Spring Budget 2020 - main tax announcements
This blog discusses some of the key tax changes announced in last week's Budget, and subsequent tax developments.
By the time Rishi Sunak gave his first Budget announcement last Wednesday it was impossible to ignore the most important issue facing the nation; the impact of coronavirus on the country's health, economy and ability to proceed with 'business as usual'. A little over a week later and it's fair to say that the situation has developed in a manner, and at a pace, that few of us had predicted.
The focus of the new Chancellor's maiden Budget speech was the Government's planned response to the upheaval caused by the spread of this virus. In the days that have since passed, the magnitude of the crisis has already resulted in one measure being postponed (the extension of the off-payroll working rules to the private sector). This seems unlikely to be the only planned tax measure knocked off course by Covid-19.
The main business and personal tax announcements made by the new Chancellor last week, summarised below, may (understandably) not rank highly on the priority list for most businesses and individuals at the moment. Indeed, and again perhaps understandably, there were relatively few big tax announcements. That said a number of announcements did catch the eye.
Entrepreneurs' Relief – reduction in lifetime limit
In the build-up to the Budget announcement, there was much press speculation as to possible changes to entrepreneurs' relief (ER). The speculation ranged from relatively minor tweaks to ER to full abolition of this generous tax relief. As Budget Day approached, full abolition appeared more and more likely, at least according to press reports.The change announced on 11th March was an immediate reduction in the ER lifetime limit from £10m to £1m. Generally speaking, the change takes effect for disposals made on or after 11th March 2020. So-called 'anti-forestalling' rules will apply to prevent pre-Budget tax planning from allowing sellers to retain the £10m limit. This is expected to raise £1.8bn for the Government by 2024-25. ER is a highly valuable form of tax relief. It is available to certain individuals who realise certain types of qualifying gains. Most commonly it applies to employees and office-holders on sales of shares in trading companies in which they have sufficient share capital, voting and economic interests. Prior to last week's announcement, it provided for a reduced (10%) rate of CGT on the first £10m of qualifying gains, which equated to a potential tax saving of up to £1m for qualifying taxpayers.
A major criticism of ER has long been that it does not, in fact, encourage genuine entrepreneurship. It has also been an expensive form of tax relief for the Treasury. That said the Chancellor is already facing criticism that this move has sent out the wrong message at a time when UK businesses (and their owners) need all the encouragement they can get.
SDLT surcharge for foreign buyers of residential property
From 1 April 2021, a stamp duty land tax (SDLT) surcharge of 2% will apply to acquisitions of English and Northern Irish residential property by non-UK resident buyers. Property in Scotland and Wales is now governed by devolved land transaction tax regimes.Since the proposal was first floated in the Autumn 2018 Budget, the anticipated rate of this SDLT surcharge has ranged from 1% to 3%.
The extra SDLT raised by this measure (estimated at around £105m a year) will be used to tackle rough sleeping, according to documents published last week. It had been expected that there will be a surge in residential property purchases by non-UK buyers, in advance of this surcharge taking effect.
Review of taxation of investment funds
The Government plans to undertake a review this year of the UK funds regime, to include the direct and indirect tax treatment of UK funds.As part of this, there will be a consultation on the tax treatment of "asset holding companies" (AHCs) in alternative fund structures. The Government has noted that AHCs are typically located outside of the UK and states that it wants to explore ways to make the UK more attractive as a jurisdiction for such companies. This is clearly to be welcomed, but it is far from guaranteed that reforms to the UK tax regime will be made.
There is also to be a review of the VAT treatment of fund management fees.
Covid-19 and "time to pay" arrangements
There is to be a new "time to pay" scheme, for businesses and self-employed persons who find themselves in financial difficulties due to the Covid-19 pandemic. Tax liabilities will be able to be deferred for a period, with interest and penalties arising on late payment of tax to be waived.
Companies in liquidation and the corporate capital loss restriction
It has been announced that companies in liquidation will not be caught by the capital losses restriction that will apply from 1 April 2020. This restriction applies a 50% limit on chargeable gains accruing after 1 April 2020 that can be sheltered by carried forward capital losses.
VAT and e-publications
From 1 December 2020, zero-rating VAT treatment will apply to electronic publications (such treatment already applies to physical books, newspapers, journals and periodicals).
HMRC's "preferred creditor" status
At Budget 2018 it was announced that, from April 2020, HMRC would (in part) regain its "preferred creditor" status. HMRC is still to be granted priority in recovering VAT, PAYE income tax, employee NICs and construction industry scheme deductions (ie taxes the insolvent business collected on behalf of other taxpayers) but this measure will now be delayed until 1 December 2020.Personal tax
As is the norm, the Spring Budget announced a number of changes to personal taxation, including:
- An increase in the CGT annual exempt amount for individuals (from £12,000 to £12,300) from April 2020.
- An increase in the threshold income (from £110,000 to £200,000) for tapering of the annual allowance under the pensions tax regime, from 6 April 2020.
Finally, it was confirmed by the Chancellor that a number of important new tax measures are to take effect as planned. Of most significance are:
- Extension of "off-payroll" working regime: it was announced on 11th March that the much-criticised planned extension of the "off-payroll" ('IR35') rules to medium and large private sector business would take place, as planned, from 1 April 2020. As noted above however, this position has since been changed in light of the Covid-19 crisis such that this measure is now planned to take place from April 2021. This will be a very welcome move for affected businesses and workers, who had been lobbying hard for this extension to be delayed.
- Digital Services Tax: the new 2% digital services tax (DST) is to apply from 1 April 2020. There had been some speculation that the hostility towards the DST from the US, in particular given what might become quite fraught negotiations over a UK/US trade agreement, could test the Government's commitment to the DST.
- Reversal of planned cut in rate of corporation tax: as announced before Christmas, it has been confirmed that the main rate of corporation tax is to remain at 19% for the tax year beginning 1 April 2020 (despite the previous announcement that the tax rate would fall to 17%).
- Increase in rate of R&D expenditure credit: as previously announced, the rate of the "above the line" tax credit is to increase from 12% to 13% for qualifying R&D expenditure incurred from 1 April 2020.