The Budget lifeline: what you're entitled to

In these uncertain times, the Chancellor threw businesses and their employees a much-needed Budget lifeline this week. With some £30bn pledged to help boost the economy and support the UK through the Coronavirus crisis, it is worth understanding the benefits you may be entitled to.

Whilst the change to Entrepreneurs’ Relief also dominated the headlines, there are other tax changes that haven’t received as much press attention, which some businesses and individuals could benefit from.

FOR BUSINESSES

Coronavirus

Statutory Sick Pay

Subject to conditions, small and medium sized firms with fewer than 250 staff will be refunded for Statutory Sick Pay payments for two weeks and there will also be a new style Employment and Support Allowance for lower paid employees.

Statutory Sick Pay (SSP) will be temporarily paid from the first day of absence rather than the fourth day for individuals with COVID-19, and for those instructed to self-isolate. Those ineligible for SSP will be able to claim benefits more quickly through changes to Employment and Support Allowance and to Universal Credit.

Loans and grants

Small businesses should be able to access “business interruption” loans of up to £1.2m to assist with the impact of the Coronavirus.

Furthermore, a £3000 cash grant will be available for every business that is eligible for small business rate relief. This is equal to a £2bn cash injection for 700,000 of the UK’s smallest businesses.

It is worth mentioning that many businesses don’t know that they’re eligible for rate relief. Whilst it may be restricted to certain types of businesses and is broadly dependant on “rateable value”, we are not experts in this field, but can introduce you to one of our trusted contacts to assess whether you might be entitled to make a claim.

Business rates

For this year, business rates in England will be abolished for eligible businesses in the retail, leisure and hospitality sectors with a rateable value below £51,000.

Temporary relief on business rates was also announced but, at the time of writing, we do not know exactly how this will work in practice.

Tax payments

A dedicated COVID-19 HMRC helpline will be set up, and a bespoke “Time to Pay” arrangement made available to businesses hit by the virus. This will allow tax payments to be deferred for a period, but we await to see further detail and conditions.

To ensure ongoing support, HMRC have made a further 2,000 experienced call handlers available, who will be able to waive late payment penalties and interest for businesses experiencing administrative difficulties or paying taxes due to COVID-19.

Three Business Tax Reliefs

The Chancellor’s precursor to these three announcements was to state that the government is continuing to support the vast majority of “genuine risk takers and entrepreneurs” and increasing tax incentives for businesses investing in structures and buildings and undertaking research.

Entrepreneurs’ Relief

Despite much speculation that it would be “scrapped”, it seems the Chancellor has listened. He announced that this valuable relief for business owners would be retained, but that the lifetime allowance would be reduced from £10m to £1m with immediate effect from 11 March 2020.

What this means:

This reverts the lifetime allowance to what it was when Entrepreneurs’ Relief was first introduced and almost equalises it with the lifetime limit for pension relief. Serial entrepreneurs are likely to be most hit by this announcement, or business owners who were in the process of selling for more than £1m leading up to the Budget but could not complete the transaction by then. We would expect 20% tax to apply for any excess capital gain over £1m per person. The government appears to believe that this restriction to the relief will, in part at least, help to fund some of the other initiatives announced regarding climate change and to boost small businesses (R&D, business rates, Structural Buildings Allowance and Employment Allowance).

If you have entered into a binding legal contract to sell your qualifying business before 11 March 2020, there are “special provisions” which could mean that the higher £10m limit may still be available. However, there are to be detailed anti-avoidance provisions governing this and ultimately, you are likely to have to prove that you entered into the contract for commercial reasons and not purely to avoid tax.

R&D Tax Expenditure Credit (RDEC)

This measure increases the tax relief for “large” companies (and Small and Medium size Enterprises in some cases) that carry out qualifying R&D and claim Research and Development Expenditure Credit. The current general rate is set as 12% of qualifying R&D expenditure and this will increase to 13%. Alongside this, it was announced that there will be increased funding for certain sectors, such as life sciences, which will be widened to regional areas outside London. Record public investment planned of c.£22 billion per year by 2024-25 has been quoted.

It has also been announced that the government will consult on widening the definition of qualifying expenditure to include data and cloud computing.

Also, hidden away in some of the Budget documents under “Preventing abuse of the R&D relief for small and medium-sized enterprises: Summary of responses and consultation”, it was confirmed that, following consultation last year, the introduction of the PAYE cap on the payable tax credit in the SME R&D schemes will be delayed until 1 April 2021.

It is also perhaps worth mentioning here that a lot of companies don’t know that they can apply for R&D grants, although only certain types of projects may qualify for funding.

What this means:

The R&D reliefs for qualifying companies are already quite attractive, particularly for companies within the “small company scheme”. Where certain companies are classed as “large” by reason of either size or because certain grant funding has been received, the less favourable “RDEC” scheme applies. Basically, for qualifying expenditure incurred on or after 1 April 2020, the new increased RDEC tax credit of 13% will apply. This slight narrowing of the gap between the small company and large company scheme may be welcomed by certain companies that are genuinely seeking to advance science and technology, and especially the small entities that are treated as “large” because they receive certain grant funding.

This measure is expected to have a positive impact on over 7,000 businesses claiming the Research and Development Expenditure Credit.

Alongside this change, the announcement to boost the low carbon economy could be a massive opportunity for certain businesses, and may lead to new markets and possible R&D related opportunities for some, as well as being sustainable.

Capital Allowances

The “Structures and Buildings Allowances”, which was introduced fairly recently for qualifying expenditure on the construction, renovation and conversion of non-residential structures and buildings. This is to increase from 1 April 2020 for the purposes of corporation tax and 6 April 2020 for the purposes of income tax, so that businesses may claim an increased annual allowance of 3% (currently 2%). Also, subject to the detail, where all the contracts for construction works were entered into on or after 29 October 2018, or structures or buildings were brought into use between 29 October 2018 and 1 April 2020, it should also be possible to claim the new 3% rate. There are some “technical changes”, which will apply from 11 March 2020, and we will need to look at the detail behind these.

What this means:

This increased rate of relief will further support business investment in constructing new non-residential structures and, according to the government, will improve the international competitiveness of the UK’s capital allowances system. Our initial feeling is that it may only make a meaningful tax saving for specific businesses and types of properties. In certain scenarios though it may produce a useful tax saving and it is a welcome increase to the existing relief nonetheless.

Employment

For all but very large employers, the employment allowance will increase by £1,000 to £4,000 from 6 April 2020. This annual “allowance” for employers is currently set at an annual maximum amount of £3000 for Employers National Insurance.

What this means:

This should benefit all businesses, charities and community amateur sports clubs eligible for the Employment Allowance, whose Secondary Class 1 National Insurance Contributions liability is over £3,000 a year. The idea is to allow small enterprises to take on staff without incurring the additional Employers National Insurance cost. This is welcomed but note single director companies are still excluded.

Corporation Tax

As expected, the main rate is still 19% for the financial year beginning 1 April 2020, rather than reducing it to 17% from 1 April 2020. The charge to Corporation Tax and the main rate will also be set at 19% for the financial year beginning 1 April 2021.

What this means:

This was no surprise given the government’s previous comments and should at least give business owners operating through a company some certainty to plan head and provide a degree of overall tax efficiency, particularly when they are able to leave some profits in the company to reinvest. But as ever, each case will need to be carefully assessed on its own facts with calculations necessary to determine the overall long-term tax impact of operating within a company structure. Based on the government’s quote that the rate is “still lowest in the G20”, it is hoped that it will attract future investment from businesses into the UK.

Intellectual Property for companies

Although not a major headline announcement, under the “Intangibles reform” the government will legislate in Finance Bill 2020 to remove certain exclusions (for pre-2002 items essentially) from the Intangible Fixed Assets (IFA) regime to support UK investment in intellectual property and other intangible assets. This means tax relief for the cost of acquiring corporate intangible assets will be provided under a single regime (on or after 1 July 2020), subject to restrictions to prevent tax avoidance.

What this means:

Whilst this may not affect many businesses, it could still have a positive impact on some tech or innovation companies, which have Intellectual Property or past transactions, and may provide some useful simplification. We will need to review the detailed draft provisions when the Finance Bill 2020 is released.

VAT

Despite some rumours, there were no major announcements about changes to VAT rates.

However, perhaps one of the surprises was the announcement that the current zero-rating of books and printed matter will be extended to their e-equivalents. This change will apply from 1 December 2020, although this rate has been permissible under EU law since late 2018.

Also, there was one potentially positive announcement whereby a “postponed accounting for VAT” will be introduced with effect from 1 January 2021 for some businesses.

What this means:

We will have to assess the detailed rules on postponed accounting, but it is believed that it will offer a welcome simplification for businesses that import goods into the UK and will assist their cash flow by not having to pay VAT upfront.

Making Tax Digital

The government will publish an evaluation of the introduction of Making Tax Digital for VAT, along with related “cost-benefit” research before rolling it out to other taxes. We wait to hear what the impact of this research will be on the ultimate timescale for rollout to personal and corporate tax filings, but we still expect the original plan to go ahead.

Our team has been helping clients to put measures in place for some time now to be digitally ready for MTD and will continue to do this and monitor developments.

Business rates

In addition to the temporary measures brought in to support businesses through the Coronavirus, business rate discounts for pubs will increase from £1,000 to £5,000 this year. There will also be a general review of system business rates later in 2020 and the Chancellor plans to announce the outcome of this in the Autumn Budget.

FOR INDIVIDUALS

Income Tax and NIC

The Employee National Insurance Contributions threshold is to rise from £8,632 to £9,500. It is worth highlighting that the announcement states this also applies to Class 4 National Insurance, which is payable by the self-employed.

What this means:

On average this should save employees and self-employed people just over £100 a year and, whilst this may not seem a significant saving and is still below the income tax free threshold, it represents a reasonably large jump and helps to bring tax and personal NIC thresholds slightly closer together.

Pensions

For those working in the public service, the income level at which their annual pension allowance (broadly the maximum amount of contributions that will qualify for tax relief) starts to reduce will increase from £110,000 to £200,000. This is intended to allow doctors and other public sector workers to work additional hours without them losing their pension benefits. Therefore, affected individuals with income below this level will not be affected by the tapered annual allowance, and it will only begin to taper down for individuals who also have an “adjusted income” above £240,000.

Also, for those with income and annual pension benefits exceeding £300,000, the minimum pension allowance available will reduce from £10,000 to £4,000.

What this means:

For certain employed individuals with significant pension contributions and potential benefits, the change from £110,000 to £200,000 could have quite a marked impact on the tax efficiency of making larger pension contributions. We have a lot of experience already advising individuals on annual allowance impacts and can review your situation going forward following this announcement.

Capital Gains Tax

As already discussed above, the main change announced relates to the Entrepreneurs’ Relief lifetime allowance. At this stage we are unaware of any major changes announced and we would expect the current rates of 10% and 20% for non-residential property assets to apply, and otherwise 18% and 28%, depending on your marginal tax rate of income tax. The Annual Exemption is set to rise to £12,300 for 2020/21 tax year.

Property

A Non-UK resident Stamp Duty Land Tax (SDLT) surcharge of 2% will be introduced for non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.

What this means:

Currently, as non-UK residents already pay SDLT on such purchases, this would appear to be an additional 2% charge on top of the rate they were previously liable to pay, depending on their individual circumstances. The thinking behind this is to support UK residents to get on to and move up the housing ladder, whilst the money raised from the surcharge will be used to tackle the issue of rough sleeping.

If you would like further information or advice on any of the changes announced, please call Jon Miles on 01225 325580, or email jm@richardsonswift.co.uk.