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We were expecting an announcement-packed Budget yesterday, and we certainly got it. After the government suggested that 80% of people in the UK could get the Coronavirus, it was perhaps appropriate that tax received very little mention. However the mention it did get certainly packed a punch.
Entrepreneurs’ Relief restricted
The big news for business owners was as predicted; there has been much mention recently that entrepreneurs’ relief (ER) is expensive and poorly targeted, and the Chancellor responded as expected. The relief apparently costs the Treasury £2 billion a year with 75% of the tax savings being received by just 5,000 individuals. The Chancellor’s response is to reduce the relief from £10 million per person per lifetime to £1 million. This is in line with suggestions from the Federation of Small Business (FSB), and takes effect immediately.
Changes to pensions allowances
Prior to the budget there were suggestions that the pensions system could be overhauled, and whilst this was forthcoming, and it was announced as good news, it is not good news for all. The good news is that the taper threshold has been increased from £150,000 to £240,000 per annum, so from 6 April 2020, those earning up to £240,000 can make annual pension contributions of up to £40,000, rather than being tapered down to £10,000. However for those earning over £300,000 per annum, the maximum pension contribution is now £4,000 per annum, making it impossible for the highest earners to build up a realistic pension pot, and meaning many taxpayers must now reduce their pension contributions.
Increased Stamp Duty
Property investors already have to pay a stamp duty surcharge when they buy additional properties, and an SDLT overhaul has long been hoped for to boost the property market. However there were no reductions, rather the introduction of a further charge for non-UK resident purchasers who will face a further charge from April 2021 with the introduction of a new 2% SDLT surcharge on the purchase of residential property in England and Northern Ireland. This surcharge will apply in addition to the current rates of SDLT.
Other business tax changes in the 2020 Budget
Enhanced R&D tax relief
The rate of R&D Relief Expenditure Credit (RDEC) is to be increased from 12% to 13% with effect from April 2020. This affects large companies only and there is no change to the rate of relief due to SMEs. However, the proposed re-introduction of a PAYE/ NIC cap on R&D tax credit payments to SMEs has been delayed by a year to March 2022.
Extra construction tax relief
For construction companies and the property sector, a boost to the Structures and Buildings Allowance (SBA) was announced, increasing the available tax relief to 3% (from the current 2%). This is an additional tax incentive available for the construction of commercial property that does not qualify for capital allowances.
Increased allowances for employers
The existing employment allowance which is available to all businesses is being increased to £4,000 per individual, meaning that the NIC liabilities of approximately 65,000 businesses will be reduced to zero.
No change to corporation tax
As expected, the proposed reduction to corporation tax from 19% to 17% is not now to take place. Corporation tax will remain at 19%.
Policies for Corona hit workers and businesses
As announced just before the Budget, Bank of England interest rates have been cut by 0.5% returning them to the historic low of the most recent economic crisis. In addition to this, the Chancellor announced a new SME funding scheme, with extra credit being made available to support businesses.
In terms of employment policy, statutory sick pay (SSP) and benefit claims rules are being relaxed as widely reported, with a boost worth £1 billion. It was also clarified that SSP will also be available for all those advised to self isolate, even if they have no symptoms, including the self-employed and gig workers. People on contributory employment support allowance will be eligible to claim on day 1 not day 8 as is currently the case.
In a bid to support small businesses, any business employing 250 people or less and facing SSP costs due to an employee being off work due to Corvid-19, will be refunded in full by the government for the first 14 days absence. This is expected to provide over £2 million in support for 2m businesses.
HMRC is also apparently scaling up the Time to Pay service for deferred tax payments, with the introduction of a dedicated helpline. Acknowledging the inevitable impact on cash flow, a new loan scheme, the temporary “Coronavirus business interruption support scheme” will deliver access to £2m in emergency cashflow funding. To protect lenders, the Government has promised to cover 80% of any losses resulting from these loans with no fee to pay.
Earnings boost
Within the next 4 years the National Minimum Wage will increase to £10.50/hour and the NIC threshold will rise from £8,632 to £9,500 – representing a tax cut for 31m people. According to the government’s calculations, this means that someone working full time on the minimum wage will be £5,200 better off in 2024 than they were in 2010.
Business rates cut
To boost town centres and high streets, business rates are being cut or frozen for a wide range of service providers. Eligible retailers, cinemas, restaurants and music venues with a rateable value below £51,000 will see business rates abolished for the coming year. Other businesses in leisure and hospitality, including pubs, will see this 100% rates discount extended to them.
Many of the smallest businesses that currently pay no rates will also get support, with a £3,000 cash grant being made available to them. This represents a £2 billion cash injection for 700,000 of the UK’s smallest businesses.
Investment planned for new infrastructure, green technology and R&D
Over £130 million in new funding is being made available for start-up loans and a further £200 million is being set aside for investments in scale ups.
VAT freezes
Popular among voters, there will be no increase to VAT on alcohol and a £10 million fund is being made available for distilleries, to help them embrace clean technologies. The tampon tax (VAT) is also being abolished and the fuel duty remains frozen.
Green policy ramp up
In support of better environmental management, a whole raft of policies designed to promote clean energy and carbon reduction schemes were introduced. From April 2020, the levy on electricity costs will be removed and there will be an increase to gas charges instead. A new plastics packaging tax will be introduced for consumers of plastic packaging that falls below the minimum requirement for plastics to be made of 80% recyclable materials. Within two years, there will also be an end to the reduced cost of “red diesel” which was intended to benefit agriculture but it is also used to power rail freight and engines for refrigeration lorries, off-grid heating and construction equipment, meaning private companies such as Sainsbury’s, Veolia and JCB have benefitted from cheaper fuel.
Further incentives to purchase clean vehicles were announced, with an extension to the Plug-in Car Grant for 2022-23 and £403 million worth of subsidies to encourage people to buy EVs. The government’s clean transport scheme also includes vans, taxis and motorcycles.
Boost for e-readers
Starting from 1st December 2020, VAT will no longer be charged on sales of digital publications, including all books, magazines, papers and academic journals.
In a nutshell
Overall, this was a huge budget and the Chancellor certainly kept his promises for change and ‘splashed the cash’.
Over the coming weeks, we will be looking in detail at some of the key tax changes and what they mean for our clients.
