A Summary Of The Chancellor's Budget - March 2020

Our experts take a look at some of the key points from Rishi Sunak's first budget and what it means for businesses.

Dated: 11 March 2020 Author: Richard McNeilly, Managing Partner 

On Wednesday 11th March 2020, Chancellor Rishi Sunak delivered his first budget to the nation.

In his speech, Mr Sunak highlighted the need to plan for prosperity tomorrow and promised to unleash the power of business. He said there is likely to be temporary disruption to our economy due to coronavirus and that for a period it’s going to be tough.

Richard McNeilly, Managing Partner at Dains Accountants said: “When considering Rishi Sunak’s first budget we should remember that the Government is under enormous political pressure to deliver on the environment, transport, infrastructure ad to deliver measures which shoulder the burden of coronavirus.

“In my opinion it is a missed opportunity to permanently address business rates and the decision to reduce entrepreneurs’ relief with immediate effect to £1million will not be popular.

 “In summary, the budget offers little creativity and business is likely to be underwhelmed.”

Our key findings are as follows:

VAT

  • Introduction of 0% on Women’s Sanitary Products with effect from January 1st (removing 5% which was the lowest rate possible under EU VAT Directive)
  • Import VAT Accounting from 1st January 2021 will be ‘postponed accounting’ for ALL imports (not just former EU Acquisitions). There was serious doubt about this post Brexit in January because of us not having a hard Brexit. The automotive industry in particular, but any international business with imports and EU acquisitions, would be affected so this is good news.
  • Removal of 20% VAT on Digital Reading Materials from December 1st ie online newspapers, magazines, journals etc, aligning them with physical versions which are already 0%. The real irony of this is that HMRC has just lost its tribunal against Newscorp and then issued a brief statement to say they didn’t agree with the decision and wouldn’t be applying it for anyone trying to reclaim VAT on the basis of it.  This shows how the Government and HMRC and not joined up.

Corporate Tax

  • Corporation Tax rates are frozen at 19% for the financial years beginning 1 April 2020 and 2021
  • Research and Development Tax Credit (RDEC) is increasing from 12% to 13%
  • Tax Relief for expenditure on new business structures and buildings (SBA) is increasing from 2% to 3% per annum
  • As announced in the 2018 budget, the new Digital Services Tax comes into force at the rate of 2% 
  • Further anti-avoidance measures to reinforce the Government's position of tax planning avoidance and evasion
  • Abolition of small business rates for retailers for a year plus a £3,000 cash grant for any company eligible for small business rates relief

Employment Services

James Hunt, Employment Services Senior Manager at Dains Accountants, said: "There are no large scale changes in this area from the Chancellor. There are some giveaways and also a commitment to greater levels of compliance from HMRC. As expected, there are no changes announced to the planned implementation of Off-Payroll Working within the private sector from April 2020, so businesses need to be prepared for this”.

Changes announced (applying from April 2020 unless noted)

  • National Insurance - Primary threshold, employees and employers, increasing from £8,632 to £9,500 per annum
  • Statutory Sick Pay, where absence due to Coronavirus – can be paid from day one of sickness absence, including for those who self-isolate. For employers with less than 250 employees, SSP costs for up to 14 days will be refunded by the Government
  • Employment Allowance – will increase to £4,000 (but a restriction in entitlement has already been announced, see below)
  • Time To Pay arrangements – additional HMRC staff to support applications, taking account of expected hardship due to the impact of Coronavirus
  • Company cars and vans, benefits where private use available:
    • Company car private fuel provided – increase in fuel multiplier to £24,500
    • Company van benefit, where private use permitted – increased to £3,490
    • Company van fuel benefit – increased to £666
    • Tackling tax avoidance and evasion  - further action to be taken expected to raise £4.7 billion between now and 2024-25
      • Additional funding for HMRC
      • Restriction of CIS tax refunds for non-compliant businesses
      • Further action against promoters of tax avoidance
      • NIC holiday for employing veterans (from 21/22) – no employer NIC in first year of civilian employment of a veteran. Capped at NIC Upper Earnings Limit, consultation on design to take place
      • Welfare counselling tax exemption – extended to include related medical treatment (such as cognitive behavioural therapy as part of an employer’s welfare counselling services
      • Home working, flat rate deduction – increased from £4 to £6 per week
      • Neonatal leave and pay – entitlement to up to 12 weeks leave and pay for employees whose babies spend an extended period of time in neonatal care
      • Carers’ leave - a new in-work entitlement for employees with unpaid caring responsibilities. Consultation to take place before further details announced

 Changes Previously Announced

  • Off-Payroll Working - implementation into the private sector from April 2020
  • National Minimum Wage – increased rates

Band

Current Rate

New Rate - for pay reference periods beginning on or after 1 April 2020

25 and above

£8.21

£8.72

21 – 24

£7.70

£8.20

18-20

£6.15

£6.45

16-17

£4.35

£4.55

Apprentices (under 19 or in first year)

£3.90

£4.15

Accommodation offset (daily rate)

£7.55

£8.20

 

  • Employment Allowance – restricted to those with employers NIC liabilities of below £100,000 in the previous tax year (and also recategorized as state aid, having an implication for some claimants)
  • Statutory redundancy – maximum rate increased to £538 per week
  • Short time working – “Lay-off” pay increased to £30 per day

Personal Tax

  • As expected, Entrepreneurs' Relief was hit but maybe not to the extent that some feared. It remains in place but with effect from 11 March 2020, ie with immediate effect, the lifetime ER gains allowance is reduced from £10m to just £1m. The detail behind the announcement also includes measures to apply the new reduced lifetime limit to certain pre 11 March 2020 transactions, particularly where there are forestalling arrangements aimed at capturing pre Budget Day lifetime limit but contractual completion occurs after Budget Day.
  • In order to address the issue of high earners and in particular senior medical professionals being hit with tax charges where their pension annual allowance is breached, the current thresholds for taper of annual pension allowance from £40,000 down to £10,000 are changing. At present the tapering applies if ‘threshold income’ exceeds £110,000 and ‘adjusted income’ exceeds £150,000. From 6 April 2020 the tapering will apply where ‘threshold income’ exceeds £200,000 and ‘adjusted income’ exceeds £240,000.  In addition the minimum tapered annual allowance is reduced from £10,000 to £4,000.

Read our full summary of the budget https://www.dains.com/assets/downloadable/Dains-Budget-Summary-March-2020.pdf