Tax update: Summer Statement 2020

The sheer scale of government financial support to underpin jobs during the pandemic has been unprecedented and clearly an absolutely huge sum so far. However, given that the economy contracted so significantly between February and April, intervention to prevent massive unemployment was inevitable.

Clearly, this cost must be funded somehow and in his Summer Statement this week, the Chancellor confirmed that there will be an Autumn Budget. Although one might naturally assume that this would mark the start of a government clawback through tax increases; most commentators believe that any material changes will be delayed until April 2021 at the earliest, so the economy has more chance to recover.

TAX CHANGES

Whilst the Statement was fairly light on tax measures and much of what was announced had been widely expected, there were a few, very important immediate or imminent changes to be aware of.

Stamp Duty Land Tax – an immediate change

The nil rate threshold for Stamp Duty Land Tax (SDLT) on residential property transactions (in England and Northern Ireland only) will be increased from £125,000 to £500,000. This took effect immediately from midnight 7 July 2020 and so, if you are completing a purchase of a main residence on 8 July or after, you will benefit from the saving.

This “holiday” will run until 31 March 2021 and the threshold will revert to £125,000 on 1 April 2021. SDLT at 5% remains payable for purchases above £500,000 (up to £925,000), rising to 10% (£925,001 - £1,500,000) and 12% (over £1,500,000).

The change will temporarily reduce the amount of SDLT payable on transactions over £500,000 as the first £500,000 of chargeable consideration will benefit from the lower rates.

For example, if you brought a property (that was not an additional dwelling) for £750,000 on 7 July 2020, the SDLT would have been £27,500. If you purchased the same property on 8 July 2020, the SDLT would be reduced to £12,500.

The holiday will also reduce SDLT at the higher rate for additional dwellings worth more than £40,000, although purchasers will still need to pay the additional 3% surcharge that currently applies on these transactions.

Finally, though, note that this announcement does not change the position of first-time buyers, who already enjoy the special relief from SDLT on purchases up to £500,000.

Our initial thoughts:

Obviously, anybody who completed a house purchase before 8 July will feel very frustrated that they have missed out on this potentially significant saving. Purchasers of an additional property who maybe did not manage to sell their main residence at that time, will probably also be slightly disappointed in still having to pay the 3% surcharge. However, we will need to check the detailed rules to see if purchasers are able to ultimately reclaim the surcharge in certain circumstances, if they sell their first property and meet the necessary conditions.

The Chancellor may feel nervous about the knock-on effect of an immediate restoration of the lower £125,000 threshold on the housing market and we may well see some further announcements on SDLT in the Autumn.

Temporary VAT rate cut – an imminent change

The Chancellor has announced a reduction on the standard rate of VAT to 5% with effect from 15 July 2020 until 12 January 2021, but only for certain “hospitality” businesses and goods/services.

The current 20% rate will be reduced to 5% for food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK and to supplies of accommodation and admissions to UK attractions. This will include supplies of holiday accommodation and admission fees, to include sleeping accommodation in hotels and similar, holiday accommodation, pitch fees for caravans and tents, and associated facilities.

This reduced rate will only come into effect on Wednesday next week (15 July), presumably to give business time to adjust their prices and billing systems. It is only a temporary measure and the standard rate will apply again from 13 January 2021. We await detailed guidance from HMRC on the exact definition of the supplies which will benefit from the reduced rate.

Our initial thoughts:

For those hospitality businesses affected by this change, a practical point is to ensure that your till systems, accounting and financial records are updated urgently to reflect this temporary change in VAT rate.

A critical decision for certain businesses will be how the change will affect their pricing and how they will identify the sales which are subject to the reduced rate; for example, if they also sell alcoholic drinks, as these will continue to be subject to VAT at 20%.

Other sectors, particularly in the retail sector, which fall outside the hospitality category will be disappointed. Also, some larger organisations in the hospitality sector have already led the charge for support towards their rent obligations, which are course a fixed overhead, and some see this as a bigger hindrance to kickstarting their recovery from the lockdown impact.

Job Retention Scheme

There had been rumours that this might be extended, but no plans to do this were announced. It will cease at the end of October.

A range of incentives will be introduced to replace it, including a job retention bonus payable to UK employers, under which employers will be given a one-off payment of £1,000 for every furloughed employee who is retained through to the end of January 2021. To qualify, employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. Payments will be made from February 2021. Further details are expected to be announced soon.

Our initial thoughts:

This is to reward and incentivise employers who continue to employ their furloughed employees through to the end of January 2021.

One question though is how some employers will view this bonus “incentive” and assess workforce requirements going forward into next year whilst they are in the midst of trying to restart their businesses. It will surely be a fine balance with some difficult decisions for many businesses, and over the coming months they may have to weigh up the loss of the incentive payment against having to consider making certain staff redundant and the time, process and costs involved.

Although a modest payment, the bonus will undoubtedly be useful for some though, coming at a time when businesses, which have deferred tax debts, begin to work out how they will be paid. For example, Self-Assessment taxes are due at the end of January 2021 (by the unincorporated business owner) and VAT due at the end of March 2021. We also assume that the bonus might be taxable for employers, however, we await further details, which are expected to be announced by the end of July.

Apprentices and employment support

A significant sum is to be invested in scaling up employment support schemes, training and apprenticeships to help people looking for a job. Young people, who are amongst the worst hit by the crisis, will benefit from this.

This includes a measure whereby businesses will be given £2,000 for each new apprentice they hire under the age of 25. This is in addition to the existing £1,000 payment the government already provides for new 16 to 18-year-old apprentices and those aged under 25 with an Education, Health and Care Plan.

For further information or advice on any of the issues raised, please call us on 01225 325580, email info@richardsonswift.co.uk, or contact your usual client director.

Please note that this is only a summary of the main issues and should not be construed as advice.