying gains, back to the level where it started in 2008.
The new Conservative voters in the north and Midlands might nod in approval: “A million is ok for a bit of risk-taking”, they might say, “but ten million has just been greedy.”
2. National Insurance (NI)
We start paying NI when our relevant income exceeds £8,632 per annum (nearly £4,000 short of where we start paying Income Tax).
The government will start to close the gap by raising the NI threshold; it will deliberately beat its own pledge by setting the new threshold at £10,000.
This will be expensive but, again, the new Conservative audience might feel suitably vindicated for switching allegiance.
3. Basic Rate Band (BRB)
The level of income above which we start paying Higher Rate Income Tax is £50,000, made up of a £12,500 personal allowance and £37,500 BRB.
Boris wants to see this level extended and he will start that ball rolling with an increase to the BRB of £10,000.
This will also cost the exchequer, although the automatically-adjusted upper NI threshold will immediately bring back more than half of the Income Tax lost.
4. Pension Tax Relief (PTR)
The higher rate relief applicable to PTR costs the public sector over £10bn per annum. It has been the subject of constant speculation for many Budgets.
We will now see a curtailing of PTR to a maximum 30% of eligible contributions.
Under all the circumstances there will need to be some inflow of additional taxation to offset part of the giveaways, especially with NHS and COVID19 commitments in hand.
5. Research and Development Tax Relief (R&D)
The take-up of the SME scheme means that R&D is costing the government over £3.5bn per annum and there are concerns about the extent and integrity of some claims.
The government will announce (i) the restriction of relief to three times’ the claimant company’s PAYE and NI; and (ii) anti-avoidance measures plus an intent to more vigorously police this generous tax incentive.
With an enquiry rate of under 1% to date, it is no wonder that some claimants might have arranged their affairs, and stretched the boundaries of credibility, to suit.
The job of assessing and policing the application of IR35 has been undertaken badly, if not negligently, by government, over the 20 years this law has been in place.
Mr Sunak will confirm that the revision of the rules to pass that job on to (medium and large) “end clients” in the private sector, will commence on 6 April 2020, as planned.
Despite the many problems and uncertainties, and the expectation of “blanket” assessments by large business who simply don’t want the task or risk of assessing properly, this will raise considerable tax from tens of thousands of contractors.
7. Inheritance Tax (IHT)
The number of taxpayers paying IHT is still small (under 30,000 per annum) but reporting of the “hatred” which the electorate feel towards this tax indicates that it must get a mention tomorrow.
We can expect the announcement of a formal review into the merits of a wholesale revision of IHT.
Whether or not that review might endorse the recent all-party committee’s recommendations for dropping the rate of tax from 40% to 10% but, at the same time, abolishing Business Property Relief altogether, we cannot predict.
8. Structures and Buildings Allowance (SBA)
The new SBA came into force in October 2018, providing for a 2% annual allowance for expenditure on the construction, renovation and conversion of non-residential buildings.
This allowance will be accelerated and spread over 33 (instead of 50) years from 1 April 2020, in line with the Conservative election manifesto.
Any enhancement to the upsides for investment in business infrastructure has to be welcomed, across the board.
9. Tax in Insolvency
The exchequer has, without doubt, suffered significantly over a long and sustained period, from zero recoveries of significant outstanding tax debt in cases of insolvency.
The Chancellor will affirm the intention to enact draft legislation which promotes HMRC to a position of a preferential creditor, with effect from April, where taxes collected from others are concerned (output VAT from customers, PAYE/NI from employees etc..). He will also confirm his intention to legislate to enable HMRC to pursue Directors for recoveries of unpaid taxes where they have sanctioned, or been engaged in, tax avoidance activities.
10. Fuel Duty
In the name of carbon emission targets, the long-standing freeze on fuel duty will come to an end.
If you would like to know more please get in touch with your relationship principal or by email to Tax Partner, Chris Barrington.