The Chancellor has delivered an ‘essential’ Budget that offers swift and decisive action to help businesses through the economic disruption caused by COVID-19
A budget that “Gets it done” is the slogan that the Chancellor of the Exchequer used time and time again during his Budget Statement on 11 March 2020, hoping that it catches the public attention. However with the COVID-19 outbreak at the forefront of the current news cycle the focus instead was all about keeping individuals, businesses and the economy protected during a temporary downturn.
With a potential 20 percent of the UK workforce which could be quarantined at any one time, a series of fiscal measures worth around £30 billion were introduced to ease the impact for businesses and workers from a temporary significant reduction in demand in the economy. This follows the 0.5 percent cut in the Bank of England base rate down to 0.25 percent introduced earlier in the day as well as a new lending programme for small businesses and a reduction in the capital cyclic buffer to zero percent for UK banks.
The Government promised the National Health Service (NHS) all resources it requires in fighting the COVID-19 outbreak, together with an additional £6 billion in new funding. For employees, Statutory Sick Pay (SSP) would be able to be claimed from day one of self-isolation with sick notes provided via the NHS 111 helpline. For the self-employed and workers in the gig economy not qualifying for SSP, the Government announced additional support through hardship funds and the elimination of the minimum income floor for universal credit.
Businesses with less than 250 employees would be refunded in full for the first 14 days of the cost of SSP and HMRC increased their time to pay arrangements facilitating deferrals for payment of taxes. In addition the 50 percent business rate retail discount would be increased to 100 percent and expanded to include businesses in the leisure and entertainment sectors. The business rate discount for pubs with a rateable value of less than £100,000 would be increased to £5,000. These changes are temporary and only apply for the next 12 months.
The Chancellor is hoping that this is sufficient to mitigate the economic impact of the virus whilst the necessary public health measures are introduced. Taking a longer perspective on the economy, the Chancellor has decided to keep day to day spending in line with revenues and borrow only to invest in capital programmes with the aim of improving productivity. A consultation is to take place over the summer to consider new fiscal rules.
The two main personal tax measures are the reduction of the life time limit for entrepreneurs’ relief from £10 million to £1 million, reducing the maximum benefit of the capital gains tax relief from £1 million to £100,000 per person, and the increase in the pension taper thresholds so that the reduced annual limits for pension contributions do not apply unless employment income is in excess of £200,000. This latter measure will help in particular doctors who were otherwise reducing their hours as a result of the adverse impact of the pension taper.
Two new taxes are being introduced, a plastics packaging tax at a rate of £200 per tonne of plastic packaging which does not contain at least 30 percent recyclable plastic, and a two percent digital services tax for multinational business on their income from search engines, social media and online marketplaces. The US government had been successful in persuading the French government in delaying the collection of their tax, but it appears that the UK government is going ahead regardless.
HMRC is investing to improve tax compliance by taxpayers, with larger business required to report their uncertain tax positions, in line with international accounting standards, to HMRC.
Whilst the corporation tax rate is retained at 19 percent raising significant revenue for the Treasury, businesses will be pleased that the research and development tax credit will be increased from 12 percent to 13 percent, and the Pay As You Earn (PAYE) cap for Small and Medium Enterprises (SME) will be delayed by one year. An increase in the rate of allowances for the new buildings and structural allowance from two percent to three percent will help business in line with the Governments focus on capital improvements.
There was very little from a Value-Added Tax (VAT) perspective in the budget, apart from the removal of VAT from sanitary products and digital e-publications. Similarly there was little from an employment perspective, including nothing about the changes to the IR35 regime coming in from April 2020.
With the emphasis on mitigating the impacts of the COVID-19 outbreak on individuals, business and economy, the result of the budget was in common with the past few years a safety first budget with few changes, and no significant anti-avoidance measures introduced. The Chancellor has delivered an ‘essential’ Budget that offers swift and decisive action to help businesses through the economic disruption caused by COVID-19 by way of a raft of measures to help small businesses.
Eligible businesses in property with values below £51,000 will get 100 percent relief and pubs with a value below £100,000 will get a £5,000 discount.
Reaffirming its commitment to repeal the tax if a global solution is reached.
Chancellor reduces the lifetime capital gains limit for Entrepreneurs’ Relief from £10 million to £1 million from 11 March 2020.
Funding for 1,300 additional HMRC staff and a new notification requirement for large businesses have been announced.
Following concerns over public sector workers, changes will enable more tax-relieved pension savings to be made.
Good news for innovative businesses with £22 billion of R&D funding and an increase in the R&D Expenditure Credit from 12 percent to 13 percent effective from 1 April 2020.
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