Budget 2020: Implications for the Education sector

Budget 2020: Implications for the Education sector

KPMG assess the implications of the Spring Budget 2020 for the Education sector.


Partner, Infrastructure Government and Healthcare

KPMG in the UK


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Budget 2020 - Red Suitcase


Overall there were no major surprises in the Budget across Education. At a time of real pressure due to COVID-19, there was perhaps some relief for Higher Education that there was no mention of any change in overall fee levels with the next steps on the Augar review being pushed back to the spending review. The Budget did indicate a broad direction of travel, however, towards the core Augar principles of a more joined up tertiary system alongside greater investment in Further Education, vocational and specialised training. 

It is widely acknowledged that skills will underpin any post-Brexit economic growth. This includes having the right skills in the right place to match economic need, enabling people to re-skill and access new opportunities and having a better joined up system for learners, employers and providers alike.  With an increased demand for skills and a rising demographic, investment in FE capital infrastructure is to be welcomed. With the concurrent investment in a National Skills fund, we should celebrate a country investing in skills at all ages, and ensure all parts of the tertiary – and perhaps a newly emerging quaternary sector – work together, rather than compete, to produce the talent pipeline we need.

The ‘levelling up’ agenda will require more than investment in physical infrastructure and the investment in research is good news. We know that innovation is a key driver of productivity and that is also lagging outside London and the South East. Any increase in R&D spend across the sector, whilst welcome, must also be matched by a greater geographical distribution of that spend, preferably devolved so it can be aligned with regional needs. It looks like that message has been heard though the details are yet to be worked through. It will also require a real collaborative approach across industry, funders and academia to meet the 2.4 percent target and so we wait to see the details of how the new funding agency can play its part in delivering that.

Please do also look at further analysis on the Wonkhe website for more detailed Higher Education analysis.

Please do contact those listed below should you wish to discuss any of the tax specific issues raised.


There were a number of Budget announcements on VAT that are likely to ultimately impact the sector. Most notably the introduction of zero-rating for e-publications, but also postponed VAT accounting for imports. In addition to this the on-going review of partial exemption and the capital goods scheme will continue. HMRC will also review the consequences of Making Tax Digital for VAT. Finally, the Budget materials also indicate that there will be a new disclosure requirement for large businesses for any tax positions which HMRC is likely to challenge. Details on this final measure are limited and it will be the subject of consultation.

Following hot on the heels of the News Corporation Upper Tribunal decision in December, which strongly indicated that e-publications should be subject to the same VAT treatment as their printed equivalents, the Government will introduce legislation to apply a zero-rate of VAT to e-publications with effect from 1 December 2020. This will put beyond doubt that, from that date on, e-books, e-newspapers, e-magazines and academic e-journals are entitled to zero-rating. The government will be consulting on the details of the legislation ahead of its implementation. The removal of VAT from e-publications should save the sector a significant amount of VAT, as e-publications, usually in the form of academic journals, are a significant cost for universities and the VAT thereon is largely an irrecoverable cost. 

Many within the sector have already made, or begun making, claims for historic purchases of e-publications and it will be interesting to see whether the prospective legislative change impacts HMRC’s appetite for further litigation in connection with the pre-1 December 2020 VAT treatment. By way of reminder, HMRC has already appealed the Upper Tribunal decision in News Corporation to the Court of Appeal. The forthcoming legislative change in this regard both indicates that the Government considers zero-rating (i.e. relief from VAT for the consumers of e-publications) is beneficial to society and limits the financial impact from the litigation, as any supplies from 1 December 2020 are expected to be zero-rated anyway. This indicates that the Government’s appetite for further litigation may reduce. However, amending the legislation could also be viewed as indicating that the Government does not consider e-publications currently fall within the zero-rate, and therefore that they are confident that their appeal will be successful.

In terms of postponed VAT accounting for imports, universities incur a significant amount of VAT importing goods from outside the EU, which could increase to include import VAT on goods from the EU when the UK leaves the EU. Currently import VAT tends to be paid at the time of importation (i.e. when the goods are declared at the UK border), subject to whether the taxpayer has agreed any deferment arrangements with HMRC. However, contrary to earlier HMRC announcements, the Government are introducing postponed VAT accounting for imports with effect from 1 January 2021, which will defer the accounting for import VAT until the imports are recorded on a taxpayer’s VAT return. Consequently, this is likely to result in a cashflow advantage for many universities.

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.  This will affect any entities who provide construction services who do not qualify as the end users.  Universities, and their subsidiaries, will need to ensure that, where they are the end user of these services, they have informed their suppliers that the reverse charge will not apply.  

Corporation Tax

As announced in the 2018 Budget, a Digital Services Tax will be introduced from 1 April 2020, with the rate of 2 percent being applied to the gross revenues of internet search engines, online marketplaces and social media websites. The government have confirmed their continued commitment to a multilateral solution to the challenges digitalisation has created for the corporate tax system, and their intention to repeal the Digital Services Tax once an appropriate global solution is in place. Whilst the Digital Services Tax does not itself catch distance learning, we await with interest OECD’s suggested changes under BEPS Pillar One – based on current discussions, universities with a turnover exceeding EUR750m may find that their supply of distance learning to overseas-based students is caught, so this is certainly something to keep on agendas. There should be further clarity on this later this year.

Otherwise, corporation tax is not, of course, a significant issue across the Education sector, given the availability of charitable exemptions. Nonetheless some changes have been brought in which may be relevant to certain entities within the sector (e.g. subsidiary entities).

The rate of Corporation Tax is to be maintained at 19 percent from April 2020.

Relevant to non-charitable institutions or 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.

Stamp Taxes

Stamp duty land tax – non-resident surcharge on purchases of residential property

The Government will proceed with introducing a stamp duty land tax (‘SDLT’) surcharge on foreign buyers of residential property in England and Northern Ireland. The current proposal is that non-resident individuals, corporates and we assume other entities will, from 1 April 2021, pay an SDLT surcharge of 2 percent on top of the ordinary SDLT rates that would otherwise apply (which could include the 3 percent additional homes surcharge).

The measure is aimed at controlling house price inflation and supporting UK residents to get on the housing ladder by deterring non-residents from buying up UK housing stock as an investment.  However, it is expected to raise some revenue which is to be applied to fund policies to help reduce rough sleeping in England.  

Stamp duty / SDRT – market value charge for connected company transfers

The Budget confirmed that draft legislation which introduces a market value rule for transfers of unlisted shares to companies connected with the transferor is to be retained unchanged within the Finance Bill 2020.

The provision is, like the listed shares provision, limited to transfers to connected companies only, but unlike the listed shares provision the rule will only apply where the actual consideration for the transfer includes an issue of shares by the transferee company.  

Existing stamp duty reliefs such as group relief and share for share exchange relief still apply as the draft provision only determines the chargeable consideration for the transaction.

Employment Tax

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.

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), Simon Robinson (+44 117 9054369), or Peter Chapman (+44 121 3352782)

VAT: Richard Turnbull (+44 121 2323318), Sarah Anthony (+44 161 2464002 ), or Kerry Sykes (01223 582093)

Employment tax: Paul Moreels (0191 401 3703)

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