Budget changes that small business need to know for the 2020-21 tax year

Following Brexit uncertainties, and in the middle of the COVID-19 outbreak, the new Chancellor Rishi Sunak delivered his first Budget last week. 

There were many allowances made for small businesses who made struggle due to the coronavirus pandemic. Here is a summary of all the changes that will affect both businesses and the self-employed… 

Statutory Sick Pay (SSP) 

During the COVID-19 outbreak Statutory Sick Pay will be payable from day 1 instead of day 4 for any affected individuals. This includes people who are infected as well as those who are self-isolating but not infected. Sick notes will be available by contacting NHS 111. 

For people who cannot claim SSP, such as the self-employed, the government will make it quicker and easier to access Universal Credits and the Contributory Employment and Support Allowance. 

There will also be £2bn of sick-pay rebates for businesses with less than 250 employees. 

Personal Tax allowance 

The personal Income Tax allowance for the 2020-21 tax year will remain at £12,500. 

National Insurance 

The tax threshold for National Insurance Contributions will rise from £8,632 to £9,500 from April 2020. This should save £100 a year in National Insurance contributions for around 31 million people. 

Income Tax 

The Income Tax bands for 2020-21 will remain at the 2019-20 levels.  

The levels are: 

  • Basic rate band: £37,500 
  • Higher rate band: £37,501 – £150,000 
  • Additional rate: no change (applies to income of more than £150,000) 

Capital Gains Tax (CGT) 

Lifetime claims for Capital Gains Tax relief has been restricted to £1m (a reduction from £10m) and will apply to all relevant business disposals on or after 11 March 2020.  

From April 2020, UK residents will be required to make a payment on account for any CGT due on residential property sales such as a buy-to-let property. 

The CGT annual tax-free allowance for the 2020-21 tax year will be increased to £12,300. 

Fuel Duty 

Fuel duty will be frozen for another year. 

Business Rates 

In response to COVID-19, business rates will be abolished for retailers for one year from April 2020 while the business rate discount for pubs will be increased from £1,000 to £5,000. 

Small businesses grants 

A £3,000 grant will be provided to businesses that are eligible for the Small Business Rates Relief. 

Business loans 

The government will launch a temporary Coronavirus Business Interruption Loan Scheme to support those businesses needing to access bank lending and overdrafts due to the pandemic. 

There will be £1bn of lending via this government-backed loan scheme, with the government backing 80% of losses on bank lending at no charge to banks or businesses. 

Corporation Tax 

The previously announced reduction in Corporation Tax from 19% to 17% has now been abolished. Corporation Tax rates will remain at 19% for the tax year beginning 1st April 2020. 

Digital Services Tax 

The new Digital Services Tax of 2% will be applied to digital businesses from April 2020. 

Employment Allowance 

Employment Allowance (the relief that reduces employer’s NIC contributions) is to be increased from £3,000 to £4,000 from April 2020. From 6th April 2020 you will only be able to claim Employment Allowance if your Class 1 NIC bill was below £100,000 in the previous tax year. 

VAT reverse-charges 

The domestic reverse charge process will apply to the construction sector from 1st October 2020. 

You can find out more about the VAT reverse-charges rules here

VAT registration threshold 

The current VAT registration limit of £85,000 will continue to apply until 31st March 2022. 

Fuel duty 

Fuel duty will remain frozen for another year. 

If you have any questions on any of the changes mentioned in this post, feel free to get in touch with us here at Magpie Accountancy. 

budget 2020