Budget 2020: Implications for Local Government
Budget 2020: Implications for Local Government
KPMG assess the implications of the Spring Budget 2020 for Local Government.
With only a short time in his new role, Chancellor Rishi Sunak focused his first Budget on alleviating the problems caused by the recent spread of COVID-19 and boosting expenditure on infrastructure projects across the UK.
This includes a consultation to revise the terms of the low cost loans available to local authorities via the Public Works Loan Board to encourage local authorities to continue investment in housing and infrastructure projects.
There will also be a cut of 1 percent in interest rates for social housing and an additional £1.15 billion of discounted loans available for infrastructure projects.
The rate of Corporation Tax is to be maintained at 19 percent from April 2020.
Relevant to subsidiaries with substantial capital assets, the rate of relief for Structures and Buildings Allowance (the capital allowance in respect of expenditure on new non-residential structures and buildings introduced in 2018) will increase from 2 percent to 3 percent from April 2020.
For non-charitable institutions or subsidiaries investing in qualifying R&D, the rate of Research and Development Expenditure Credit (RDEC) will increase from 12 percent to 13 percent. A government consultation is to take place on whether expenditure on data and cloud computing should qualify for R&D tax credits.
From a VAT perspective the Budget was a relatively subdued affair, with no significant changes that will directly affect Local Government, the main points of interest being as follows:
- The announcement of an additional £1 billion of funding to remove unsafe cladding from residential buildings above 18 metres to ensure people feel safe in their homes. This should help to with the undertaking of these works which HMRC have previously agreed in certain circumstances qualify for the zero rate of VAT.
- It was reconfirmed that the reverse charge for construction services regime will come into force from October 2020, having previously been deferred from October 2019. Whilst this should only directly affect a relatively small number of local authority transactions (zero rated construction services and certain supplies within corporate groups and to the end user being unaffected), local authorities will need to ensure that where they are the end user of these services, that they have informed their suppliers that the reverse charge will not apply.
- With effect from 1 December 2020 new legislation will be introduced to apply VAT at the zero rate to e-publications, including e-magazines and academic e-journals. This will be of interest to local authorities with schools albeit this does not mean there will be an additional VAT saving as local authorities have been able to reclaim the VAT previously charged on e-publications.
With only a short time in his new role, Chancellor Rishi Sunak focused his first Budget on alleviating the problems caused by the recent spread of the coronavirus and boosting expenditure on infrastructure projects across the UK.
Accordingly, the Budget was a relatively subdued affair from an employment tax perspective, with a number of changes already announced such as the increase in the Primary Class 1 NIC Threshold for employees to £9,500, and the roll out of the Off-Payroll Working rules to the private sector.
From an employer’s perspective, the main points are as follows:
Income tax relief for pension contributions – Individuals will continue to receive income tax relief at their marginal rates, and from 6 April relief for those with ‘threshold income’ of less than £200,000 (currently £110,000) and ‘adjusted income’ of less than £240,000 (currently £150,000) will not be subject to taper.
Other pension changes include the expected increase in the lifetime allowance (i.e. the maximum amount of UK tax-relieved pension savings someone can accrue over their lifetime before additional charges apply) to £1,073,100 in line with the consumer price index.
Off-Payroll Working reforms – Implementation of the regime for the Private sector from 6 April 2020 was confirmed. This includes new requirements that will impact on Public Sector bodies already operating the scheme. If you have not already considered the changes then we recommend you do so.
As recent tribunal decisions demonstrate, determining whether an engagement amounts to ‘deemed employment’ can be complex, and organisations should take particular care to ensure they are prepared to undertake these assessments as they finalise their systems and processes for the new regime.
Measures which may apply to spin-out companies:
- Entrepreneurs’ relief – The lifetime limit on qualifying gains will reduce from £10 million to £1 million in relation to qualifying disposals made on or after 11 March 2020 (though there are some anti-forestalling measures).
- Enterprise Management Incentives (EMI) – The Government will review whether the qualifying conditions should be relaxed so that more companies are able to grant EMI options to their employees. No timescale has been announced for this review.
Support with the coronavirus (COVID-19) outbreak – A package of measures was announced to support individuals and employers affected by the outbreak, including confirmation that the Government will temporarily extend SSP to cover individuals who are unable to work because they have been advised to self-isolate, as well as people caring for those within the same household who display COVID-19 symptoms and have been told to self-isolate.
Benefits in kind and expenses – A number of measures were announced, including:
- As announced last summer, most company car tax rates will be reduced by 2 percent in 2020/21 for cars first registered on or after 6 April. The rates will then increase by 1 percent in 2021/22 and a further 1 percent in 2022/23, before being frozen until 2024/25;
- From 6 April 2020, the fuel benefit charges and the van benefit charge will increase in line with the consumer price index. However, a nil rate of tax will apply to zero-emission vans within the van benefit charge from April 2021;
- In a welcome move, from April 2020 medical treatment, such as cognitive behavioural therapy, when provided to an employee as part of an employer’s welfare counselling will be brought within the scope of non-taxable counselling services; and
From 6 April, the maximum flat rate income tax deduction available to employees to cover additional household expenses will increase from £4 per week to £6 per week, for individuals with homeworking arrangements.
National Insurance Contributions (NIC) – The previously trailed increase to the employee’s NIC threshold from £8,632 to £9,500 was confirmed, along with some other measures including:
- The upper earnings limit (above which employee’s NIC falls from 12 percent to 2 percent) will remain frozen at £50,000 on an annualised basis.
- The Employment Allowance, which applies to employers whose employer Class 1 NIC liability was below £100,000 in the previous tax year, will increase to £4,000 from 6 April.
Other consultations and relevant measures announced include:
Construction Industry Scheme (CIS)
The Government will introduce legislation in Finance Bill 2020 aimed at preventing non-compliant business from claiming tax refunds.
Broadly, these measures will allow HMRC to reduce or deny the CIS credit claimed on employer returns where the sub-contractor cannot evidence their deductions and does not correct their return when asked. It will also simplify the rules covering deemed contractors, clarify the rules on allowable deductions for expenditure on materials, and expand the scope of the penalty for supplying false information when registering for CIS.
Connected to this, the Government will also publish a consultation on how to promote supply chain due diligence, including ideas for tackling fraud in supply chains. It remains to be seen whether this focuses just on the construction industry or has broader application in line with HMRC’s wider focus on business supply chains in areas such as labour supply and VAT.
Neonatal pay and leave, and unpaid caring
Employees whose newborn children spend an extended time in neonatal care will have a new entitlement to up to 12 weeks’ paid leave.
Additionally, the Government will consult on a new in-work entitlement for employees with unpaid caring responsibilities.
National Living Wage (NLW) and National Minimum Wage (NMW)
The previously announced increases to the NLW and NMW rates were confirmed.
From 1 April 2020, the NLW for those aged 25 or over will increase from £8.21 to £8.72, and the hourly NMW rates will increase from:
- £7.70 to £8.20 for 21 – 24 year olds;
- £6.15 to £6.45 for 18 – 20 year olds;
- £4.35 to £4.55 for those under 18; and
- £3.90 to £4.15 for apprentices aged under 19 or in the first year of their apprenticeship.
The accommodation offset will increase from the current £7.55 per day (or £52.85 per week to £8.20 per day (or £57.40 per week) from 1 April.
The NLW will extend to those aged 23 and over from April 2021.
The Chancellor reaffirmed Sajid Javid’s commitment to increase the NLW to two-thirds of median earnings and extend it to all employees 21 and over by April 2024.
The income tax personal allowance, thresholds and rates
As previously announced, the standard income tax personal allowance will remain at £12,500.
The higher-rate threshold will remain at £50,000.
Whilst the personal allowance is available to all qualifying UK taxpayers, Scottish taxpayers are subject to tax on non-savings and non-dividend income based on rates and bands set by the Scottish Parliament (for the Scottish rates and bands for 2020/21, which have now been confirmed, see our coverage of the Scottish Draft Budget 2020/21).
Similarly, Welsh taxpayers are subject to tax on non-savings and non-dividend income at rates set by the National Assembly for Wales. In 2020/21, these will be the same for as for other UK taxpayers outside Scotland.
If you would like to discuss any of these points please do not hesitate to contact your usual KPMG contact, or one of the following:
Corporate Tax: Sandra Cox (0161 246 4280) or Peter Chapman (0121 335 2782)
VAT: John Hart (020 73113248) or Dan Smith (020 7311 4379)
Employment tax: Paul Moreels (0191 401 3703)
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