Be prepared for change
The Conservative Government now has a healthy majority which will allow it to change the tax law as it wishes, with little effective opposition. The tax and economic changes to be announced in the Budget Statement on 11 March 2020 could be dramatic.
For example, the Conservative Party manifesto stated that there would be a review and reform of Capital Gains Tax Entrepreneurs’ Relief, so we cannot count on that relief surviving into the next tax year: 2020/21. We already know the Government intends to reduce or remove a number of Capital Gains Tax reliefs relating to the sale of homes from 6 April 2020, as set out below.
Another promise from the Conservative manifesto was to freeze the rates of Income Tax, National Insurance and VAT, although it is not clear if this freeze will apply to all classes of National Insurance Contributions (NIC), and how long it will last.
The Chancellor is likely to focus on measures to assist the lower paid in his Budget. The rates for the National Living Wage and National Minimum Wage have already been announced for 2020/21, showing increases at all levels above 6%.
As wages increase so does the amount of Class 1 NIC that employers have to pay, so to help employers cover this cost the employment allowance will increase by £1,000 to £4,000 from April 2020. However, only smaller employers who pay less than £100,000 of Class 1 employers’ NIC per year will benefit from this allowance.
The Prime Minister also promised to help the low earners by increasing the threshold at which they start to pay NIC from £8,632 to £9,500. This would be a big jump in one year and will cost at least £2 billion, so we should expect equivalent tax rises in other areas.
The rate of Corporation Tax was due to be cut from 19% to 17% on 1 April 2020, but the Conservative manifesto said it would instead remain at 19%.
Large innovative companies may benefit from an increase in the rate of research and development deductions from 12% to 13%, and widening of the scope of those R&D enhanced deductions. We will have to wait until the Budget to know exactly what these tweaks to the R&D scheme involve.
This guide has been written on the basis that the above Conservative manifesto promises are enacted for 2020/21 but we can’t be certain what other tax rates and thresholds will apply.
We recommend you undertake an annual review of your financial affairs to check if you are paying more tax than you need to and whether the structures you set up in the past are still appropriate. Between now and the end of the tax year (5 April 2020) is a good time to assess whether you have claimed all the relevant allowances and are as well defended against high tax charges as you can be.
Of course, the personal circumstances of each individual must be taken into account in deciding whether any particular plan is suitable or advantageous – but these suggestions may give you some ideas. We are happy to discuss them with you in more detail.