If you’re a small or medium business owner or individual, you’re probably not overly upset at the measures announced in the budget this lunchtime. That said, with the UK expected to leave EU transitional arrangements at 11pm on 31/12/20, and the Government already confirming the next budget for Autumn 2020, this could very well be the calm before the storm.
This update focuses on the tax measures announced today although, in brief, there were a number of welfare changes which includes paid neonatal leave and technical changes to universal credit.
COVID-19 / CORONAVIRUS PANDEMIC
Whilst the media will lead with the £300bn of big spending measures, these may not have a direct impact on your business. More key is the support at the other end of the scale for small businesses who are already starting to struggle with the impact of Covid-19 and should be welcomed. A fairly comprehensive package of emergency measures was announced by the Chancellor, delivering his first budget after only 27 days in the job. Measures include a mixture of loans, grants and time to pay arrangements, restructuring tax payments over longer timescales where necessary. It won’t be a cure-all when businesses are faced with a significant reduction in both turnover and cash-flow but will go some way to mitigate the shock.
Crucially, these measures include financing Statutory Sick Pay (SSP) for 14 days, not only for those who are confirmed as contracting Covid-19, but also those self-isolating as a precaution. Whilst SSP remains comparatively low compared to that offered by our European neighbours, it will at least offer some comfort for those faced with receiving no income at all. This follows the recent announcement that SSP will be extended to start from day 1 rather than day 4 in relation to the Coronavirus.
For businesses, tax easements come largely in the form of changes to National Insurance through an increase in the Employment Support Allowance by £1,000 to £4,000 per annum and through a new tax break for the first year employing a veteran. This could be a cost saving in excess of £5,500 per qualifying employee. There will however be increases in the rates of R&D expenditure credits (usually for larger companies) and capital allowance structures & buildings allowance together with a change to allow pre-2002 intangible fixed assets acquired after 1 July 2020 to fall within the existing regime .
As announced in their election manifesto, the planned reduction of Corporation Tax to 17% has been cancelled and the rate will remain at 19%. There is mixed news if you claim capital allowances for cars used within the business as from April 2021, only zero emissions cars will qualify for the 100% first year allowance. Ultra-low emissions vehicles with emissions of up to 50 g/km will qualify for the main rate of 18% however all cars with emissions over 50 g/km will be restricted to a 6% writing down allowance.
There are numerous changes which had been pre-announced relating to car benefits uprating, the extension of the IR35 rules and the deferred date for the introduction of the VAT reverse charge on construction services. These will go ahead without further changes.
The headline announcement was the Chancellor’s decision not to scrap Entrepreneurs Relief but instead curtail its effectiveness. As a result, from today, qualifying disposals up to a lifetime limit of £1m may qualify for the 10% rate of capital gains tax if all other conditions are met. There are no transitional rules, even for associated disposals, businesses which have already ceased to trade or deferred gains accruing from today. There are also anti-avoidance rules concerning conditional sales/delayed completions or company reorganisations.
However most individuals will look towards the increase in the National Insurance threshold from £8,626 to £9,500 from 6 April 2020. This will save employees £104 per annum. This measure will also apply to self-employed individuals and partners however there is also an increase in the Class 2 weekly payment to £3.05 per week resulting in a net saving of £76 per year. Additionally the capital allowance annual exemption for 2020/21 will be £12,300 and there is a minor change to put beyond doubt the calculation of top slicing relief when determining a taxpayer’s tax liability. Other rate bands and allowances for the 2020-21 tax year remain the same as the current 2019-20 tax year.
The government intends to meet its promise to remove the ‘tampon tax’ from the date that the UK leaves the Brexit transitional arrangements on 31 December 2020. The Chancellor has also scrapped VAT on e-publications bringing these in line with their printed equivalent from 1 December 2020.
Turning to tax relief on pensions, the Government has announced that the have revisited the annual allowance taper for individuals with income over £150,000. From 6 April 2020, the taper will begin at incomes of £240,000 and continue to be restrict the standard £40,000 annual allowance at a rate of £1 for every £2 of income through to an upper limit of £312,000. This means a fully restricted annual allowance may now only allow gross pension contributions of £4,000 in the year (ignoring brought forward allowances). The threshold income level has also increased by £90,000 to £200,000. The lifetime limit has also increased to £1,073,100 for the 2020-21 tax year.
For non-UK residents purchasing residential property in the UK, a 2% surcharge will apply from April 2021. Additionally, the Annual Tax on Enveloped Dwellings (ATED) will rise by 1.7% in line with the legislation. Non-resident landlord companies will fall to be taxed under corporation tax from 1 April 2020 as planned.
Duties changes were fairly limited with beer, cider, wine and spirits all being frozen. The fuel duty escalator has also been frozen. The key change is RPI+2% increase in duty on tobacco products from 6pm this evening, with hand-rolling tobacco products increasing by RPI+6%.
Advance Passenger Duty (APD) will increase by RPI but this will exclude short-haul routes. This means an increase of £2 per flight in economy and £4 per flight in all other classes. The increases apply from April 2020 and again from April 2021. The government is also to consider potential reform for domestic routes given the perceived double-hit on a return journey within the UK.
Vehicle Excise Duty (VED) will also increase by RPI however Zero Emissions Vehicles will be exempt from the additional supplement on initial registration until 2025.
HMRC lost two first tier tribunal cases in 2019 based around legislation that was essentially out of date compared to practice. Subsequently HMRC are introducing two pieces of retrospective legislation to counter their impact. The first is to allow official notices and penalties to be issued automatically by computer and the second is to confirm the basis under which an LLP can be subject to enquiry if its not operating with a view to a profit.
Finally, there were a selection of new consultations and discussion documents issued which will provide tax professionals with some thoughtful reading whilst self-isolating over the weeks ahead.
This is a generic summary based on Government information released immediately following the budget and should not be treated as tax advice. Errors & omissions excepted. Please contact us to discuss your personal situation before acting on any of the matters noted above.