The (Corona)Budget Round-Up
Well, let’s face it, this first Budget in 18 months was always going to be dominated by the coronavirus (and maybe a bit of Brexit) and it didn’t disappoint.
Plenty of squeaks about “support for SMEs” and funding relaxations so we’ll have to wait and see how this all pans out in the days and weeks ahead.
Here is a summary of the key points for entrepreneurs:
Entrepreneurs’ Relief (ER)
We’ve been worrying about ER for a while and our concerns were well-founded. Having dangled the prospect of completely scrapping this important tax relief in press leaks in recent days, Rishi Sunak let us down gently with his announcement of a
reduction in the lifetime capital gains allowance from £10m to £1m
This resets the lifetime allowance to its original £1m amount when it was introduced by the Labour government back in 2008.
The impact of this change is an additional tax cost of £900,000 for a shareholder who would otherwise have maxed out the full (former) £10m lifetime allowance i.e. £9m reduction in the allowance at the beneficial 10% entrepreneurs’ relief rate.
I personally find it hard to accept the press release assessment that
this change ensures the Government continues to encourage genuine risk-takers and entrepreneurs in a fair way (my emphasis)
Apparently 9,000 individuals and 120 EMI option holders are expected to be impacted by this change, although I must mix in small circles as I know quite a few entrepreneurs who will be hurt by this change.
The press release even goes on to say
Entrepreneurs’ Relief claimants tend to be older, male, of above average means, and include individuals who are selling their business or their company’s shares on retirement
No words.
Timing of the Entrepreneurs’ relief changes
And I’m afraid that there is not a lot that can be done right now to circumvent these changes as it has been implemented with immediate effect (there are also detailed provisions to seek to catch planning that might have been undertaken to seek to prolong the application of the ‘old rules’).
Oh, and the new maximum £1m lifetime allowance will apply retrospectively in terms of ER claimed on previous qualifying gains.
Research and Development Expenditure Credit (RDEC) Rate change
There’s an increase in the RDEC rate
from 12% to 13% for expenditure incurred on or after 1 April 2020
This is a bit of a headline grabber as it sounds like the wider R&D tax credit relief is being enhanced, but it does not impact on the SME relief that most readers will be accustomed to - it is the Large company relief only.
On a side note, the proposed introduction of the PAYE cap on the SME R&D tax credit set to take effect from 1 April 2020 will be delayed until 1 April 2021.
The government has listened to industry and will also consult on changes to the cap’s design, to ensure it targets abusive behaviour as intended while ensuring that eligible businesses are able to access the relief.
Corporation tax rate change - or not…
Unfortunately, we have received confirmation that the planned reduction in corporation tax rate from 19% to 17% from 1 April 2020 has been kicked into touch.
So the corporation tax rate will stay at 19% for 2020 and 2021.
Bah-humbug!
NIC Employment Allowance Increase
A further 65,000 businesses should see their employer’s NIC charge reduced to £nil with the introduction of
an increased NIC Employment Allowance from £3,000 to £4,000 with effect from 6 April 2020
That is good news - unless you are one of the many businesses with total NIC contributions in excess of £100,000 in the current tax year, in which case this doesn’t apply to you and so you can move swiftly on…!
Pensions - Changes to income thresholds for calculating the tapered allowance
The Government introduced the tapered annual allowance in terms of pensions savings in 2016 for those with incomes over £150,000.
The tapered annual allowance adjustment is complex with the standard £40,000 annual allowance reduced by £1 for every £2 that the adjusted income exceeds £150,000, to a minimum annual allowance of £10,000.
There’s been lots of chopping and changes but the latest announcement is for an increase in the threshold income from £110,000 to £200,000 and the adjusted income from £150,000 to £240,000 - so a £90,000 increase. The minimum tapered annual allowance will be reduced from £10,000 to £4,000.
Much of the backlash has been around hospital consultants etc being hit with these charges and therefore making it uneconomical for them to work as much - did anyone mention the coronavirus….?
These changes will be implemented from 6 April 2020.
Increase in National Insurance Contributions Threshold for employees
The threshold (primary) at which employees (and self-employed) become liable for employee’s NIC will be increased from £8,632 to £9,500 with effect from 6 April 2020.
Another step in the road to meeting the Government’s ambition to increase these thresholds to £12,500.
So there we have it. That’s my round-up of the Spring Budget 2020.
Overall, I think that Rishi Sunak did a good job of reinforcing a message of solidarity in backing business especially during this unsettled time plus nodding towards the continued focus on innovation and R&D as the building blocks behind the future growth in our economy.
It is a shame that there were the tweaks to Entrepreneurs’ Relief and the shelving of the corporation tax rate reductions. I don’t believe that these changes were necessary and certainly the former sends out the wrong message in my view.
But ending on a bright note, duty on booze was frozen… which might have a silver-lining especially if we all have to self-isolate!
Take care,
Steve