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Budget 2021 150 150 AJ

Budget 2021

The effect of the pandemic

The Chancellor said that the pandemic has “fundamentally altered” people’s lives. The Chancellor added that more than 700,000 people have lost their jobs, the economy shrank by almost 10% last year and borrowing is up. But the economy “will recover”, Sunak says, and that, once recovery begins, the government will begin fixing the public finances.

The economy is forecast to return to pre-pandemic levels by the middle of next year but will be 3% smaller in five years that it would have been. The OBR forecast is that the economy will grow this year by 4%, 7.3% in 2022, then 1.7%, 1.6% and 1.7% in the last three years of the forecast.

Continued help

  • Furlough will continue until September. After July, businesses will have to contribute 10%, rising to 20% in August and September.
  • Self-employed income support scheme will continue until September but eligibility criteria and calculations change
  • Universal credit uplift of £20 a week will continue until September
  • National Living Wage to rise to £8.91 from April
  • SDLT (stamp duty) holiday to continue until 30 June
  • New 95% mortgage guarantee scheme with a deposit of 5%
  • New “re-start” grants for non-essential retail businesses and hospitality and leisure businesses
  • 5% VAT rate will be extended for 6 months to 30 September followed by an interim rate of 12.5% for another 6 months, returning to the full standard rate in April 2021
  • Business rates holiday extended to end of June, and then for remaining nine months, will be discounted by two thirds

Tax changes

No changes to rates of income tax, national insurance or VAT, but…

Personal taxes and allowances

  • Freeze to personal tax allowance and HR threshold for 2021/22. BR threshold will rise to £12,570 for 2022/23 and HR threshold to £50,270. Rates will then remain the same until 2026.
  • NICs – in 2021/22 NICs will rise with CPI.
  • IHT threshold to be frozen until 2026
  • CGT annual exemption to be frozen until 2026
  • VAT registration threshold to remain at £85,000 until 2024
  • Pensions lifetime allowance to be frozen at £1,073,100 until April 2026
  • ISA annual level to remain at £20,000
  • Savings income starting rate will remain at £5,000 for 2021/22.

This means that income tax and other personal tax rates are now set until 2026.

Company tax

New main corporation tax rate to rise to 25% from April 2023 (still the lowest rate in the G7)

Small businesses with profits less than £50,000 will remain at 19% rate (Small Profits Rate), tapering up to full rate once reach £250,000 profits

Loss relief – to help otherwise viable businesses (companies and unincorporated) which have been pushed into a loss-making position, the trading loss carry back rule is extended from one to three years. There are detailed rules depending on whether the company is a member of a group or not.

For next two years, when companies invest in qualifying plant and machinery, there will be a “super-deduction” of 130% (ie first year allowance) of the cost. Long-life assets will attract a 50% first year allowance.

A new £375million “Future Fund: Breakthrough” will invest in highly innovative companies working in life sciences, quantum computing or clean tech, aiming to raise at least £20million of funding

A review of Research & Development tax reliefs to make sure the UK remains a competitive location for cutting-edge research

Alcohol and fuel duties

Previous announcements reversed and all will be frozen at current levels.

Consultations and calls for evidence

Enterprise management incentives (EMI)

Call for evidence: Alongside the Budget the government is publishing a call for evidence on whether and how more UK companies should be able to access EMI to help them recruit and retain the talent they need to scale up.

R&D tax reliefs

The government will carry out a review of R&D tax reliefs, with a consultation published alongside the Budget. This review will consider all elements of the two R&D tax relief schemes, with the objective of ensuring the UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted. The government is also publishing the summary of responses of the recent consultation on the scope of qualifying expenditures for R&D tax credits across the UK. The government will consider bringing data and cloud computing costs into the scope of relief alongside a number of other policy options and priorities at the wider review.

Our initial view

We welcome a number of aspect of this Budget.

The increase in corporation tax is unwelcome, but unsurprising. At least the Chancellor has recognised small and early-stage businesses, and the main rate will only affect the largest 10% of companies in the UK. This unwelcome news is offset to some extent by the super-deduction for expenditure on plant and machinery, and the extended loss carry back provisions.

There is little immediate help to encourage entrepreneurship and innovation, but we will be submitting our response to the EMI call for evidence and the consultation on R&D.

At least there were no immediate changes to align more closely CGT and income tax rates, and Business Asset Disposal Relief remains unaffected.

In summary, it’s a case of “business as usual” for most companies, but with a cautious note of warning that there’s likely to be many further changes in the next year or two.

There was very little technical detail in the Budget papers released by the Treasury once the Chancellor finished speaking. We will have to wait for the draft Finance Bill to be published and no doubt more details will be released in the coming days and weeks. We will be analysing these as they appear and commenting on anything of importance.

 

No autumn Budget – but there are still important changes… 150 150 AJ

No autumn Budget – but there are still important changes…

Although there is not an autumn Budget this year, there have been some significant tax announcements last week contained in a written Parliamentary statement given by Jesse Norman, Financial Secretary to the Treasury, on 12 November.

In line with the tax policy-making framework, the Government consulted on a number of tax policies announced at Spring Budget 2020. The Government has published responses to some of the consultations that were extended due to COVID-19, alongside draft legislation which will need to be introduced.

The Government is also publishing responses to calls for evidence in the market for tax advice, as well as a consultation on Making Tax Digital for Corporation Tax.

Finally, the Government is making some tax policy announcements for Tobacco and Vehicle Excise duties, measures to tackle promoters of tax avoidance, a small change to off-payroll legislation, and delays to other measures and reviews.

Previously announced publications

The Government is publishing summary of responses and draft legislation for each of the following measures, as announced at the Spring Budget:

  • R&D SME tax credit PAYE cap
  • Plastic Packaging Tax
  • Tackling Construction Industry Scheme abuse
  • Tax implications of the withdrawal of the London Inter-Bank Offered Rate (LIBOR)
  • Hybrid and other mismatches

The Government had extended the policy consultation response deadlines for these measures in April, in response to the COVID-19 outbreak.

Draft legislation is accompanied by a Tax Information and Impact Note (TIIN), an Explanatory Note (EN) and, where applicable, a summary of responses to consultation document. All publications can be found on the GOV.UK website. The Government’s tax consultation tracker has also been updated.

R&D tax credits

Probably the most relevant announcement is concerning R&D tax credits for SMEs. There is currently no cap on the amount of R&D payable tax credit a small company can receive if their company has made a loss after deduction of their R&D claim. As previously announced, this will change for claim periods starting on and after 1 April 2021. The payable tax credit will be capped at three times the PAYE and NIC payable for the period plus £20,000. The additional £20,000 is a welcome change to the original proposals although we still do not think this adequately addresses the concerns of early-stage start-up tech businesses which typically outsource much of their R&D..

Raising standards for tax advice

The Government is publishing a Summary of Responses and Next Steps from the call for evidence on raising standards in the market for tax advice. As a first step towards raising standards, the Government will consult on requiring tax advisers to hold professional indemnity insurance and how to define tax advice. The majority of respondents supported government action to raise standards.

Tackling promoters of tax avoidance

In line with the Government’s strategy to tackle promoters of tax avoidance schemes, published in March, the Government is today announcing that it will consult in the new year on further measures to tackle promoters. These proposals will build on the proposals announced earlier this year.

The Government continues to recognise that the many tax advisers who adhere to high professional standards are an important source of support for taxpayers. The proposals are aimed at targeting those promoters who exploit every opportunity to personally profit by side-stepping the rules and whose unscrupulous actions often leave taxpayers with significant tax bills.

The Government continues to recognise that strengthening HMRC powers in the way described must be done in a carefully constrained way. HMRC will again work with stakeholders, and in particular those tax advisers who adhere to high professional standards, to ensure that these proposals are both effective and proportionate.

Making Tax Digital for Corporation Tax

The Government is publishing a consultation on the design of Making Tax Digital for Corporation Tax, as announced on 21 July. This will allow stakeholders to inform the early stage design of Making Tax Digital for Corporation Tax and to provide businesses with time to prepare.

Further policy announcements:

The Government has made a number of further policy decisions, relating to:

Extending the Annual Investment Allowance provisional £1 million cap

There will be a year-long extension to the temporary increase of the Annual Investment Allowance (AIA). The AIA provides firms 100% same year tax relief on qualifying capital expenditure, up to a fixed limit. Instead of allowing the AIA to revert to £200,000 from 1 January 2021, the Government is extending the temporary £1 million cap set at Budget 2018 until 31 December 2021. This announcement:

  • Responds to the needs of business, giving enhanced tax relief on plant and machinery expenditure;
  • Provides businesses with upfront support during continuing COVID-related uncertainty;
  • Simplifies taxes for the 99% of businesses investing up to £1 million on plant and machinery assets each year.

Off-payroll working – technical change to ensure legislation operates as intended

A technical change to the off-payroll working rules will be made in the next Finance Bill. This will ensure the legislation operates as intended from 6 April 2021 for engagements where an intermediary is a company. The change will correct an unintended widening of the definition of an intermediary, which went beyond the intended scope of the policy.

Notification of uncertain tax treatment by large businesses

The Government is announcing the implementation of the new requirement for large businesses to notify HMRC of uncertain tax treatments will be delayed until April 2022. This will allow more time to get the policy and legislation right following the recent consultation, including through further engagement with stakeholders, and will give affected businesses more time to prepare for the change.

Timely Tax Payments and Review of Tax Administration Framework

On 21 July, the Government committed to publishing calls for evidence on Timely Tax Payments and a Review of the Tax Administration Framework. Given the continued pressures of the COVID-19 outbreak, and with other consultations in progress, the Government will now publish these documents in Spring 2021.

 

OTS concludes that CGT can distort behaviour – but isn’t that what it’s intended to do? 150 150 AJ

OTS concludes that CGT can distort behaviour – but isn’t that what it’s intended to do?

Published on 12 November, the Office for Tax Simplification (OTS) has published its first review of capital gains tax (CGT).

This new report, written in response to the Chancellor’s request earlier this year, is the first that the Office of Tax Simplification (OTS) has devoted to CGT. The Chancellor asked the OTS, in particular, to ‘identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.

But isn’t this a tautology? Is not policy intent exactly what the same sentence seeks to stop? Surely, if we want to encourage entrepreneurship and innovation, then we want to change behaviours. Some might call this “distort”. I’d rather view it as “change for the better”.

The OTS’s extensive consultation revealed a range of areas in which, in their view, CGT is counter-intuitive and creates odd incentives. Some respondents argued that CGT is a barrier to economic growth, others that it is a barrier to a more equitable society.`

In my view, there’s a fundamental misunderstanding here. People are confusing the taxation of real entrepreneurial activity, leading to innovation, growth, and in due course (hopefully) wealth, with the taxation of unearned wealth where the mere passive holding of an asset increases wealth. By all means tax the latter in a similar, or identical way to income, but not the former.

The report outlines 11 recommendations for the government to consider across four key areas: rates and boundaries with income tax; the annual exempt amount (AEA); capital transfers and business reliefs.

Specific suggestions include:

  • Aligning capital gains tax rates with income tax rates or perhaps re-considering the boundary between the two regimes, such as when taxing retained earnings on the liquidation of a small owner-managed company. My view: fine if we’re talking about speculative (short-term) gains but not if we’re talking about encouraging and rewarding entrepreneurial activity and success.

 

  • Reducing the level of the annual exempt amount (perhaps to £5,000). My view: fine, but the increased tax take will be minimal.

 

  • Removing the capital gains uplift on death in some circumstances. My view: if double taxation is OK, then fine. But is this really where we should be going?

 

  • Scrapping investors’ relief: My view: this is a mis-understood relief, does not benefit many, and could easily be merged with a better targeted entrepreneurs’ reward relief.

 

  • Replacing business asset disposal relief with an alternative more focused on retirement. My view: a complete disaster and will, once and for all, drive entrepreneurship out of the UK. Why focus on retirement? What about the 20-year old who has a great idea? They’re hardly going to be concerned as to what happens when they’re 60! What about serial entrepreneurs/investors? What about encouraging investment in the first place?

We need to wake up and smell the coffee. If we are going to come out of the pandemic as an innovation-led, vibrant economy, where risk-taking is encouraged, we won’t do this by taxing people to the hilt, We need to encourage investment, encourage risk-taking, encourage innovation, and reward this through low taxation and encouraging reinvestment for future growth.

Taxing our way to a better economy is a flawed concept. Innovating our way to a vibrant and economically-sound future is, in my view, the only way to go.

Looking to a better future – the fiscal environment post Covid-19 150 150 AJ

Looking to a better future – the fiscal environment post Covid-19

Covid-19 will be a catalyst for the next wave of entrepreneurship and innovation. The world will need to adapt, with speed and agility: innovative entrepreneurship, thinking outside of the box,  will provide a greater range of options for generating the “new normal”. But the speed of response, and hence change, is vital. One of the boxes that previously has prevented many innovative changes to happen has been the fiscal environment. This is not a constraint peculiar to the UK, but some jurisdictions have made more effective attempts to encourage innovation and entrepreneurship than others. In this article we suggest ways in which the fiscal environment in the UK needs to change now, not at some time in the future, to ensure that one of the positives to come out of the pandemic is a vibrant, innovative and disruptive economy, where entrepreneurship is embraced and encouraged.

The article below is written by Dr Pete Hotten and me under the brand of out joint venture, aproposIP.

The fiscal environment post Covid FINAL 191020
Chancellor’s announcement: 24 September 2020 150 150 AJ

Chancellor’s announcement: 24 September 2020

The Chancellor today announced a new range of measures to help businesses and individuals through the next six months. More details will emerge over the coming hours and days.

The Chancellor said the backdrop to the current announcements are:

  • “Nurture recover by protecting jobs”
  • There is a permanent adjustment to the economy
  • Any financial plan needs to adapt and evolve as the Covid-19 pandemic evolves
  • Support needs to be for people in viable jobs
  • Cannot save every business and every job

. The headlines are:

  • No autumn Budget this year
  • New Job Support Scheme
    • Support for viable jobs. Where someone can work for at least one third of their normal hours, the Government will cover up to two thirds of the remaining salary
    • It will be available to all SMEs and also to large businesses where turnover has fallen
    • Will apply to all employees even if they have not previously been furloughed
  • There will be further self-employed grants based on similar principles to the Job Support Scheme

Cashflow is vital, and so four key actions were announced

    • Bounce Back Loans: a “pay as you grow” system will be introduced giving between 6 to 10 years to repay the loans
    • Business Interruption Loans: the Government-backed guarantee will be extended to 10 years, and the availability of all loan schemes will be extended to the end of 2020
    • Deferred tax bills: deferred VAT bills can be spread over 11 smaller instalments, as will self-assessment tax deferred payments
    • Hospitality and Tourism: the reduced 5% rate of VAT will continue to 31 March 2021

 

Capital gains tax – time for reform? 150 150 AJ

Capital gains tax – time for reform?

Capital gains tax – are we likely to see major changes?

The Chancellor has recently asked the Office of Tax Simplification (OTS ) to carry out a review of CGT to identify simplification opportunities. Remember that CGT is paid by individuals and trusts; companies pay corporation tax on chargeable gains.

The call for evidence is in two stages:

  • the first stage seeks high-level comments on the principles of CGT, by 10 August 2020; and
  • the second and main stage invites more detailed comments on the technical detail.

The specific themes identified in the principles section of the call for evidence are:

  • Allowances, including the annual exempt amount – its level and the extent to which it distorts decision making.
  • Exemptions and reliefs, including how they fit together and the extent to which they incentivise some decisions over others.
  • The treatment of losses within CGT, including the extent to which they can be used and whether the loss regime distorts decisions about when to buy or sell assets.
  • The interactions of how gains are taxed compared to other types of income, including how the boundary between what is taxed as gains rather than income works. Should there be different regimes for short‐term gains, compared to long‐term gains?

So, what do I think should or will happen?

I have long thought that there needs to be a closer alignment between tax on short-term gains and income tax rates, with some form of relief for longer-term, non-speculative gains. I was never sure why Business Asset Taper Relief (BATR) was abolished and replaced with Entrepreneurs’ Relief (ER) – it seemed to me that ER gave far more scope for abuse than BATR ever did.

It’s clear that any changes must be effective in preventing income receipts being converted into capital if there’s any difference in the rates between income tax and capital gains tax. Similarly, there would need to be some interaction with national insurance, assuming that the NI system and tax system are not fully-integrated (that is another huge subject in itself).

Most importantly, things need to be simple. With lifetime ER now at only £1 million, there’s still huge complexity surrounding eligibility, and the cost of obtaining proper advice on this can be disproportionately expensive.

What would I do?

  • Completely re-write the Taxation of Capital Gains Act (for both individuals and corporates).
  • Abolish the distinction between business assets and other assets.
  • Tax all gains on assets held for less than 3 years as income.
  • Taper gains on assets held for between 3 and 10 years by 5% a year and tax the balance (the amount after the taper relief) as income.
  • For all gains on assets held for 10 years or more (regardless as to the type of asset) tax at a flat CGT rate of 30%.
  • Abolish the annual exemption for individuals.

Cleverer minds than mine would need to work out what this would mean in terms of overall tax take but it would certainly make the taxation of capital gains far easier to manage.

Will something like this happen? Of course not! There will be more tinkering, more confusion, no real progress. And continued fees for tax advisers such as me….

The Chancellor’s Summer Statement. Really?……. 150 150 AJ

The Chancellor’s Summer Statement. Really?…….

Following the Chancellor’s Summer Statement yesterday I posted a blog simply summarising what he had announced. Now, nearly 24 hours later, I’ve had a chance to reflect on what was said, and I can’t for the life of me believe that he’s got it right.

I don’t normally comment on political issues but confine myself to analysing the tax and business implications of fiscal and economic announcements. But I’ve decided to exempt myself from my self-imposed moratorium on political comment and get a few things off my chest!

I should say at the outset that I’ve been broadly supportive up until now. The furlough scheme and self-employed income support scheme were needed, and more or less hit the button. I’m less convinced as to how effective the various loan schemes were, but that’s more to do with the banks not playing ball rather than the sentiment behind the schemes. But some of yesterday’s announcements baffle me.

Of course, furlough and the SEISS have to end. We simply can’t afford to keep them going. And yes, there will be both business and individual financial hardship to come. That is sad but inevitable. But yesterday’s announcements are set to cost another £30 billion. Money well spent? I don’t think so.

The gimmick: “eat out on us”… £10 off meals eaten out on certain days in August. What about those who can’t even afford to eat in and are relying on food banks. Wouldn’t the money have been better spent helping them? If you have the luxury of being able to afford to eat out, is £10 off your meal really going to change your decision about going out or not? And does it fit with the social distancing and “be alert” messaging? I think not.

Similarly, a reduction in VAT from 20% to 5% on eating out, hotels, leisure parks, B&Bs, camping sites etc. Surely holidays have now been planned. If you can afford to go away, will a VAT reduction really change behaviours? And will the VAT reductions even be passed on to the consumer?

As for the SDLT holiday, surely a distortion in the housing market is inevitable. Will people really bring forward house moves to take advantage of this? Maybe first-time buyers will, but who else? And if you’re in the fortunate position to be able to spend £500k on a house, does the saving of a few £thousand really make a difference?

Kickstarters (our lexicon of new words increases by the day!). Surely there needs to be a commitment from the employer to continue to employ these young people (so-called trainees) once the initial period ends, otherwise it’s no more than encouraging cheap labour. Far better would have been a proper incentive for companies to invest in full, proper apprenticeships, which give young people the opportunity to learn skills that will hopefully set them off on a lifetime career.

Muddled thinking, gimmicks, loss of credibility. We needed something more imaginative and sustainable.

Chancellor’s summer statement (or “mini Budget”) 150 150 AJ

Chancellor’s summer statement (or “mini Budget”)

A range of measures to boost the UK economy in the wake of the Covid-19 pandemic has been announced by Chancellor Rishi Sunak. They include VAT cuts for the hospitality sector, a Job Retention Bonus for companies, a Stamp Duty Land Tax cut and an ‘Eat Out to Help Out’ discount.

In a statement to the House of Commons, the Chancellor outlined plans to give businesses a £1,000 bonus for every employee it brings back from the furlough scheme and employs them from November to January on a salary of at least £520 a month.

The Chancellor said that if all nine million people are brought back to work, it would result in £9bn being paid out by the government.

A new programme, the Kickstart Scheme,  will give hundreds of thousands of young people, in every region and nation of Britain, the best possible chance of getting on and getting a job, said the Chancellor. It will directly pay employers to create new jobs for any 16 to 24-year-old at risk of long-term unemployment. These will be new jobs – with the funding conditional on the firm proving these jobs are additional.

These will a minimum of 25 hours per week paid at least the National Minimum Wage – with employers providing Kickstarters with training and support to find a permanent job. If employers meet these conditions, the Government will pay young people’s wages for six months, plus an amount to cover overheads. That means, for a 24-year-old, the grant will be around £6,500.

Employers can apply to be part of the scheme from next month, with the first Kickstarters in their new jobs this autumn. Various other incentives to take on apprentices were also announced.

From Wednesday next week (15 July) until 12 January 2021, VAT for the hospitality sector will be cut from 20 per cent to 5 per cent on food, accommodation and attractions. It will apply to the likes of restaurants, pubs, hotels, caravan and leisure parks, cinemas and zoos.

The Nil Rate Band of Residential SDLT (Stamp Duty) will be temporarily increased from £125,000 to £500,000 until 31 March 2021, with immediate effect.

Sunak also announced that every person in the UK would get an ‘Eat Out to Help Out’ discount of 50 per cent off, up to £10 per head, in August if they go for a meal between a Monday and a Wednesday.

The Chancellor said his plan was designed to support jobs by focusing on skills and young people.

“Throughout this crisis I have never been the prisoner of ideology,” Sunak said.  “For me, this has never just been a question of economics, but of values.

“We believe in the nobility of work. We believe in the inspiring power of opportunity. We believe in the British people’s fortitude and endurance.

“Our plan has a clear goal: to protect, support and create jobs. It will give businesses the confidence to retain and hire. To create jobs in every part of our country. To give young people a better start. To give people everywhere the opportunity of a fresh start.”

There will be a full Budget in the autumn in which the Chancellor will give a far more detailed analysis of the economy with no doubt some significant tax changes.

Tax policy documents (and my thoughts) and Covid-19 150 150 AJ

Tax policy documents (and my thoughts) and Covid-19

HM Treasury and HMRC have set out new timelines for tax policy consultations and other work in the light of the current Covid-19 crisis. As I comment further below, this is welcome news but I would have gone much further…

In summary:
• There will be a three-month extension to many consultation deadlines to give stakeholders time to submit their views
• The extension will ensure that those facing Covid-19 disruption will have a chance to have their say on possible tax changes
• Despite the extension of publication deadlines, due to Covid-19, the government remains committed to all planned reforms

The government is extending deadlines to ten consultations and calls for evidence currently underway by three months and also a short delay to the publication of other documents announced at Budget 2020.
The extension will give all stakeholders, who are facing disruption due to COVID-19, more time to submit their views and allow them to fully engage with these documents and contribute to the tax policy making process.

The government says it is grateful for responses already received, and would welcome further early responses from stakeholders where possible, to support its continuing consideration of these issues.
The Financial Secretary to the Treasury Jesse Norman said:

“Consulting on tax policy is crucial to good tax law. And a good consultation makes sure everyone with an interest in the subject has an opportunity to have their say.
That is why we are extending these deadlines. The government is very grateful to the stakeholders who have already responded to these documents. But it is also acutely aware that there may be others who want to contribute but cannot do so because of the current situation with Covid-19. This extension should help them to do so.”

Alongside the consultation extensions, the publication of some documents announced at Budget 2020, including work on tax conditionality and a consultation on stronger penalties for tobacco tax evasion, will be pushed back until the Autumn. And the government will set out in due course when it will publish other tax policy documents, including the consultation on aviation taxation and a call for evidence on disguised remuneration schemes.

Is the delay long enough though? It’s claimed that an extra three months should allow sufficient time for engagement, whilst still enabling the government to deliver important tax policy changes within the current fiscal timetable. I disagree. We’ve already had the farce of a Budget, which within days proved to be a complete fiction as the economic rulebook was re-written almost overnight. How can we possibly say with any certainty, within the next three months, what the economic situation will be? Surely it would be far better to simply ditch all the proposed changes and start again from scratch.

We know there will have to be a re-writing of the tax code. It’s obvious. We will all have to pay more taxes. Ways of working will change beyond recognition, as they already have done. That will make current plans for off-payroll working completely redundant. The distinction between earned and unearned income will have to go, as will the discrepancy between capital gains and income.

But that’s for another day and I will be writing more on that over the coming weeks.

For what it’s worth, though, whilst the government continues to try and pretend that fiscal and economic life can go on much as before, here is a full list of the extension announced.

Full List of Extensions
The deadlines for responses to the following tax policy documents will be extended for three months, to allow stakeholders to engage fully with these documents and to contribute to the tax policy making process. However, the government encourages early responses from stakeholders where possible, to support its continuing consideration of these issues:
• Plastic Packaging Tax: Policy Design – now closing on 20 August 2020
• Preventing abuse of the R&D tax relief for SMEs: second consultation – now closing on 28 August 2020
• Tackling Construction Industry Scheme abuse – now closing on 28 August 2020
• Notification of uncertain tax treatment by large businesses – now closing on 27 August 2020
• Vehicle Excise Duty: call for evidence – now closing on 3 September 2020
• Call for evidence: raising standards in the tax market – now closing on 28 August 2020
• Consultation on the taxation impacts arising from the withdrawal of LIBOR – now closing on 28 August 2020
• Hybrid and other mismatches – now closing on 29 August 2020
• Tax treatment of asset holding companies in alternative fund structures – now closing on 19 August 2020
• Consultation: HMRC Charter – now closing on 15 August 2020

Budget Commentary 150 150 AJ

Budget Commentary

This was the first Budget of the new government, the first Budget for 18 months, and the first Budget of the new Chancellor, Rishi Sunak. It followed a Bank of England interest base rate cut from 0.75% to 0.25% (50 basis points) announced earlier in the day.

Whilst the first Budget of a new Parliament usually sets the tone for the next few years, often gets rid of “bad news” well before the next election, and possibly takes some longer-term decisions that will gradually impact over the lifetime of the Parliament, this one was focused on one main issue – the coronavirus impact which the Chancellor went straight into in his first sentence. But the Chancellor also said that the Budget would deliver on the change that was promised at the General Election and was a Budget for prosperity. He then set out massive spending plans and promises. I will leave it to you to work out how this is all going to be paid for!

As always, much of the tax detail was not announced and was only apparent when reading the Treasury Press Releases and other documents which were released as soon as the Budget Speech ended. But the real detail will not be known until the Finance Bill is published on Thursday 19 March. From a first look, however, other than the measures discussed below there is very little to get excited about and certainly no major surprises.

This summary focuses on the key tax changes and does not consider the public spending and investment announcements that were made (and there were many of them!).

Here are the key points which we know so far.

The headlines (further detail below)

  •  Entrepreneurs’ Relief major change.
  •  R&D tax credit PAYE cap delayed until 2021.
  •  Off-payroll working/IR35 to proceed with effect from 6 April 2020.

Help for businesses in response to coronavirus

  •  “Time to Pay” service to be ramped up with immediate effect to ease burden for businesses affected by COVID-19, which may be able to agree a bespoke Time to Pay arrangement. To ensure ongoing support, HMRC have made a further 2,000 experienced call handlers available to support firms when needed.
  •  New temporary coronavirus business loan scheme.
  •  Business rates for this year to be abolished for many businesses in the retail and leisure sector.
  •  Any business eligible for small business rates relief will get £3k cash grant as a one-off payment

Entrepreneurs and innovation

  • Major reform to Entrepreneurs’ Relief (ER). Lifetime limit on gains eligible for Entrepreneurs’ Relief to be reduced from £10 million to £1 million from today (ie with immediate effect). This will affect all eligible CGT disposals carried out from today. Whilst this is unwelcome, and fails to address the structural complexities of ER, it is a “quick fix” way of addressing many of the concerns and pressures that the Chancellor faced. It is claimed that 80% of those using the relief will be unaffected.
  •  Review of the Enterprise Management Incentive Scheme (EMI) to see whether more companies should be able to access it.
  •  Research & Development Expenditure Credit (RDEC) rate to increase from 12% to 13% from 1 April 2020.
  •  Consultation on whether expenditure on data and cloud computing should qualify for R&D tax credits.
  •  SME R&D scheme PAYE cap to be delayed until 1 April 2021 (was to be 1 April 2021). Consultation on the design of this to ensure that eligible businesses are not penalised.

Business tax

  •  Corporation tax rate to remain at 19% (as expected).
  •  Structures and buildings allowance to rise to 3% from 1 April 2020.
  •  Reforms to Intangible Fixed Assets regime.
  •  Off payroll working/IR35 proceeds from 6 April 2020 subject to some minor changes.

Personal taxes

  •  Savings tax and ISA limits unchanged.

Anti-avoidance

  •  Extra funding for HMRC to secure £4.7 billion of additional revenue over period to 2024-25.

Duties

  • All alcohol and fuel duties frozen.

Other issues

  •  Additional 2% SDLT for non-residents purchasing residential property in England and NI from (1 April 2021).

Our immediate thoughts

This was a Budget full of spending promises but very light on tax policy changes or addressing some of the complexities/inequalities in the tax legislation.

Changes to Entrepreneurs’ Relief were expected, but the proposal is a very crude attempt to address the issue. Whilst we have yet to see the small print of the Finance Bill, at this stage it appears that little has been done to make the relief easier to understand and qualify for. Maybe, with only £1 million of relief now available, the Chancellor didn’t think that detailed legislative changes were necessary. To put this into context, the relief is now only going to be worth £100,000 maximum (10% x £1 million). In my view, this is hardly an incentive to take entrepreneurial risk. Far better, in my opinion, would have been a reintroduction of some form of retirement relief which rewarded longer-term investment in entrepreneurial businesses.

Another missed opportunity is in the area of R&D tax credits. Whilst the delay to the introduction of the PAYE cap is welcome, ditching the idea completely and increasing the rate of enhanced relief from 130% to 150% would have been far more welcome.

As for off payroll working/IR35, we appear to be stuck with it, subject to some minor tinkering.

Given the times that we’re in I was maybe hoping for too much. Perhaps the Autumn Budget when, hopefully, COVID-19 is not so high on the agenda, will be the time for more radical legislative change. Let’s hope so.

And as a final point, what about life after Brexit (remember it?!). It was barely mentioned…

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