A Brighter Thinking 2020 Budget Response
Will Sweeney – Tax Technical Specialist
This was a budget set against the background of the Coronavirus epidemic, for the Chancellor to provide the fiscal support to impacted businesses and services, while planning for the Government’s long-term priorities.
This was a budget to turn the spending taps on full: to invest in public services and to provide the promised Infrastructure Revolution; for ‘levelling-up’ opportunity across regions of the country that have supported the Conservative Party for the first time. Overall, it will be seen as good news for businesses, although there were relatively few tax measures overall with the majority of attention focussed on spending.
The battle against Coronavirus (Covid-19)
The Government announced a three-point plan to provide support for Coronavirus with:
- The provision of whatever funds the NHS needs to combat the virus
- Support for individuals unable to work – relaxation of rules for paying Statutory Sick Pay, and Employment Support Allowance
- Support for businesses facing additional costs – refund of 14 days sick pay for small businesses, Government backed business interruption loan scheme, business rates relief (see below) and enhanced Time to Pay arrangements
A brighter forecast?
The OBR forecast indicated that investment in infrastructure and services will boost growth for the coming years, with pre-budget forecasts of 1.1% growth for 2020 revised up to 1.6%. There were big plans for transport, communications and low carbon investment, but questions remain as to how this will all be paid for.
The BIG Budget 2020 announcements
The future of Entrepreneurs’ Relief
As hoped, Entrepreneur’s Relief has been restricted rather than abolished, although the lifetime allowance has been heavily reduced from £10m back to where it started at £1m. Whilst there will be disappointment for some that the threshold was dropped so much, the ability to have the first £1m of qualifying capital reward taxed at only 10% is a reasonable incentive and proportional for the many small business owners in this country.
The expected changes to the ‘Off-payroll working’ rules (IR35) will target non-compliance with IR35 by making medium and large organisation in the private sector (and third sector) responsible for determining contractors tax status with effect from 6 April 2020. Small businesses will continue to apply the existing IR35 rules.
Digital Services Tax – Coming April 2020
Also targeted are tech multinationals as the budget documents confirmed that the UK will be introducing its Digital Services Tax from April 2020. This will be a narrowly targeted sales tax, and it is only envisaged that it will impact companies with sales greater than £500m so is unlikely to directly affect our clients, although they may be impacted should the US choose to impose retaliatory tariffs.
Small Business Rates Relief
The package of business rates relief introduced for small retailers has been extended to provide 100% relief to all retail, leisure and hospitality businesses with a rateable value of less than £51k, subject to a full review of the business rates system. These temporary measures, taken together with existing Small Business Rates Relief, mean that around 900,000 properties, or 45% of all properties in England, will pay no rates in 2020-21. The government has also announced the introduction of a £5,000 Business Rates discount for pubs with a rateable value below £100,000 in England for one year from 1 April 2020.
Small business grant funding
Many small businesses pay little or no business rates because of Small Business Rate Relief (SBRR). To support those businesses, grants of £3,000 will be provided to help meet their ongoing business costs. This could benefit c700,000 businesses currently eligible for SBRR or Rural Rate Relief.
Pension annual allowance thresholds
The two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020/21 the “threshold income” will increase from £110,000 to £200,000, so individuals with income below this level will not be affected by the tapered annual allowance. Similarly, the annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000 (Increased from £150,000). The budget briefing note indicates that individuals with adjusted income exceeding £300,000 will be restricted to an annual allowance of only £4,000, where previously an individual who was ‘fully tapered’ benefitted from an annual allowance of £10,000. However, there is some confusion as to how this will apply in practice as the specifics of this of this aspect have been omitted from the budget document. As the document reads it looks like a ‘cliff edge’ at £300,000 albeit some other sources are suggesting that the tapering will in practice continue to £312,000 rather than £300,000.
There has been limited reform of the R&D relief rules, with the large company RDEC rate increased to 13%. We also saw the announcement of a review into whether R&D relief could be extended to included cloud computing and data integration, with would be well overdue for many tech firms.
The IFA regime
The corporate intangible fixed assets regime (the IFA regime) has been amended to allow companies to claim corporation tax relief for pre-FA 2002 intangible fixed assets acquired from related parties from 1 July 2020, subject to transitional anti-avoidance rules.
And in other Budget 2020 news…
- April 2020, while employers also benefit with the raising of the employment allowance to £4,000.
- The rate of Structures and Buildings Allowances, which provide tax relief for construction costs of non-residential properties will be increased to 3%.
- There is uncertainty for businesses planning significant investment as no further announcement was made regarding AIA, meaning that the temporary increase to £1m is due to come to an end as of 31 December 2020, with AIA returning to £200k for 2021.
- The Corporate Loss Restriction rules, which were introduced in 2017, originally restricted utilisation of brought forward losses to 50% of available profits once the deductions allowance of £5m per group had been fully utilised. This is to be extended to bring Corporate Capital Losses within the scope of the rule, with effect from 1 April 2020.
- An SDLT surcharge has been introduced on non-resident buyers of UK residential property at a rate of 2%. This will take effect from April 2021.
- PPR will be restricted, with the tightening of the rules around periods of non-occupancy that can be included in the relief. The final period leading up to the sale of your principal residence has been reduced to 9 months, and lettings relief will be limited to situations where the owner is in shared occupancy with the tenant. This last measure is likely to severely restrict the application of lettings relief.
- The primary threshold for class 1 NICs will be raised to £9,500 from April 2020
- the government will legislate to reduce the van benefit charge to 0% for vans that produce zero carbon emissions with effect from 6 April 2020
- The amount families can save into a JISA or CTF will be more than doubled in 2020-21, increasing from £4,368 to £9,000
- Pensions lifetime allowance has increased in line with inflation to £1,073,10
- VAT on sanitary products has been made zero-rated with effect from 1 January 2021
- A zero rate of VAT will be applied to e-publications from 1 December 2020, which will make it clear that e-books, e-newspapers, e-magazines and academic e-journals are entitled to the same VAT treatment as their physical counterparts.
- Introduction of a plastic packaging tax at £200/tonne on plastics containing less than 30% recycled content
- And finally, duties will be frozen on beer, spirits, wine and cider, and on fuel. Climate change levy frozen for electricity but raised for gas.
Menzies Budget Report
To discuss any of the above or the implications of Budget 2020 on you or your business, please contact your Menzies Relationship Partner.