Budget 2020 – business tax – our initial reactions
A very confident and upbeat Chancellor delivered his first Budget speech today promising to deliver on his party’s promises to the British people. Rishi Sunak opened with a list of helpful measures to ease the economic pain of COVID-19, particularly for small businesses. There followed an hour of spending promises covering everything from money for potholes (the traditional cheer followed) to spending on infrastructure, the environment and devolution. There were very few announcements on tax.
From a business owner’s perspective the really significant news was the reduction in the lifetime cap for Entrepreneurs’ Relief from £10m to £1m with immediate effect. Review and reform of the relief was trailed so this was not unexpected although it is unusual for a mainstream tax relief to be amended as of Budget Day (this treatment is usually reserved for measures countering tax avoidance schemes). Even more unusually when the Budget notes came on line, they revealed extra measures to counter ‘forestalling arrangements’ entered into at any point since 6 April 2019. The ‘forestalling arrangements’ referred to referenced business owners who, worried about losing their relief, may have made disposals of assets to connected parties or companies to trigger a tax disposal and ‘bank’ their entrepreneurs’ relief before today’s Budget. Those who didn’t complete the sales, or who tried to bank the tax relief by selling their business to a holding company, will now have to prove they didn’t do so to avoid tax to take advantage of the higher cap. We can expect huge howls of protest, with some justification, from those who will see this as retrospective tax legislation.
In other news:
- Corporation tax will remain unchanged at 19%
- R&D above the line credit will increase from 12-13%
- Structures and Buildings Allowance will be increased from 2 -3%
- Business rates will be reduced or eliminated for businesses in the leisure and retail sector.
On the personal investment front there were no changes to venture capital reliefs such as EIS or Investors’ Relief – both of which might become significantly more important due to the curtailment of Entrepreneurs’ Relief. The annual amount you can put into an ISA is also unchanged at £20,000 and is increased for children’s ISAs to £9k. Also, in what may seem like a significant give away to wealthier tax payers the thresholds for the taper of the £40k annual pension allowance will be significantly increased with the effect that you will only start to lose the £40k allowance if ‘adjusted income’ is above £240k. Inheritance tax relief on business assets, which was thought to be under threat was not mentioned.
Finally on the employee incentives front there was an announcement that the valuable EMI share option scheme is to be reviewed. Whilst a review can lead to negative results, such as for Entrepreneurs’ Relief, the Budget states the review will include looking at ‘whether more companies should be able to access the scheme’ which sounds encouraging.
We will report further developments in future blogs. If you would like advice on any aspect of how the Budget affects your tax position, please contact Elizabeth Middleton.