2020 Budget – a budget to get things done

A “Budget to get things done” was the mantra – much like the recent “get Brexit done” strapline that got the conservatives elected in December.

As expected this was a budget of two sides – firstly the short term support for the anticipated effects of Coronavirus (COVID-19) and secondly the longer term investment into UK plc.   Given the increased borrowing contained in the Budget it is perhaps no surprise the Chancellor used his closer ties with the Bank of England to provide a surprise cut in interest rates this morning – just what you need when looking to borrow a few extra pounds (if only it was that simple for the average mortgage holder!).

So having had a deep dive into the detail of the Budget 2020 report here are some of the highlights, and what it means, for UK Business.

Taxation:

The big question was what would happen to Entrepreneurs’ Relief.  In response to evidence that Entrepreneurs’ Relief has primarily benefited a small number of very affluent taxpayers and done little to generate additional entrepreneurial activity, the government will reduce the lifetime limit on gains eligible for relief to £1 million. According to Government figures this will leave over 80% of those using the relief unaffected, while making the tax system fairer and more sustainable.  The fact it’s survived, albeit at a lower level, will be a relief to many and not too much of the population will disagree with the move back to where it was when it was first introduced.

The employment allowance will be increased to £4,000.  This will be good news for most employers and a real cash benefit for those that are eligible.

Investment in Research & Development (R&D) would appear to be a top priority for the Government and the Budget will support and encourage this by increasing the rate of Research & Development Expenditure Credit from 12% to 13%. The government will also consult on whether qualifying R&D tax credit costs should include investments in data and cloud computing.  For any companies engaging in R&D activity this will have a beneficial impact and underlines the commitment to encourage this spend and also obtaining relief through the tax system for it.

By confirming that the headline corporation tax rate will remain at 19% in 2020, the lowest in the G20, the Budget ensures that the UK will continue to be an attractive place to do business.  Not a surprising announcement but certainty is always good.

In relation to COVID-19:

The government will support small and medium-sized businesses and employers to cope with the extra costs of paying COVID-19 related SSP by refunding eligible SSP costs.  Employers with fewer than 250 employees will be eligible. The size of an employer will be determined by the number of people they employed as of 28 February 2020.

Business Rates Reliefs – The government had already announced the Business Rates retail discount will be increased to 50% in 2020-21. To support small businesses affected by COVID-19 the government is increasing it further to 100% for 2020-21.

Time to Pay – The government will ensure that businesses and self-employed individuals in financial distress and with outstanding tax liabilities receive support with their tax affairs. HMRC has set up a dedicated COVID-19 helpline to help those in need, and they may be able to agree a bespoke Time to Pay arrangement.  Expect there to be many businesses using COVID-19 as a factor when speaking to HMRC around Time to Pay arrangements.

Coronavirus Business Interruption Loan Scheme – The government will launch a new, temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, to support businesses to access bank lending and overdrafts. The government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs.  The Scheme will support loans of up to £1.2 million in value.  The proof of the pudding is in the eating, so we’ll see how this feeds through but previous initiatives in a similar vein have had some success.

Other thoughts

One of the more interesting statistics from the budget report, buried in the detail, is the fact that the government is looking at its investment in HMRC, with a view to improving tax compliance, to raise an additional £4bn of tax revenue over the next 5 years.  Sounds like a good return on investment and will be centred around Making Tax Digital.

Review of Enterprise Management Incentives (EMI) scheme – The government will review the EMI scheme to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme.  What this space!

Protecting taxes in insolvency – As announced at Budget 2018, the government will change the rules so that when a business enters insolvency, more of the taxes paid in good faith by its employees and customers and temporarily held in trust by the business go as intended to fund public services, rather than being distributed to other creditors. The Budget delays the commencement date of this measure from 6 April to 1 December 2020.  This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE income tax, employee NICs and CIS deductions).  The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer NICs. The legislation will be introduced in Finance Bill 2020.