Sunak's Corona Induced Budget!
None would have predicated a few weeks ago that the Spring Budget 2020 would be delivered at such a time of uncertainty. We were looking forward to Sajid Javid setting out the long-term vision of a post-Brexit Britain with a Tory government with a majority and lots of room for manoeuvre. In just a few short weeks, this has been replaced with a country in the grip of a health crisis, a market crash not experienced since the global economic crisis of 2008 and a government who have already faced its first back-bench rebellion over plans to allow Huawei to be used in the UK's 5G mobile network. It could be dubbed as Sunak's Corona Induced Budget with an extraordinary package of spending measures to insulate businesses and individuals over the coming months. There were also tax change announcements but not till the very end when we wondered if we would get any!The most important tax change that was announced related to Entrepreneurs' Relief which was at risk of being abolished completely but thankfully retained, albeit with a 90% reduction from a £10m to £1m lifetime allowance. A sigh of relief could be heard from small business owners and tax advisers nationwide.There was actually little direct impact on individual taxation but the omission of IR35 regulations was hard to ignore when listening to the long list of spending planned by the government. One can only suspect that the tax revenue generated by IR35 will go a long way to fund the various spending measures announced.The devil is always in the detail as they say, so let's look at the tax changes announced more closely and how you and your business could be affected.
Contents
COVID-19 response
HMRC coronavirus helpline
Personal Tax
Businesses Tax
Green Taxes
IR35
Other tax changes
COVID-19 response
The Chancellor of the Exchequer Rishi Sunak announced that “coronavirus will have a significant impact on our economy, but it will be temporary".The huge £30bn package announced by the government includes an £18bn “fiscal loosening,” with local authorities set to receive a £500m “hardship fund” to aid vulnerable people in our communities.Other COVID-19 measures include:
Small and medium sized businesses with a rateable value under £51,000 will not pay any business rates this coming tax year (in England only)
A cash injection of £3,000 for those who qualify for the Small Business Rate Relief
A Corona Virus Business Interruption Plan Scheme, a Government backed loans scheme that banks will be making available.
Statutory sick pay will be paid for 14 days to anyone advised to self-isolate, regardless of showing virus symptoms. Businesses with under 250 employees are eligible.
A £5bn emergency response fund has also been approved for the NHS to help counter the virus’ impact.
Whether or not you are bullish about the Budget, the measures above will mean that public sector borrowing will double as a result of the coronavirus emergency. But these are unprecedented times and swift action and funds are required to come through to the other side.
HMRC coronavirus helpline
The new HMRC helpline has been set up as part of a support package for businesses experiencing hardship as a direct result of the coronavirus.Sunak told us that '‘HMRC will... scale up the time to pay service to allow businesses and self employed to defer tax payments" and provide guidance and help where asked.Up to 2,000 experienced HMRC call handlers are on standby, in addition to the other existing HMRC contact numbers available.It is understood that those who are unable to pay their tax bills due to the coronavirus can discuss with HMRC via the helpline:
An instalment payment arrangement
Suspending debt collection proceedings
Cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately.
The HMRC coronavirus helpline is 0800 0159 559, with opening hours being Monday to Friday 8am to 8pm, and Saturday 8am to 4pm. The helpline will not be available on Bank Holidays.
Personal Tax
We didn't see cuts to income tax rates as hotly anticipated a few weeks ago but the increase of the NIC threshold from £,8464 to £9,500 was confirmed at the Budget. Together with the increase in the personal allowance from £11,850 to £12,500, individuals will see a modest uplift in their pay packets starting from the new tax year in April.The adverse effect of recent pension changes on some high earners, such as doctors, was also recognised with a significant increase in the income limits, with the hope that the highest paid individuals no longer refuse overtime.Although not clear in the Budget speech, I can confirm that the change will apply generally, not just to NHS staff.Sunak confirmed that the move will remove anyone with an income below £200,000 from the ‘pensions trap’, and will take 98% of consultants and 96% of GPs out of the taper altogether.The two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020-21 the ‘threshold income’ will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an ‘adjusted income’ above £240,000.
Business Tax
Entrepreneurs’ Relief
Changes were expected to Entrepreneurs' Relief with much concern that it would be abolished completely. Sunak recognised by abolishing it would stem the creativity and entrepreneurial spirit of the nation so he retained the relief albeit at the much reduced rate of £1m lifetime limit, down 90% from £10m.
R&D Investment
Big spending in government usually comes with announcements on investment in innovation and technology, and Sunak did not disappoint with a pledge of £22m announced at the Budget.It's unclear at this stage if the investment will particularly benefit small businesses but it certainly has come at a crucial time with the uncertainty over coronavirus and high business rates for small businesses. However, it is feared the increase in R&D investment will be enjoyed by large businesses, which is unfair considering the number of claimants is dominated by SMEs.Unfortunately the reintroduction of the PAYE cap for small and medium businesses and SME tax credits have been delayed for 12 months, a real blow.
Business rates
Small businesses will be delighted to hear of the very significant reduction to their tax bills over the coming year with no business rates for leisure, hospitality and retail sectors, and grants and spending review expected for future business rates.
Green Taxes
It was good to see the Chancellor showing commitment to spend big on green initiatives.Amongst them was a new Plastic Packaging Tax being introduced from April 2022. This new tax means that manufacturers and importers whose products have less than 30% recyclable material, will be charged £200 per tonne. The reaction from manufacturers and importers will no doubt be dismay with only 2 years to implement, but certainly a bolf move by the Chancellor.There was also a commitment to provide £120m to help winter flood defences and £200m funding for local communities impacted by flooding, a much welcome move when the wet weather and flooding continues to wreak havoc in the south of the UK.Sunak also declared a £640m "Nature for Climate Fund" to protect natural habitats and the creation of 30,000 hectares of newly planted trees to work towards net zero carbon emission targets.Transport funding dominated with Budget. Road transport is the highest contributor to greenhouse gas emissions of around 91% and the biggest contributor to poor air quality in the UK.Although Sunk announced a £500m spending budget for electric car charging hubs so one is never more than 30 miles away from a charging hub, it was a shame we did not see announcements on tax reliefs for electric car purchases. Clearly the government still has some way to go by providing policies to change consumer behaviour, given that the comparative cost of purchasing and running an electric vehicle is very high versus a traditional combustion engine car.
IR35
There was no mention of IR35 at the Budget but we do know that the Government is looking to make changes to support the smooth running and implementation when it comes into force in April for the private sector.Although we are seeing a huge amount of spending for self employed individuals and small businesses over the coming year, this is juxtaposed with the added anxiety of the off-payroll regulations that could have a direct impact on many of the same people not being able to continue with their business operations.Sunak did touch on 'anti-avoidance' tax legislation, but did not mention IR35 specifically but there is no doubt the implementation of the new rules will happen in a few weeks time.Unfortunately, it appears the Chancellor is only looking at the legislation from a tax perspective, namely arguing that two people doing the same job should pay the same level of tax, but this ignores other factors such as different contracts and employment rights experienced by employed and self-employed individuals.The impact of IR35 even before implementation can be felt already and I fear the spending plans announced for small businesses will be overshadowed by the impact of IR35. The worst case scenario is that talented people with sought after skills will leave contracting altogether at a time when the economy is already under great strain.
Property Tax
Sunak announced a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland which will apply from 1 April 2021.The government argues this will help to control house price inflation and support UK residents to get onto and move up the housing ladder.To be clear, this announcement of a surcharge will be in addition to the 3% surcharge for second homes, which takes the possible top rate of SDLT for overseas purchasers to a staggering 17%.There was a consultation last year which noted the definition of a non-resident as someone who spends less than six months in the UK in a tax year. We are left wondering how mobile workers and globally mobile entrepreneurs will fair.The tax revenue generated of £140m over the next five years will fund support for rough sleeping with the aim of abolishing rough sleeping altogether.
Other tax changes
A few days late for International Woman's Day was the announcement of the abolition of the 'Tampon Tax' , which would otherwise not have happened as quickly if we were stil part of the EU.
We will see an increase in employment allowance from £3,000 to £4,000 directly helping small business with 2 or more employees.
The Treasury is committed to allocating £10m for research and development spending to help decarbonise UK distilleries, including the whisky sector.
There is a £1m pledge to promote Scottish food and drinks sector overseas in direct retaliation of the the US sanctions
Tax rises planned on beer and wine were scrapped, as part of a freezing on duty across all alcoholic drinks, perhaps in anticipation of a nation required to self-isolate in the coming weeks!
There is still much analysis and reporting to be done over the next few weeks, so please do keep watch here.In the meantime, if you are affected or would like to discuss any of the tax changes coming in the next few weeks, please get in touch.
