There’s always a lot to consume within the Budget, some…
Budget 2020: what does it mean for your business?
There’s always a lot to consume within the Budget, some relevant – other points you may wonder what they mean for you. So here’s a run down of the top points that could apply to your business.
Well, we kicked the day off with a half percent interest rate cut from the Bank of England – from 0.75% to 0.25%. They’re not hanging around. It feels like a recession is more than expected and they are looking to cushion early. The banks got in fairly early in todays proceeding with most of them pledging extra support for SMEs (but see the support they are receiving further down our guide) and we would be interested to see what that means in practice. There’s an up-front acknowledgement that supply chains are already impacted by COVID-19. The herd of elephants in the room came out at the beginning.
The NHS was declared the number one spending priority, like some spoiled child (we love you NHS really!) they have been promised anything they want and need.
I’ve ignored any references to forecasts, they were all completed pre-COVID-19, and who really knows what adjustments to make.
According to our friends at the BBC the longest continuous Budget speech was by William Gladstone in 1853, lasting four hours and 45 minutes. I wasn’t around for that one, although Gordon Brown released some pretty chunky (600 pages+) budget reports. We got off lightly today, just over 60 minutes in presentation and 125 pages of documentation. To be fair to the Chancellor it was a very polished performance, he looked like he was enjoying himself.
This budget is the one delayed from 2019 (the first year since the Napoleonic wars without a budget) expect a further budget in the autumn. The last year with two budgets (2017) led to a set of annotated finance acts running to 849 pages (many thanks ATT!)
I’m pleased to say that some of our pre-budget predictions and announcements are correct, so if you’ve read some of this before, well done….and I said ‘some’, not ‘all’.
Now on with the show…
Income tax and national insurance (NI) thresholds
Pre-election there was a promise to raise the NI primary threshold (the point at which an employee pays NI) to £12,500 in line with the starting point of income tax. That appears to have been quietly shelved and is now an ‘aspirational’ target. It will however be raised to £9,500 (£792 per month) from £8,632 for employees. That of course is the headline.
What’s less talked about is that the increase in the employers contributions threshold is to a much less generous £8,788. Upper NI thresholds remain frozen.
On the tax side, there’s also a rate and threshold freeze. This is fiscal drag in action – the ability to raise more money from tax by not doing anything – and that means £12,500 is still what you need to earn before you start paying income tax, and the higher rate threshold (where you start to pay at 40%) stays at £50,000. Points at which you start to lose personal allowance (£100k) and hit the additional (45%) tax rate (£150k) also remain frozen.
This Employees NI increase will benefit around 31 million people currently paying employees NI, typically saving £104 (or £78 if self-employed). Around 1.1 million people will be taken out of paying Class 1 and Class 4 NICs entirely.
There is also a commitment to introduce a National Insurance holiday for employers of veterans in their first year of civilian employment. We’re not sure how this will work yet.
FYI, national insurance is expected to contribute £150bn in 2020/21 – beaten only by income tax (£208bn) and VAT (£161bn) and knocking poor old corporation tax at £58bn well out of the premiership of taxes.
Employers allowance (EA) and SSP
It was confirmed that the EA rises from £3,000 to £4,000. So far, so good. However, it will from April be operated as de minimis state aid. Ah. Hang on a minute. So is SEIS investment. Receipt of de minimis may also restrict an R&D claim depending on it’s relevance to the R&D project. How can all this be tied together to maximise future benefit?
Hmm, by careful planning. We don’t today know how HMRC will tie these elements together from a practical point of view. Caution is needed to ensure that decisions are made with relevant facts in mind.
Statutory Sick Pay (SSP) will be extended to start from the first day of absence from the fourth for those advised to self-isolate, and those caring for others who self-isolate. There will be a temporary replacement for the fit note available through calling 111 rather than the obvious visit to a GP. This won’t apply to self-employed individuals as has previously been mooted.
Kicking back to what this means to the employer, SME’s will be able to reclaim the SSP provided the absence is for the reasons given above and the refund is limited to two weeks in duration. The start date for these changes is to be confirmed but presumably will be in the next week or two. There’s no refund mechanism in place at the moment so that will be set up ‘as soon as possible’. Assume that to mean sometime later in 2020, ‘months’ was mentioned.
As also previously confirmed there’s an increase in the national living wage of 6.2% from £8.21 to £8.72 from April.
Entrepreneurs relief (ER)
Well, common sense prevailed. ER wasn’t abolished as we’d feared, merely reformed: with the lifetime limit on claims reduced from £10m to £1m. 80% of claimants will remain unaffected, as will the huge majority of employee shareholders investing through the Enterprise Management Incentives (EMI) share option scheme. That change takes effect from today (11th March 2020).
There will however be a review of the EMI scheme to ‘ensure it provides the correct level of support to attract and retain necessary talent, as well as assessing whether the scheme should be widened to other companies’ (either by increasing the overall options limit to support scaling businesses at a critical time, or by reviewing the list of excluded businesses).
Well, we mooted some possible changes and also suggested they couldn’t come into effect until after we left the EU – so possibly from April 2021…and there are no changes to report.
Some of it happened, and some of it didn’t.
What did? The tapered annual allowance thresholds will be raised by £90,000. This means that from 2020-21 the “threshold income” will be £200,000 rather than £110,000. 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. So if you’re on less than £200,0000 there’s no restriction on your £40,000 annual allowance.
The lifetime allowance will increase in line with CPI for 2020-21, rising to £1,073,100.
What didn’t? A lot of chatter around changing the rate of relief seems to have not hit the regulation book at all. You’ll still receive tax relief for personal contributions at your highest rate of tax. For now. For those of you that read our pre-budget taster, my gut feeling was correct here!
I say ‘for now’ advisedly. The government will shortly publish a call for evidence on pensions tax relief administration.
The savings income band subject to the 0% starting tax rate will remain at its current level of £5,000. Adult ISA subscription limits will also remain unchanged at £20,000, but the Junior ISA and Child Trust Fund annual subscription limits will be increased from £4,368 to £9,000.
Landlords and property taxes
The trend of degrading benefits here continues I’m afraid. There are no changes to previously announced plans.
Finance costs will not be deductible in their own right but from April will attract the 20% tax credit. This increases your tax liability and, potentially for those hovering around the limits, can push you into higher rate tax territory.
If you are highly geared (i.e. you have high borrowing), we can foresee situations where your property rental has negative cashflow but you still attract a tax bill. Those with brought forward losses will continue to see those losses eaten away.
So do you sell? That’s a little less helpful as well. Previously if you’d lived in the property at any stage, we could discount the last 18 months of ownership from our capital gains tax calculations. That period reduces to 9 months from April.
Also lettings relief, which in the past has rescued quite a few sellers from a heavy tax bill, would be restricted to the period of time in which you shared the property as a home with a tenant: so will in effect be lost completely for the majority.
Finally just to put the cherry on the icing on the cake, if you do sell and have a capital gains tax liability, you must pay this within 30 days of sale rather than declaring on your tax return and being able to pay in the January following the tax year.
If you’re in it for the long term, with a few properties, Incorporation here may just have become a little more attractive – provided of course the current advantages stay.
The only new change announced was a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from April 2021. The money raised from the surcharge will be used to help address rough sleeping.
One big change (or at least delay), that we didn’t see coming, is that the PAYE cap on the payable tax credit in the SME R&D schemes (constricting the claim to 3* the PAYE liability) will be delayed until 1 April 2021. There will be further consultation on changes to the caps design to ensure it targets abusive behaviour (the reason why the cap was to be brought in in the first place) as intended while ensuring that eligible businesses are able to access the relief.
There’s an overall objective of increasing economy-wide investment in R&D to 2.4% of GDP by 2027.
The Research & Development Expenditure Credit (RDEC, the ‘large company scheme’) will increase from 12% to 13%. There will be a consultation on whether qualifying R&D tax credit costs should include investments in data and cloud computing. We find that a very helpful idea, please let’s do that.
No changes expected, but we got a couple!
First of all the well-publicised ‘tampon tax’ – 5% Vat on women’s sanitary products, will be scrapped on 1st January 2021. This will be slightly beaten in time by extending the zero rating of paper books and newspapers to electronic materials from December 1st – in time for Christmas. One in four children now read electronically.
Let’s hope these reductions are passed on to the consumer.
More materially for businesses, ‘Postponed VAT accounting’ will also change the time when import VAT is due to HMRC, nulling the cashflow disadvantage to businesses that are integrated in international supply chains. This will be introduced in January 2021.
IR35 and off-payroll working
It was confirmed that the proposed changes in this area will be implemented from April.
Private companies dealing with contractors will have to assess whether the contractor is caught by IR35 and will take responsibility for that decision accordingly. We’ve already seen many household name organisations stating that they will not longer deal with contractors (I can’t bring myself to say ‘employ’ contractors, that is so wrong) rather than assess those they have and take the risk of future penalties.
This is not, in my opinion, a bright move. IR35 is implemented to ‘equalise’ the tax take between contractor and employee, but by killing the contractor market we also kill off some flexibility within the job market and give the end employer further legal and taxation compliance issues. National efficiency has taken a step backwards here.
Overall IR35 is a complex and contentious issue, and not one we intend to go into in a lot of detail today. Those of you affected are we’re sure more than aware of your own situations.
Some good news for bricks and mortar businesses in the retail and hospitality sectors.
The business rates retail discount was to be 50%, but will be increased to 100% for 2020/21 altogether if your rateable value (RV) is less than £51,000. The retail discount is extended to the leisure and hospitality sectors. Also the pre-announced £1,000 rate discount for pubs with an RV of less than £100,000 is increased to £5,000.
Here at Blu Sky we are hospitable, and we live in a converted pub. Do we get these discounts?
For smaller businesses currently paying no business rates at all due to small business rate relief, a £3,000 cash grant towards other fixed costs will be made available through local authorities. We’ve no knowledge yet how this might work, the specific inclusion/exclusion factors or the timescales involved. Watch this space.
A fundamental review of business rates will consider further reforms to the business rates system and will report in the autumn.
Grants and funding
In life sciences, the government will provide the British Business Bank with additional resources to launch a dedicated £200 million investment programme. It’s expected to enable £600 million of investment, helping to ensure the UK remains a world leader in life sciences innovation.
The government will also provide the British Business Bank with the resources to make up to £200 million of additional investment in UK venture capital and growth finance in 2020-21.
There will be a major review into the fintech sector to identify what more industry and government can do to support growth and competitiveness. Funding for the Fintech Delivery Panel will be extended.
There will also be a summit to establish what further data needs to be opened up beyond the open banking regulations.
HMRC provisions and help
A dedicated COVID-19 helpline has been set up and 2000 extra call handlers allocated to possibly agree time to pay arrangements for businesses experience cashflow difficulties due to the impact of the virus.
A new COVID-19 business interruption loan scheme has been introduced. Where borrowing is needed for operational cashflow due to the virus, the government will guarantee up to 80% of a loan up to £1.2m per business at no charge to the lender. There will be some caps. This pretty obviously won’t impact normal commercial terms, but may ease the decision.
And the rest
The Chancellor announced a massive infrastructure budget including (or particular interest to readership in the North East) fully dualling the A66, a significant increase in the capacity of the Tyne and Wear Metro (a further £98m for frequency and reliability improvements), and ‘freeing the traffic north of Newcastle’. That involves considering how the A1/A19 can be improved. Upgrading the A1 from a dirt track to tarmac might be a start.
There’s a 50% increase it the pothole budget – we assume this means to fill them in, not to create more.
Of course., with all the road closures needed to support improvements, the digital highway also needs upgrading. £5bn is committed to ensure all areas can support gigabit-capable broadband and £12m for North of Tyne as part of the third wave of the Local Full Fibre Networks Challenge Fund.
The maximum flat rate income tax deduction available to employees to cover additional household expenses will increase from £4 per week to £6 per week where they work at home under homeworking arrangements. This will take effect from April 2020.
The government will publish a call for evidence in the spring on raising standards for tax advice. This will seek evidence about providers of tax advice, current standards upheld by tax advisers, and the effectiveness of the government’s efforts to support those standards, in order to give taxpayers more assurance that the advice they are receiving is reliable.
The government will bring forward legislation as soon as possible in this session to provide mandatory 100% business rates relief for standalone public lavatories in England from April 2020.
If you need more guidance speak to your Blu Sky team.