Budget 2020: Implications for the Healthcare sector

Budget 2020: Implications for the Healthcare sector

KPMG assess the implications of the Spring Budget 2020 on the Healthcare sector.


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Budget 2020 - Red Suitcase

Health Sector

A welcome package of £12 billion of targeted measures to tackle COVID-19 included a £5 billion emergency response fund to support the NHS and other public services and £40 million of new funding for rapid research into COVID-19.  Other highlights include:

  • £6 billion of new funding in this Parliament to support the NHS, including to create 50m more GP surgery appointments and ensure there are 50,000 more nurses;
  • A restatement of the £100+ million commitment in 2020-21 to fund business cases on 40 new hospital projects accompanied by an increase in DHSC’s capital budget of £683 million in 2020-21 to protect the level of NHS operational capital investment; 
  • £10 million additional funding to DHSC to increase the capacity and capability of diagnostic testing and surveillance facilitated by Public Health England to support the NHS; and
  • The Government will invest £1 billion of additional funding for social care next year and this will continue for every year of the current Parliament.  

Against this backdrop of investment, there have been some specific tax changes that are relevant for this sector.

Corporation Tax

As NHS bodies are exempt from corporation tax these changes will generally impact those NHS bodies with subsidiary vehicles.  

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.


Large business notification – From April 2021 large businesses will be required to notify HMRC when they take a tax position which HMRC is likely to challenge. This policy will draw on international accounting standards which many large businesses already follow. The Government will consult shortly on the detail of the notification process, but this approach could include NHS organisations. 

VAT on e-publications – The Government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020, to make it clear that e-books, e-newspapers, e-magazines and academic e-journals there are entitled to the same VAT treatment as their physical counterparts. Interestingly HMRC application of the tax in this area is are already under challenge follows a recent UT’s decision in News Corp UK & Ireland Ltd which found that the VAT treatment of e-publications should be aligned with that of physical books or magazines which were zero rated.  

We are working with NHS bodies to explore opportunities for retrospective claims following this case law and this change now suggests HMRC believe the current legislative framework does not sufficiently provide for zero rated relief on these supplies.  While the Budget makes no comment on any historic adjustments, it is interesting that this change comes in from 1 December 2020 (and not 1 January 2021 - the sanitary products zero rated change) and whether this suggests there may be provision for this relief to apply within the existing EU legislation.  It will mean for those looking to challenge the historic treatment, there is a finite VAT value and period for which such a challenge will apply.  It will be interesting to see, based on the above, how much HMRC will challenge such historic claims on the VAT treatment of e-publications. 

VAT postponed accounting – From 1 January 2021 postponed accounting for VAT will apply to all imports of goods, including from the EU. This will provide an important boost to those VAT registered UK businesses which are integrated in international supply chains as they adapt to the UK’s position as an independent trading nation.   This will be a welcome reprieve for businesses currently paying the import VAT at the time of import (i.e. not currently enjoying deferment).  This will mean for example NHS bodies importing medical equipment or drugs will be delaying the VAT payable on the import until the relevant VAT return.

VAT on women’s sanitary products – From 1 January 2021 the government will use freedom from EU law to enable a zero rate of VAT to be charged on women’s sanitary products. 

VAT quick fixes directive – New legislation will simplify the rules for the VAT treatment of intra-EU movements of call-off stock. Businesses can delay accounting for VAT until the goods are called-off and removed from a Member State on or after 1 January 2020. 

Delayed reverse charge for construction services – 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 affects NHS Trusts who provide construction services who do not qualify as the end users.  NHS Trusts 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.  We are seeking confirmation from HMRC that this will not apply to NHS Foundation Trusts because they are exempt from applying CIS in the first place. 

Future of Making Tax Digital – The government will publish an evaluation of the introduction of Making Tax Digital for VAT, along with related research. It is unclear if this evaluation will coincide with the roll-out of MTD for NHS and other Government Bodies that have COS VAT recovery.

HMRC automation – As announced on 31 October 2019, the government will legislate to confirm that HMRC may use automated processes to issue taxpayers with notices to file tax returns and penalty notices. This measure will apply prospectively and retrospectively to put beyond doubt that the rules work as designed and intended. This does not create any new or additional obligations or liabilities for taxpayers, but does reinforce the move to MTD.

Partial exemption – Following the recent consultation by HMRC on the simplification of the VAT rules on partial exemption and the capital goods scheme, it was announced that the government will continue to engage with stakeholders in relation to their responses and will then publish a response in due course.

Long-term cross-border goods policy – The government will launch an informal consultation over spring 2020 on the VAT and excise treatment of goods crossing UK borders after the EU exit transition period. 

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) or Simon Robinson (+44 117 9054369).

VAT: Arran Thoma (0161 246 4596), Siddiq Musa (0161 246 4265), or Steve Brooks (0207 896 4295)

Employment tax: Paul Moreels (0191 401 3703)

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