The March Budget – Important changes that businesses may have missed
Rishi Sunak delivered his first Budget on 12 March 2020, which was also the first since the UK’s departure from the European Union, against a backdrop of the emerging coronavirus outbreak.
Shortly after the Budget was announced, the UK entered lockdown on 23 March 2020. With many businesses having to quickly adapt to new working practices, many of the key budget announcements may have been overlooked.
Here we run through some of the main announcements that may affect businesses.
The Chancellor announced a £30 billion stimulus package aimed at supporting the economy through the COVID-19 pandemic and pledged to give the NHS whatever extra resources it required to cope.
These include changes to Statutory Sick Pay (SSP) and business rates holidays for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000.
Following the decision of the Bank of England to reduce interest rates to 0.25% (which it then subsequently reduced to a record low 0.1%), the Chancellor went on to announce further support measures. Further information on these can be accessed on our COVID-19 information hub.
Research and Development (R&D) Tax Relief
The rate of tax credit for businesses falling within the Research and Development Expenditure Credit (RDEC) scheme will rise by 1% to 13% from 1 April 2020. This is given as an above the line credit for companies undertaking qualifying R&D Tax Relief work.
The amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year was to be restricted to three times the company’s total PAYE and NICs liability for that year. This has now been delayed until 1 April 2021.
Business Asset Disposal Relief (formally known as Entrepreneurs’ Relief or ER)
There was much talk about Entrepreneurs’ relief being scrapped (known as Business Asset Disposal Relief since 6 April 2020). This never materialised. However, the lifetime limit is reduced from £10 million to £1 million for ER qualifying disposals made on or after 11 March 2020. Special provisions exist for disposals entered into before 11 March 2020 that have not been completed.
Corporation Tax Loss Relief
Draft legislation has been published extending the rules that could potentially limit the use of brought forward losses to include brought forward capital losses. Companies and corporate groups will continue to have a £5 million ‘deductions allowance’ before these restrictions apply.
These changes will have effect where carried forward capital losses are used to offset chargeable gains accruing from 1 April 2020.
Corporation Tax Rates
As previously announced, the main rate of corporation tax is to remain at 19%. This was due to fall on 1 April 2020 to 17%.
Capital Allowances: Structures and Buildings Allowance
Effective from 1 April 2020 for corporation tax and 6 April 2020 for income tax, the annual rate of available funds for qualifying investments to construct new, or renovate old, non-residential structures and buildings has increased from 2% to 3%.
Enhanced Capital Allowances in Enterprise Zones
The 100% first year allowance for investment in new plant and machinery within designated assisted areas within Enterprise Zones will remain, whenever designated, until at least 31 March 2021.
On 17 March 2020, the government announced that it is delaying the proposed private sector IR35 reforms (off-payroll working rules) by 12 months until 6 April 2021. This was believed to be in response to COVID-19 and mounting pressure from the House of Lords.
The House of Lords and cross-party MPs have called for reforms to these proposals, alongside many trade and business organisations. More information on IR35 reforms can be found here.
Domestic VAT reverse charge for building and construction services
Originally set to be introduced in October 2019, the Government has now delayed the Domestic Reverse Charge until 1 October 2020, perhaps due to criticism from the industry that companies are not prepared. It is not known whether there will be any further delays, considering the impact of COVID-19. Further Information on this subject can be found here.
Digital Services Tax
A new 2% tax on the revenues of online marketplaces, search engines and social media which derive value from UK users came into effect on 1 April 2020.
This only applies when the group’s worldwide revenues from these digital activities are more than £500 million and more than £25 million of these revenues are derived from UK users.
As previously announced, the business rates retail discount for properties with a rateable value below £51,000 in England will increase from one third to 50% and will be expanded to include cinemas and music venues. To support small businesses in response to COVID-19, the retail discount will be increased to 100% and expanded to include hospitality and leisure businesses for 2021. This applies from 1 April 2020.
A £1,000 business rates discount for pubs with a rateable value below £100,000 in England was previously announced, this applied for one year from 1 April 2020. This was increased in the Budget to £5,000 in response to COVID-19.
Business rates in Scotland and Wales are a devolved matter.
Statutory Sick Pay
Small and medium-sized businesses are being supported by the government with the extra costs of paying COVID-19 related SSP by refunding eligible SSP costs.
This is limited to two weeks per employee and the size of an employer will be determined by the number of people they employed as of 28 February 2020
Capital Gains Tax annual exemption
The annual exemption is £12,000 for the 2019/20 tax year and £12,300 for 2020/21.
Private Residence Relief (PRR)
From 6 April 2020, properties that have not been occupied throughout the period of ownership, available deductions for capital gains tax purposes will be amended as follows:
- The final period exemption will be reduced from 18 months to 9 months (the 36-month period that is available to disabled persons or those in a care home will still apply)
- Lettings relief will only apply where the owner of the property is in shared occupancy with a tenant, other than this it is abolished.
These are considerable changes, more information on this can be found in our guide to Private Residence Relief.
Payments on account and 30-day returns
From 6 April 2020, a payment on account needs to be made for an associated CGT liability arising from the sale of a residential property.
Furthermore, a tax return will be required if there is a disposal of UK land on which a residential property gain accrues. Capital Gains Tax is required to be computed on the reported gain in the tax return. The return will need to be filed and the tax paid within 30 days of the completion date of the property disposal. Penalties will apply for late return (although we understand there will be a grace period until 31 July 2020)
If a chargeable gain does not arise, such as where a gain is covered by PRR, a return is not required.
Inheritance tax (IHT) nil rate bands
The nil rate inheritance tax band remains at £325,000 until April 2021. An additional ‘residence nil rate band’ (RNRB), is continuing to be phased in.
For deaths in 2019/20 this is £150,000 rising to £175,000 for deaths in 2020/21. Thereafter it will rise in line with CPI. There are several conditions that must be satisfied in order to obtain the RNRB. This is likely to involve redrafting an existing will.
Stamp Duty Land Tax (SDLT) surcharge
A Stamp Duty Land Tax surcharge on non-UK residents purchasing residential property in England and Northern Ireland is proceeding. A 2% surcharge will come into effect from 1 April 2021. This surcharge is in addition to the 3% surcharge for second homes (based on announcements at the time of the election) this could take the top rate of SDLT for overseas buyers to 17%.
For further details on other areas that were covered in the Budget, including employment Taxes, Income tax and personal savings and other matters, read our comprehensive guide 2020/21 tax rates and allowances.
Speak to our expert tax team
For more information or assistance with your business or personal taxes, contact our tax team on 0161 832 4841 or fill out the form below and a member of our team will be happy to assist you.