The Conservatives are governing the country and quickly the current bid has started to “Get Brexit Done”. As it is the main focus for now, British people can expect that the Conservatives are putting Brexit into action and that the UK may leave the EU by the end of January 2020. Although Brexit is one of the biggest changes to affect the UK in years to come, there are also UK tax changes that SMEs, online businesses and self-employed individuals need to be aware of. In particular, Digital Service Tax, Corporate Tax as well as Personal Tax were highlighted in the Conservative manifesto and throughout their campaign.
Since the annual Autumn Budget was cancelled this year, the key taxations proposed in the Conservative Manifesto are good indicators for us as a preview of the 2020-2021 tax year.
Here is an overview of the principal changes with reference to tax which are expected to take place under the Conservatives in 2020.
Employment Tax
Increased Employment Allowance for small businesses
Currently, employers who pay Class 1 National Insurance are eligible to get up to £3,000 a year off their National Insurance bill. The Conservatives plan to increase this to £4,000 to help small businesses paying National Insurance.
An easier system for the self-employed
The Conservatives have said that they plan to improve access to finance and credit and also make the tax system easier for self-employed businesses to navigate.
Improve the infrastructure of the Apprenticeship Levy
The Conservatives are planning to improve the application of the Apprenticeship Levy, and have pledged a fund of £600 million p.a. so that high-quality education and training can be incorporated into businesses and SMEs.
Corporate Tax
Corporate tax rate will stay at 19%
Although the rate of corporate tax was said to be reduced to 17% in April 2020, it will stay at its current level of 19%.
Structural building allowance will increase to benefit brick and mortar businesses
The Conservatives furthermore have announced than in 2020 they will increase the current structural and buildings allowance from 2% to 3%.
Boosted tax credits for Research & Development
The scope of tax credits for R&D will be reviewed, and the R&D tax relief rate will be increased from 12% to 13%. This will benefit businesses that carry out research and invest in developing products and services.
Introduction of an Anti-Tax Evasion Unit at HMRC
The Conservatives will severely persecute offenders who are guilty of tax evasion in the future. This will be enforced by investing in manpower and also by introducing an anti-tax evasion unit at HMRC that covers all duties and taxes.
Digital Service Tax
A taxation of 2% for digital platforms
The introduction of the digital service tax is a key point for online businesses to take away from this article. Businesses using digital platforms to make sales, e.g. social media channels, websites as well as online marketplaces will be liable to pay a digital service tax that is applicable after passing a given threshold , i.e. after having made a certain amount of sales.
The digital service tax will apply to businesses once they have reached a turnover of £25 million in sales from UK users. They will also be liable once their global sales turnover reaches a value of £500 million. These are the thresholds that businesses need to pass in order to be taxed for their digital services. Having said that, the deal is sweetened by the fact that the first £25 million of sales in the UK will not be taxed.
Personal Tax
Reduction of Income Tax
The Conservatives have made a pledge to reduce income tax by increasing the threshold on what people have to earn before they start getting taxed. From April 2020 they guarantee the first £12,500 that people earn will be tax-free.
No increase in National Insurance
The threshold at which individuals are obliged to start paying National Insurance is currently at £8,632. This threshold will be increased to £9,500, so that individuals need to earn another £868 before they have to pay National Insurance.
Cost of dividends remains the same for business owners
Under the new Conservative government there will be no change to the tax rate on profits paid out in dividends by business owners. The basic rate will stay at 25%, the higher rate will remain at 45% and the additional rate will still be 49%.
No change to capital gains tax
Capital gains tax rates will stay put, such as residential property rates staying at 18% / 28%, and non-residential property rates staying at 10% / 20%.
What about Value-Added Tax?
Value-Added Tax under the Conservative government will not undergo any changes, so VAT payers need not concern themselves with changes to rates or regulations. It is speculated that there will be changes to legislation surrounding plastic packaging and alcohol duty, but this will not impact Value-Added Tax.
Any questions so far?
If you are worried about how your business will prepare for these changes to tax, or you feel as if your online business might not be ready for the Digital Services tax, we can help you adjust to the new rules step-by-step. We specialise in providing online businesses and SMEs with the tools to overcome tax challenges that businesses face, and we will be happy to advise you.
Please give us a call on 0161 637 1080 today to speak to one of our advisors. Alternatively, you can send us an e-mail to enquiries@jpaccountant.com.
