Tom Biggs ACA CTA provides an analysis of the spending announcements and tax changes from the UK Budget.
Chancellor Rishi Sunak was in a very generous mood at the despatch box but his vast spending today is likely to lead to significant sacrifices for tomorrow!
The world being gripped by Coronavirus meant the 2020 Budget became 2 announcements in 1 sitting. Projections that 20% of the workforce could be off ill, combined with it being a new government, meant it was always going to be a fiscally expansive budget.
Sensibly perhaps £30bn has been set aside to tackle the fallout from COVID19. However, that was just the start. The raft of announcements that followed will add £100bn extra public spending over the course of this Parliament. The Treasury's own rules on capital spending could be scrapped.
UK national debt stands at an eye watering £1.7tn! The tax burden is already at a 40 year high. More spending will increase the debt pile and the interest payments on that debt could then increase, meaning taxes will likely have to rise. Expect more stealth tax announcements in the Autumn and future budgets.
The key policies for SMEs and individuals from the Budget 2020 are:
The rate of the Research & Development Expenditure Credit ("RDEC") will increase from 12% to 13% from 1 April 2020 as part of a government initiative to boost R&D projects in the UK.
Further good news included the government delaying by a year (to 1 April 2021) the introduction of the cap that limits the credit under the SME R&D scheme to three times the total PAYE and NIC liability of the company for that year. Notably, it's proposed that this will now include a £20,000 limit below which the claim will not be subject to a cap.
Interestingly, there will also be a consultation into whether expenditure on data and cloud computing should qualify for R&D tax credits. It is seen as a response to changing working patterns and IT based industries in the UK.
2. The employment allowance
For businesses that are eligible to claim it, the employment allowance will increase from £3,000 to £4,000 from 6 April 2020. This will be a welcome tax break for SMEs. However, employers with a secondary class 1 NIC liability in the previous tax year of £100,000 or more will not be eligible to claim the employment allowance as of 6 April 2020.
3. Company cars
There are changes with regards to company cars in terms of capital allowances and employee benefits. First year allowances on zero emission vehicles will be extended until 31 March 2025.
The car emission threshold for which the main rate of writing down allowances (currently 18%) will be applicable will be reduced from 110g/km to 50g/km from 1 April 2021 on a permanent basis.
Company car benefit tax rates for 2022/23 will be frozen for 2 years and therefore the rates announced kept the same through to the 2024/25 tax year.
4. Corporation tax
As announced in the election campaign, Corporation tax remains at 19% which the government points out is the lowest in the G7 and G20 groups of nations. The rate was previously set to fall to 17% for the 2020/21 tax year.
5. Business rates
The Government announced previously a £1,000 business rates discount available to pubs with a rateable value of less than £100,000 for one year from 1 April 2020. Within The Budget however, and as a response to the Coronavirus pandemic, this discount will be increased to £5,000.
Also, for one year from 1 April 2020, there was due to be a business rates discount for retailers of 50% for properties with a rateable value below £51,000. This was an increase from the previous discount of one third and was also extended to include cinemas and music venues. This will now be increased to a discount of 100% in response to the Coronavirus outbreak and will also be extended to include hospitality and leisure businesses.
Businesses eligible for small business relief will get a cash grant of £3,000.
6. Statutory sick pay (SSP) changes due to Coronavirus
Small businesses will receive help to cope with the extra expense of coping with Coronavirus. The cost of SSP for the first 14 days will be covered by the government for businesses that employ fewer than 250 staff. Also, temporary “Coronavirus business interruption loans” of up to £1.2m will be provided by commercial banks, 80% guaranteed by the government.
Of note, SSP will now commence from the first day of sickness.
The personal tax changes impacting on individuals
7. Entrepreneurs' Relief
It's not the end of Entrepreneurs' relief (ER) as had been rumoured. Instead the tax break, which reduces Capital Gains Tax (CGT) from the higher rate of 20% to a flat rate of 10%, will see the lifetime limit reduced from £10m to £1m on qualifying capital gains. This change takes effect from 11 March 2020.
This is still significant as more gains made by individuals are now likely to be subject to the main capital gains tax rates. It will impact those individuals who have yet to claim ER but are planning to do so in the future, as well as potentially those who have already claimed ER on gains exceeding £1m and were looking to do so again.
8. National Insurance (NI) thresholds
Low-paid workers will see the national living wage rise to an estimated £10.50 an hour by 2024.
The annual primary earnings threshold for class 1 primary national insurance contributions will increase to £9,500 for the 2020/21 tax year, thereby reducing the amount of NIC payable by employees.
The threshold for class 1 secondary NIC is unaffected however, meaning there will be different thresholds applicable to primary and secondary class 1 NIC as of 6 April 2020. The same threshold increase will also apply to the low profits limit for class 4 NIC purposes meaning self-employed businesses will also benefit.
Additionally, the annual upper earnings limit remains unchanged at £50,000 meaning that the earnings that are subject to the higher rates of class 1 primary and class 4 secondary is reduced. The Government estimates that this policy will take around 1.1 million people out of paying class 1 and class 4 NIC entirely.
9. Pension allowance changes
Effective from April 2020, both the threshold income and adjusted income limits will increase by £90,000. This will therefore mean fewer higher rate earners will be subject to the tapered pension annual allowance. It means people with threshold income of less than £200,000 will not be subject to the pension allowance tapering. The main objective of this is to support surgeons and consultants in the NHS by reducing the punitive pension charges associated with additional shift work.
Additionally, the minimum level to which the annual allowance can taper down to will reduce from £10,000 to £4,000. This will only impact those individual’s whose adjusted income is more than £300,000.
10. An expanding HMRC - a word of warning!
For the past decade the government has equipped HM Revenue & Customs (HMRC) with various tools and powers in an attempt to eliminate the tax gap. This has included clamping down on avoidance and evasion whilst also reviewing tax reliefs for fraudulent use. In 2018 half a million small businesses were subject to a tax investigation, whilst 46% of SMEs where cited for the £34bn of tax that wasn't collected in the 2015/16 tax year.
The Chancellor announced that 1,300 additional staff will be added to HMRC to "improve research & compliance work on emerging tax risks". This likely means we can expect more tax investigations and further strict application of UK tax legislation.
It might just serve as a word of warning! What Rishi Sunak has given with one hand in the form of all the spending announcements made today, he is likely to claw back tomorrow. The government hopes an increasingly powerful taxman will raise an additional £4.4bn in tax revenue as a result of this investment.
The content of this post was created on 11/03/2020 and updated on 12/03/2020.
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