Budget 2020 opens the spending taps
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, writes Kathleen
Parker of Wellers Accountants.
The world being convulsed by Covid-19 (coronavirus)
meant the 2020 Budget became two announcements in one
sitting. Projections that 20% of the workforce could be off
sick, combined with a new government, meant it was
always going to be a fiscally expansive budget.
In addition to setting aside £30bn to tackle the fallout
from Covid-19 (an amount that has since increased to
£350bn), the Chancellor made a raft of announcements
that 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, and
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 in future budgets.
The business tax changes
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 small and medium-sized enterprises
(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.
Statutory sick pay (SSP). Small businesses will
receive help to manage the extra expense of coping with
Covid-19. 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.
Small business relief. Businesses eligible for
small business relief will get a cash grant of £3,000.
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 Covid-19 pandemic, this discount will be
increased to £5,000. In addition, for one year from 1 April
there was due to be a business rates discount of 50% for
retailers 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 Covid-19 outbreak and will also be extended to include
hospitality and leisure businesses.
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.
8 Removals & Storage April 2020
Research and development (R&D). 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.
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.
Capital allowances and employee benefits.
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 two years
and therefore the rates announced will be kept the same
through to the 2024/25 tax year.
The personal tax changes
Reforms to 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 took 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.
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. However, the threshold for class 1 secondary NIC
is unaffected, 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.
Pension allowance changes. Effective from this
month, 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 individuals
whose adjusted income is more than £300,000.
An expanding HMRC – a word
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 were 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 and
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 Chancellor made a
raft of announcements that
will add £100bn extra public
spending over the course of
this Parliament. 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 in future
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