Category: Current Affairs

Offsetting covid-19 losses against previous year’s profits

The economic fallout from the COVID-19 pandemic is already beginning to cripple even the most resilient of markets, and thus threatening national and global growth. 

In the three months that the UK has spent in lockdown, we’ve witnessed businesses of all sizes dramatically slow down, if not completely halt trading activities, meaning many are heading for a significant loss in trading profits.

But, thanks to the treatment of tax losses, COVID-19 losses can be offset against previous or future years’ profits. 

 

What does this mean?

This means that ordinarily profitable businesses who are already in or expect to be in a tax loss position due to COVID-19 related circumstances, can offset losses to either;

• Reduce future tax bills (loss carry-forward rule) or;
• Claim back tax from previous years (loss carry-back rule)

Both options will have a positive effect on cash flow allowing businesses the financial breathing space to begin rebuilding.

 

The loss carry-back rule

The biggest advantage of the introduction of the loss carry-back rule is that businesses will have the opportunity to claim back much-needed cash if they have incurred a significant loss in comparison to previous years’ profits.

However, as with all other tax regulations and schemes, there are certain rules which apply:

1. A tax loss incurred during the 2020 or 2021 financial year can only be offset against the previous years’ profits. For example, 2021 losses cannot be offset against 2019’s profits. However, there is an exception to the rule if the business has closed and such can claim Terminal Loss Relief. 
2. Previous year refers to the preceding 12 months rather than the previous financial year the company operates.

 

The loss carry-forward rule

As long as trade continues, businesses who experience profit loss due to COVID-19 can carry forward this loss to offset against future profitable years, thus freeing up cash that would have ordinarily be used to pay tax bills.

If your company is using a carried forward trading loss in an accounting period that ends before 1 April 2017, you can only use the relief against profits of the same trade.

Where your company is using a carried forward trading loss in an accounting period that starts on or after 1 April 2017, the situation depends on when your company made the loss in question. If your company made the loss;

• before 1 April 2017, it can only be used against profits of the same trade
• on or after 1 April 2017, it can normally be used against your company’s total profits

 

Group Relief

Where groups of companies meet the group relief criteria (75% ownership), any loss-making companies can offset their losses to other profitable members of the same group. This enables the group to pay corporation tax on the net profits made on the group as a whole where loss-making entities are present. This is one of the key benefits for trading as a group of companies. 

 

Next steps

We’d strongly recommend that businesses begin to look at their expected losses sooner rather than later and work with their accountants to prepare the 2020 tax return way before the deadline.

If you require assistance from any of our trained specialists, please email hello@shenward.com.

COVID-19 Financial Support: Updates to Furlough and Self Employment Income Support Schemes

Over the course of the last month, there’s been a lot of speculation about how long the government can continue to financially support individuals and businesses across the UK.

Whilst many of the rumours weren’t backed up by facts, one particular speculation was confirmed by Chancellor Rishi Sunak two weeks ago; changes to the furlough scheme will occur. 

Up until Friday 29^th May, we had little idea about the changes that would come into force and how this would affect both employees and employers. However, the Chancellor has now confirmed what the amended scheme will look like.

So, what’s changed?

The CJRS currently allows business owners to furlough staff who are paid via PAYE and claim up to 80% of their wages back from the government up to a maximum of £2,500 for each employee. Up until the end of July 2020, the scheme will continue in its current form.

But then what happens?

• After 30^th June 2020, employers will not be able to place any non-furloughed employees on furlough. Realistically, this means the employee must be on furlough by 10^th June 2020 to complete the minimum 3-week furlough period. 

• From 1 July 2020, employers can place employees on furlough on a part-time basis, the 3-week rule will no longer apply. 

• Claims for furlough periods up to 30 June 2020 must be claimed by 31 July 2020.

• From 1 August 2020, employers can no longer claim Employer NI and pension contributions, but the government will continue to pay 80% of wages to a maximum of £2,500pm. 

• From 1 September 2020, employers will be required to contribute 10% and the government will contribute 70%. However, the employee will still receive a minimum of 80% of salary/pay.

• From 1 October 2020, the employer will be required to contribute 20% and the government will contribute 60%. However, the employee will still receive a minimum of 80% of salary/pay.

• The furlough scheme will close on 31 October 2020. 

How about the self-employed, do they get additional support?

In the daily briefing held 29^th May 2020, Chancellor Rishi Sunak also advised that self-employed individuals will receive a second and final taxable grant.

This time, it will be 70% of trading profits to a maximum of £6,570 over a 3-month period- this equates to £2,190 pcm.

Claimants will be required to apply again in August, and it is expected they will receive notification from HMRC in due course in the same way as they did with the prior grant. Per our understanding, the eligibility for this scheme remains the same. 

 

Shenward’s Insight and Analysis

Extension of Furlough Scheme

It’s certainly a welcome extension for businesses who have placed employees on furlough. During August, employers will be required to settle the Employer’s NI however, given that most small employers claim the Employers’ NI allowance of £4,000pa, they would only be required to fund 80% of the pension contributions thus we do not expect a significant impact to businesses’ cash flow. 

Where we do expect an impact is from September and October where employers will be required to fund 10% and 20% respectively. Particularly for those industries which are most affected such as leisure and hospitality, if their businesses have not recovered by then, how will they able to afford 10% / 20% of employees’ wages?

Additionally, it’s certainly an interesting move from the Chancellor to close the scheme to new entrants from 1 July 2020 as a trade-off to allowing ‘flexible furlough’. Realistically, employers have until 10 June to decide whether they wish to place any non-furloughed employees and benefit from this flexibility. 

Self Employed Income Support Grant

Shenward welcomes the extension to the SEIS grant although it’s set to reduce to 70%. Although our concerns raised through our survey https://www.bmmagazine.co.uk/news/alarming-number-of-self-employed-dont-qualify-for-government-support/remain valid. Particularly the directors of owner-managed businesses and new businesses established since 6 April 2019. 

There are still several options that business owners and self-employed individuals can explore to help with cashflow during the pandemic. If you’d like tailored advice or support with applications, please email hello@shenward.com.

 

Update: Changes to the CJRS have since been made.
Please see  https://www.shenward.com/how-will-the-furlough-scheme-change-from-july  for further information.

Small Business Funding: What you need to know about the top-up to local business grant fund scheme.

On May 1st, the Government announced it would be introducing further support for small or micro businesses which had been left out of the original support schemes such as the Small Business Grant Fund or the Retail, Leisure and Hospitality Fund.
This additional funding which will be provided to local authorities will mean that grants to the value of £25,000, £10,000 or any amount under £10,000 will be available for those businesses who meet specific criteria.
We are pleased to confirm that the criteria has now been released, and we will be covering the specific points throughout this article.

Who is eligible?
Local authorities have been given the power to deliver grants under the new scheme to businesses which:
• Are small or micro business with ongoing fixed costs who were trading on 11 March 2020
• Are businesses with relatively high ongoing fixed property-related costs
• Are able to demonstrate they have suffered significant loss of income due to COVID-19 crisis.
• Occupy property, or part of a property, with a rateable value or annual rent or annual mortgage payments below £51,000.
• Have less than 50 employees, have a turnover of less than £10.2million, and a balance sheet total of no more than £5.1m

However, they have been advised to prioritise the following:
• Small businesses in shared offices or other flexible workspaces. Examples include units in industrial parks, science parks and incubators which do not have their own business rates assessment
• Regular market traders with fixed building costs, such as rent, who do not have their own business rates assessment
• Bed & Breakfasts which pay Council Tax instead of business rates
• Charity properties in receipt of charitable business rates relief which would otherwise have been eligible for Small Business Rates Relief or Rural Rate Relief.

Specific criteria:
As with all other financial schemes laid out by the Government, there is certain criteria that a company MUST meet in order to claim through the top-up Discretionary Fund.
These are:
• The business must not be in administration, insolvent or have been issued a striking-off notice.
• Must not be eligible for other cash grants available from Central Government Grant Schemes such as:
– Small Business Grant Fund
– Retail, Hospitality and Leisure Grant
– The Fisheries Response Fund
– Domestic Seafood Supply Scheme (DSSS)
– The Zoos Support Fund
– The Dairy Hardship Fund
• Businesses can have claimed via the Coronavirus Job Retention Scheme or the Self-Employed Income Support Scheme though.

What is the application process?
The government has recognised that in order to prevent fraud and identify the businesses which take priority for this funding, there will need to be an application process, although this is yet to be released.
But what we do know is that local authorities will likely conduct a number of pre-payments checks to confirm eligibility and allow them to make discretionary decisions. Businesses that are accepted for cash grants via this scheme will likely be contacted via phone or letter confirming their payment.

What else do I need to know?
As with all grant income that businesses received, funds received via this scheme will be subject to tax. However, only those businesses which end the year with an overall profit when the grant is included will subject to tax.

On face value, the ‘top-up’ appears to go some way to supporting a section of the business community that had fallen through the cracks of the Government’s various COVID-19 support packages.
With local authorities having the discretion to determine how they allocate the funding and which type of businesses they want to prioritise, it’s likely that those most affected will receive the funds they desperately need, in a short space of time – as soon as early June.
If you’d like to discuss this, or any aspect of the funding available via the government, please email hello@shenward.com or contact us via our online form.

Furloughing: Everything you need to know as an employer

There’s no denying that the UK is facing one of the biggest peacetime economic shocks its ever faced and as a result, businesses of all sizes have been presented with sudden financial constraints.

But, in a bid to support businesses throughout the COVID-19 pandemic and reduce the impact on individual employees, the government has introduced a temporary Coronavirus Job Retention Scheme; providing funds to prevent businesses from making temporary redundancies.

Here we take a look at the ins and outs of the Coronavirus Job Retention Scheme (CJSR), answering your questions about furloughing staff.

What is the Coronavirus Job Retention Scheme (CJSR)?

The CJSR is a temporary scheme introduced by the governmentto prevent employees from being made redundant due to decreased workload, decreased revenue or business closure.

Under the scheme, UK employers – small or large, charitable or non-profit– are entitled to make a claim to receive reimbursementsfor 80% of any furloughed employees’ normal wages up to a maximum of £2,500 per employee.

Current guidance states that the scheme will be available for at least three months, and eligible employers may claim from March 1st, 2020 for a minimum of three weeks, to the maximum term of three months.

What does it mean to furlough my staff?

Furloughed employees are those whose employers cannot provide work or cover employee costs due to the devastating effect of COVID-19 and therefore have been asked to stop working temporarily, but not laid off.

Should you wish to furlough your staff, you should discuss this directly with them and make them aware of the rules of furloughing:

In line with usual contractual obligations and employment laws, all furloughed staff should receive an official notification in writing and agree to the furlough offer and rules.

Who can be furloughed?

According to the government, any employee with an active contract and who was on the company’s PAYE payroll prior to February 28th, 2020 can be furloughed, as long as they agree not to carry out any work for the company. Whilst full-time employees are eligible for up to 80% of their wages capped at £2,500, different payment rules apply for apprentices, part-time workers, and zero-hour contract employees.

You should continue to check the advice listed on the government website here, which is regularly updated.

What about employees who weren’t on the PAYE payroll before Feb 28, 2020?

Sadly, those employees who weren’t registered on the PAYE payroll before February 28, 2020 can’t be furloughed under the CJRS. However, depending on the relationship and whether they have a previous role, the employee can reach out to their last employer and ask whether they would consider furloughing them through their old PAYE payroll.

How do I make a claim?

The government has advised that applications for CJRS can be made via an online portal, however, is yet to release further details about the exact date.

More information will be added here https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme as and when it is available.

What we do know is that as an employer, you must have the following to make a claim:

In addition, you will need to calculate the claim amount using the amounts from your payroll. Your Payroll Manager or Accountant will be able to support you with the calculations.

When will I receive the funds?

The exact date of when you receive the funds has not yet been announced, however it’s important to note that payment date may depend on when you make a claim, and the date it is approved.

All payments will be made directly to you via BACS in the form of a grant once your claim is approved.

Do I have to pay my staff the remaining 20% of their wages?

No. Whilst you are free to top up employees’ wages, it is not a requirement to do so. This should be discussed with the employee at the point of furlough.

Who pays my staff, me or the government?

Wages should be paid to employees via the normal payroll methods. The government will pay the approved grant directly to you, not the employee.

You should also work with your payroll manager where possible to ensure you both understand the process.

Do my employees still have the same rights as though they were employed?

Yes. Furloughed employees are still employed, but under the new rules they are partaking in approved paid leave.

Employees are still entitled to:

How will this affect payroll?

In line with usual payroll practices, you will need to deduct tax, national insurance and minimum pension contributions from the employees’ wages, producing a pay slip for the company’s and employee’s records.

The payslip must reflect whether the employee is paid in full withan additional 20%, or paid 80% of their wages in line with government support. The net pay MUST match the amount that the employee is paid.

PAYE liabilities must be paid as and when they fall due.

Will the government reclaim the money from me at a later date?

The government will not reclaim the grants directly, however, it must be noted that these grants will be taxable.

The government states:

“Grants should be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.

Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.”

There’s a lot of information to process, and we adhere to keep sharing regular updates as and when they are available. However, if you have any queries that you’d like to discuss with us directly, please email hello@shenward.com.​

COVID-19 Self-employment Survey

The new Coronavirus, officially name COVID-19, was first declared a pandemic by the World Health Organisation on 11TH March 2020, when the number of affected countries and individuals drastically increased.

As confirmed by Chancellor Rishi Sunak, this has caused the biggest peacetime economic shock the UK has ever faced.

Because of this, the government has introduced a number of financial measures to support individuals during the pandemic, but most of the initial measures announced were aimed at businesses and individual employees.

However, after many campaigned for support to be introduced for those individuals who are self-employed, on 26 March he announced that a new package would be available in June 2020, which he suggested will offer financial support to around 95% of the self-employed population.

Whilst this is great news for some, our main concerns are that June 2020 is over 3 months away, which is a long time for self-employed individuals who are used to earning a significant living to go without income. Plus, this leaves 5% of the population unable to seek financial support other than the weekly £94.25 Universal Credit.

Furthermore, those who became self-employed after April 2019 do not appear to qualify for self-employed help due to HMRC using 2018/19 tax returns to calculate the payments.

At Shenward, we are committed to supporting our clients, and the wider business community, acting as their voice and campaigning for change.

In order for us to do this, we’re asking for your views and opinions via this survey around the measures announced, and an insight into your eligibility for the current support packages.

We appreciate that some of the information may be sensitive, and so we have made the survey completely anonymous for peace of mind. We will not ask your name, address, email or business name, so please do not enclose these.

Please only complete the survey once and answer only those questions which you feel comfortable answering. If at any point you feel uncomfortable, please exit the survey.

All of the data collected throughout this survey will be used in a collective manner to campaign for change, raising awareness across social media and in the press.

We would like to thank you in advance for your consent to use the answers by taking part and wish you well during this unprecedented time.

Remember; stay home, save lives.

Information about the latest government support can be viewed here:
https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
Direct access to the survey can be obtained via this link https://forms.gle/RhyyWRjDuVFfgMmT6

COVID-19: Support for the self-employed

 

The new coronavirus, officially name COVID-19, was first declared a pandemic by the World Health Organisation on 11TH March 2020, when the number of affected countries and individuals drastically increased.
Given how much the virus has spread across the UK, the stimulus package announced during the 2020 Budget is no longer sufficient to deal with the crisis, and so further measures have been put in place to protect businesses across the UK.
Whilst Chancellor Rishi Sunak has focused on employees and businesses up to press, last night he announced a new package designed to support the self-employed.
We look at what this means and who is eligible.

Self-employment criteria
The first and main point to note is that directors/shareholders are not eligible for the new self-employment package as they are not classified as self-employed. Self-employed individuals are classed as those who are sole traders, partners in unincorporated partnerships and partners in LLPs.
If directors/shareholders are on a PAYE scheme, then they may be eligible to claim under the Job Retention Scheme. Further guidance on the scheme was announced on 26 March 2020 and can be found here.
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

Support package explained
The long-awaited support package for the self-employed was outlined by The Chancellor during last night’s press conference, and whilst further information is due to be rolled out with regards to the process, here’s what we know so far.
Those who have a profit of up to £50,000 according to either their 2018/19 tax return or as an average over the last 3 years, will be able to claim 80% of their monthly salary up to a maximum of £2,500. If they missed the deadline for the 2018/19 submission, individuals have a further four weeks to submit this.
Sadly, it appears those who have become self-employed since 6 April 2019 will not be covered by the scheme and would therefore need to rely on the benefits system for support.
For those who are eligible, lump cash sums will be paid out in June 2020. Whilst this is a generous offering, it’s worth noting that this will be a TAXABLE grant, although how this will be deducted has yet to be revealed.

How to apply
Self-employed individuals do not need to make an official application as those eligible will be contacted directly by HMRC with further instructions.

Our thoughts
The government response for employees, businesses and the self-employed has been staggering, well considered and most importantly unprecedented. However, during such difficult times, it will take a while to roll out the support available which may have a negative effect.
Our main concerns are that June 2020 is over 3 months away, which is a long time for self-employed individuals who are used to earning a significant living to go without income. One potential option could be the Interruption Loan Scheme which could help those struggling to draw down loans quickly.
In addition, the profit threshold of £50,000 raises concern. Self-employed individuals don’t necessarily fund personal living costs based on profits as they want to support future growth or simply because the business does not have the funds. We all know that profit does not mean cash.
But, for those businesses with profits in excess of £50,000 and drawings are below profits, then perhaps one option would be to revisit their remuneration strategy and forgo profit retention in the short term.
If you would like to discuss any concerns or seek further guidance, please email hello@shenward.com to speak with one of our team.

On Friday 3rd April at 3pm we will be running a webinar to provide online support, guidance and advice to those affected by the COVID-19 pandemic.
To register your interest, please text 07583094867 and we will send further information.

 

COVID 19 Business Support: The Latest Updates

As the COVID-19 pandemic continues to escalate, the government is continuously introducing measures to support businesses across the country in a bid to protect the UK economy.

With information circulating the internet, it can be difficult for businesses to follow exactly what is available to them. So, following on from our recent blog, we look at the support that was announced on Friday 20^th March 2020.

Coronavirus Job Retention Scheme

1. • All UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.

1. • HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.

Deferring VAT and Income Tax payments

1. • VAT deferral apply from 20 March 2020 to 30 June 2020

1. • Automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.

1. • Income tax payments due on 31 July 2020 will be deferred to 31 January 2021

Coronavirus Business Interruption Loan Scheme

The interest free period announced prior to the 20^th March has been extended to 12 months rather than 6 months.

Universal credit

There has been an increase in the Universal Credit standard allowance, for the next 12 months, by £1,000 a year. 

Working Tax Credit

There has been an increase of the Working Tax Credit basic element by the same amount as Universal Credit.

Suspension of the minimum income floor for Universal Credit 

Self-employed people can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees.

We strongly recommend that you watch the daily government announcements in order to stay ahead of the support available, and visit https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses to find out how to apply.

Of course, you can email your Shenward account manager or hello@shenward.com

Government support during COVID-19 pandemic: Your questions answered

The new coronavirus, officially name COVID-19, was first declared a pandemic by the World Health Organisation on 11^TH March 2020, when the number of affected countries and individuals drastically increased.

Given how much the virus has spread across the UK, the stimulus package announced during the 2020 Budget last week is no longer sufficient to deal with the crisis, and so further measures have been put in place to protect businesses across the UK.

The Chancellor confirmed this is the biggest peacetime economic shock the UK has ever faced, and here at Shenward we recognise the disruption many of our clients, associates and the wider business community will be experiencing. 

Here we answer some of your most pressing questions in an easily digestible way.

I’m self-employed and can’t claim sick pay, what help can I get?

In the 2020 budget, The Chancellor announced that Employment and Support Allowance (ESA) or Universal Credit would be made available to all those who don’t qualify for Statutory Sick Pay (SSP) from day one should they be unable to work due to self-isolation, with or without symptoms of COVID-19.

The official document states: “For the duration of the outbreak, the requirements of the Universal Credit Minimum Income Floor will be temporarily relaxed for those who have COVID-19 or are self-isolating according to government advice, ensuring self-employed claimants will receive support.

“People will be able to claim Universal Credit and access advance payments upfront without the current requirement to attend a jobcentre if they are advised to self-isolate.”

The current maximum allowance of ESA that can be claimed is £73.10 per week and claims can be made here https://www.gov.uk/employment-support-allowance/how-to-claim.

HMRC has also set up a dedicated helpline for all those who are concerned about paying their upcoming tax bills due to the COVID-19 pandemic.

If I have to self-isolate, am I entitled to Statutory Sick Pay?

During the 2020 Budget, The Chancellor advised that all those who are advised to self-isolate, with or without symptoms will be entitled to Statutory Sick Pay from their employers from day one if they are employed.

The current rate of SSP is £94.25 per week and will be paid to you via your usual payment method in line with your usual payment terms.

I’m an employer, can I claim back the SSP I have had to pay out to those self-isolating?

During the budget, The Chancellor announced that firms with under 250 employees will be able to claim back SSP paid due to COVID-19, for up to 14 days per employee.

Whilst employees aren’t required to provide a GP sick note, employers who wish to reclaim the SSP should make a note of all COVID-19 related absences including date and length of time.

HMRC has advised that they will work with employers over the coming months to allow them to reclaim these funds.

I’m a small firm experiencing financial disruption due to COVID-19. What financial support is available for just small firms?

Last week during the budget, it was announced that small firms would be able to access business interruption loans throughout the pandemic.

The Coronavirus Business Interruption Loan Scheme is to support long-term viable businesses who may need to respond to cash-flow pressures by seeking additional finance. This will be made available via the British Business Bank. 

Official advice states: “The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Businesses can access the first 6 months of that finance interest free, as government will cover the first 6 months of interest payments.”

The Budget announced last week also said that £3,000 grants would be made available to the 700,000 of our smallest businesses. To support their cash flow, grants have now increased to £10,000.

What other financial support was announced in the COVID-19 press conference on 17^th March?

The Chancellor has confirmed that any business who needs access to cash will be able to access a government-backed loan, on attractive terms. Whilst he has set aside a huge £330bn, if demand is greater than the initial £330bn, the government will provide as much capacity as required.

In the Budget announced last week, it was suggested that businesses in the retail, hospitality and leisure sectors, with a rateable value of less than £51,000, will pay no business rates this year. Due to recent non-essential contact advice, those businesses are now also entitled to an additional cash grant of up to £25,000 per business. Also, every single business in the retail, hospitality or leisure sector will pay no business rates whatsoever for 12 months.

Lastly, for those in difficulty due to coronavirus, mortgage lenders will now offer a three-month mortgage holiday meaning that people will not have to pay a penny towards their mortgage until they get back on their feet.

The government has left the ‘door open’ and it appears that further announcements may be made if required. The total stimulus package is over £300bn which equates to 15% of GDP. We’re used to see percentage points of measures introduced, so 15% is huge. 

Here at Shenward, we welcome the government’s intention to show intent, but feel there are some questions unanswered.

How are renters to be protected?

Will businesses be able to access grants and loans as set out above in time before they have to temporarily or permanently close. Liquidity in the SME sector is already running on reserve and they cannot last for much longer. 

Looking at how the grants can be accessed; it looks like it will take 6-8 weeks for businesses to get hold of it. The grants are to be redistributed through the Local Authority and it’s not clear when.

Further information about any of the above can be accessed via:

https://www.gov.uk/government/news/coronavirus-covid-19-guidance-for-employees-employers-and-businesses

https://www.gov.uk/government/speeches/chancellor-of-the-exchequer-rishi-sunak-on-covid19-response

 

The 2020 Budget – Predictions and Potential Changes

Every year, the government reveals its plans on how to spend public money and collect tax for the next financial year beginning 5 April, and usually does so around the beginning of March. However, this year, rumours emerged that the resignation of Chancellor Sajld Javid may cause a slight delay to the ‘big reveal’.

The recently appointed replacement Chancellor of the Exchequer, Rishi Sunak has however advised he WILL meet the deadline set by former Chancellor SajId Javid and reveal the government’s new budget on Wednesday 11 March. Not only is this Chancellor Sunak’s first budget since his appointment, it is also the first major financial event since Britain left the EU on 31 January, so it is predicted that we will see some major changes.

In order to help your businesses prepare for the potential changes, we have outlined specific issues that industry experts predict will be acknowledged in the new budget.

Increases to the National Minimum Wage

Every year the National Living Wage and the National Minimum Wage changes in April.

In December 2019, the government announced that it was planning to increase the National Living Wage for over 25’s by 6.2%, which could mean a pay rise of almost £1000 for some workers.

The government has recently confirmed that it is also planning to increase the National Minimum Wage, which since April 2019 stands at:

• Apprentice – £3.90
• Under 18 – £4.35
• 18-20 – £6.15
• 21-24 – £7.70

From April 2020, the National Minimum Wage per hour will increase:

• Apprentice – £4.15
• Under 18 – £4.55
• 18-20 – £6.45
• 21-24 £8.20

Raising the threshold on NICs (National Insurance Contributions)

One of the conservative’s main financial pledges in its election manifesto was to cut tax which could help 30 million workers save about £100 a year.

The government has planned to achieve this by raising the threshold on NICs (National Insurance Contributions) meaning that businesses will need to adjust this accordingly for employee payroll.

Currently, employees pay 12% NICs on anything they earn over a threshold of £8,632. At the start of the next tax year in April, this threshold will increase to £9,500 with the intention of raising it to £12,500 over a number of years.

Possible changes to Entrepreneurs’ Relief

Former Chancellor Sajid Javid was expected to recalibrate entrepreneurs’ relief after proposing to cut the tax amidst criticism. Entrepreneurs’ relief is a tax break that allows company owners to pay less capital gains tax when selling their businesses.

It is now uncertain whether Chancellor Sunak will continue with these proposed plans, but they should be acknowledged in the budget.

Triple tax lock and corporation tax to stay the same

It is unlikely that the government will increase rates on income tax, VAT and national insurance, as promised by Prime Minister Boris Johnson in his election campaign.

It has also cancelled plans to decrease corporation tax to 17% meaning that it will remain at 19% for at least the next financial year.

More details about off-payroll working rules for the private sector

The government has already announced that tax legislation, known as IR35, will be applied to the private sector as a way of tightening the rules around off-payroll workers and preventing tax avoidance.

Although the government has already announced this policy, it is most likely that this will be confirmed in the budget in greater detail. This means that businesses can be more confident about making decisions when it comes to employment status and paying off-payroll workers.

Pension Tax Relief changes for higher earners

The Financial Times has reported that reforms to pension tax relief are also being considered and so could feature in the budget.

The reforms would affect higher earners who pay a higher rate of tax and receive a tax relief rate of 40%. The potential new plan would see a flat pension tax relief rate of 20%, which would affect higher earners’ pensions.

A new timeline for the pensions dashboard

The pensions dashboard project was announced in the 2016 Budget. It was intended to be an easy-to-use digital interface that would allow users to see all of their lifetime pensions in one place.

The government had originally pledged to deliver this project in 2019 but considering that the deadline has passed it is expected that the new chancellor will announce a new timeline for the project. According to pensions commentator Steve Webb, as reported in The Financial Times, it is unlikely that this project will go live in 2020.

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