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“Rates have been slashed and for me it’s difficult to see how they get reintroduced because many businesses find them a burden. Maybe it’s an Amazon Tax that might be the answer?”
For an inexperienced Politician, Rishi Sunak put on a brilliant performance in his first statement to the House. In just over an hour he was lively, positive and uplifting when he probably should have been exhausted with the weight of the World on his shoulders having worked night and day to announce measures based upon up to date information in “this ever changing world in which we live in” (to quote Sir Paul).
On the other hand Jeremy Corbyn was extremely dour but unfortunately quoted more of the statistics I had written down at our Bank of England Economic Seminar the previous day. Low World growth, poor UK growth, low productivity and record low unemployment in a weak economy. Things weren’t looking good and a drop in interest rates was suggested which appeared – which to everyone’s surprise – at 7am on Budget morning. In times of trouble, a coordinated approach is required!
Clearly the Virus is our number one priority and hopefully we won’t see 20% of the workforce sitting at home. Rates have been slashed and for me it’s difficult to see how they get reintroduced because many businesses find them a burden. Maybe it’s an Amazon Tax that might be the answer?
I would repeat what I said at the Seminar; if you haven’t already done so – do take some time to look into your current position and assess how a slowdown will affect you. Expenses and costs may slow if staff are off but will your supply chain be able to support you adequately to keep output going? Remember the challenge is not during the slowdown, it’s at the point of pick up when cash might be light and in demand to fund orders and wages.
In support of this, we have a new cashflow product being launched as we partner Fluidly which will link into Xero and QuickBooks allowing a detailed view of the next 3 months based upon your normal payment patterns. There couldn’t be a better time as they say but we wish it wasn’t under these circumstances.
I had predicted that Entrepreneurs Relief would be amended or withdrawn and whilst my digging had got the reduced £1m Lifetime Limit correct, I had been led to believe it would change on 5 April and not budget day which is what has happened. That will lead to enquiries that could have been avoided so the Treasury clearly believe that those with income conversion schemes would have acted before 5 April whilst those with real deserving gains couldn’t in the time frame. It’s a disappointing and non-Conservative policy but it probably was too generous.
It’s another non-Conservative policy to cancel the corporation tax reduction but this had been predicted when the virus hadn’t been heard of. This will go towards the levelling up and infrastructure improvements which were announced with gay abandon throughout the speech. This fills me with some concern. Where is the capacity in our economy to deliver these at the present time and have they bitten off more than they can chew?
It’s really easy to sit smiling in the House on the day these announcements are made, but it’s harder to return to the House behind time and over budget – as these projects have a tendency to do – and try to explain delay. Take a recent well known project in North London which whilst brilliant, was severely late and significantly over budget to the point where no money is now available for what used to be the primary activity. That could be our health service in the future.
However, most of these problems are years down the road – maybe the A303 – our current focus is the one that no one can predict how COVID-19 will develop so it seems likely that come the Autumn we will know better “whatever it costs” looks like. As I said at the Seminar, after the Election we had some real good news evidence of upturn which had continued into January but is now forgotten. I had hoped 2019 was going to exceed my low expectations but now all we can hope is that this is temporary and a feel good factor returns.
“The chancellors speech was engaging, provided the sensitivity currently needed and was sympathetic to the issues faced by all.”
With the continued development of the coronavirus in the UK, Budget 2020 was not expected to produce shock announcements from major tax or legislation changes. The Chancellor’s speech was engaging, provided the sensitivity currently needed and was sympathetic to the issues faced by all. It installed a new confidence for the Party and aimed to give the UK faith of the choices that were being made.
Entrepreneurs Relief was a headline change predicted by the financial press prior to the budget and the Chancellor confirmed the reduction from a £10m lifetime allowance to £1m. This appeared to be the only criteria that had changed and still remains an incentive to smaller businesses likely to sell out prior to retirement. I remain sceptical that this change will continue to encourage entrepreneurial behaviour as suggested within the finer details.
Investment and relief measures were announced for the recent devastation caused by flood damage and the ongoing nightmare that is our road infrastructure. Pot holes and poor road conditions desperately need dealing with to prevent accidents and increased insurance claims. The investment in these areas should create employment opportunities as additional resource is likely to be needed to fulfil the demand. Let’s hope the council’s attitude is matched to decisions made by businesses every day in that “you get what you pay for”. Solutions are needed with longevity in mind and not cheap alternatives that are not fit for purpose, resulting in increased expenditure being needed longer term.
Manufacturers need to consider their production methods and ecological impact as a charge of £200 per tonne is made for products being produced containing less than 30% recyclable material. Good news as Investment is likely to be needed resulting in tax planning opportunities for capital allowances and enhanced research and development tax claims which saw a minor change.
So to the current climate and the issues faced by the threat of the coronavirus and the social and economic impact this is having. Measures have been announced to provide aid, although in reality how this is likely to assist businesses practically remains to be seen at this early stage.
The announcement of Statutory Sick Pay SSP being paid from day 1 and 14 days of SSP being able to be claimed by smaller businesses specifically surrounding self-isolation, on the face of it sounds great, however… in some circumstances this is likely to be abused by employees as extra time off or inappropriate self-isolation is taken which puts greater pressures on employers; individuals losing full pay to receive approx. £80 per week I feel encourages workers to continue working when maybe they shouldn’t as they can’t afford the time off; another issue is how will the payroll software deal with the processing and reporting of this exceptional change to SSP rules and will employers understand how to deal with this correctly? All serious issues which I feel still have not been thought through correctly. Self-employed are being given the chance to claim Employment and Support allowance from day 1 at £73.10 per week – does this encourage them to do the right thing? In my experience, any claim for benefits is a painful and slow process and why will this be any different? At a point when employers face an increase in sickness and absence, some are also faced with a 6.2% pay rise if their staff are paid under the National Living Wage and therefore the issues keep increasing.
We are all hoping that the current predictions are an over-reaction and the fallout will not be the doomsday it has been predicted to be – although social media frenzy has already created chaos and the financial damage has started. Practically, employers should make sure that their HR policies regarding absence are up to date and that they have issued specific guidance on the coronavirus and “self- isolation” to prevent issues and misunderstandings later down the line. Ensure good hygiene is encouraged with employees and review cleaning procedures for all office and other work spaces. Review or prepare disaster recovery plans and look at different options of working to minimise risk but not cause disruption.
This is a budget showing commitment where it needs to at the present time, but it is mainly about the Chancellor spending money. The money has to come from somewhere to fund this level of expenditure and with open ended amounts being promised to deal with the current crisis, there is no evidence where this will come from within today’s budget statement.
My final question therefore has to be, what does the next budget have in store for us?
“There was some mention in the budget of the increased electric car charging points as part of the infrastructure spend, but no real mention of the significant improvement to the electric company car tax rates that start from 6 April 2020..”
I watched the budget at lunchtime today and putting aside the contents of the budget for one moment, I for one thought that Rishi Sunak’s delivery of this budget was outstanding and certainly motivational.
The Chancellor commenced his budget by referring to the Coronavirus. After the Bank of England slashed the base rate from 0.75% to 0.25% this morning, the Chancellor pledged billions of pounds of fiscal stimulus to boost the economy during this outbreak.
There was certainly an effort to help businesses by confirming that a Coronavirus loan scheme would be setup which will be backed 80% by the government and confirming that HMRC had been asked to scale-up its time to pay arrangements with a 2,000 person call centre. I welcomed the announcement that for businesses with fewer than 250 employees, the first 14 days of statutory sick pay will be refunded by the government. However this is a sweeping statement and quite how the payroll software will be able to deal with this, we will have to wait and see.
He went further to help businesses by extending business rate relief in retail, hospitality and leisure sectors if you have a rateable value of less than £51,000 by giving a 100% discount during 2020/21. For those small businesses that do not currently pay business rates, they will receive a £3,000 cash grant. In addition, the increase in the employment allowance to £4,000 from £3,000 is a welcome measure and will help small businesses.
To be honest, there was so much spending with huge promises for infrastructure that I was waiting for the bang – that announcement which made you want to hide behind the sofa but in my opinion, it didn’t come. The only real areas of increased taxation came from keeping Corporation tax at 19% rather than dropping to 17% (which had already been announced) and the reduction of Entrepreneurs relief from £10m to £1m which is the level it was at when it was first introduced. Entrepreneur’s relief is a good relief and allows business owners a 10% rate of tax on the sale of their business. £1m is still sufficient for many business owners and so I am not too unhappy with this measure, especially given some of the rumours prior to the budget regarding the rates of mainstream capital gains tax which were unaffected.
Quite how this will all be paid for I am not quite sure, as the Chancellor was still forecasting headline debt to fall by the end of the parliament (2024).
But how does the budget actually effect you? In my opinion here are the main points to be aware of:
Personal Tax – The personal allowance at £12,500 and the higher rate tax threshold remains unchanged at £50,000. There has been a move in the primary national insurance threshold to start from £9,500 rather than £8,632 which will save £104 per annum and so nothing to party about here.
Rental property – Big changes that were already announced in previous budgets will be coming in on 6 April 2020 with the lettings relief (worth up to £40,000) being removed unless the property is shared with the tenant. In addition to this the 18 months “assumed ownership” allowance after moving out of the property will be reduced to 9 months and capital gains tax on the sale of your buy to let needs to be paid within 30 days of sale rather than with your tax return payment deadline.
Corporation Tax Rates – As mentioned above Corporation tax will remain at 19%. There was no talk of capital allowances but please remember we are currently in an enhanced period of the annual investment allowance of £1million which will end on 31 December 2020. If you are a capital intensive business then planning may be required as the allowance is set to return to £200,000 on 1 January 2021.
Stamp Duty – There was no movement on stamp duty unless you are a non-resident landlord where there will be a 2% surcharge.
Pension contributions – Improvements were made to the tapering system of the annual pension allowance in an effort not to penalise doctors from working overtime but it will have an effect on other high earners. You will now be able to earn £200,000 before the annual pension allowance of £40,000 risks being tapered and this will not be fully tapered until you earn £300,000 where the maximum will be £4,000. This improvement is welcome however I am not a fan of this rule. At the end of the day we are all told to save for our retirement so that we do not put a strain on the social system. There is already a lifetime allowance for an individual’s pension fund not to exceed £1,055,000 otherwise additional taxes are levied. Why not allow everyone to pay in up to £40,000 per annum as they will naturally stop when their fund hits the lifetime allowance?
In Summary, I think this was a good budget. There was some mention in the budget of the increased electric car charging points as part of the infrastructure spend but no real mention of the significant improvement to the electric company car tax rates that start from 6 April 2020. If you trade through a limited company and you like the idea of an electric car then you should seriously consider purchasing it through your company. Here is a previous article which covers this in more detail https://www.lambert-chapman.co.uk/blog/electric-cars-get-a-huge-boost-from-hmrc-from-slashed-taxes/.
“Abolishing business rates for small firms in retail, leisure and hospitality sectors with rateable values under £51k for next financial year will be very helpful for small firms…”
I thought it was a good and confident delivery from Rishi Sunak, especially if you think he was only appointed to Chancellor just four weeks ago, there are obviously many current areas of concern for the government, but he made me optimistic and if we can have a ‘close shave’ with the coronavirus and businesses don’t have major interruptions then, this along with the Bank of England slashing interest rates by 0.5%, we could see increased confidence in the economy for the remainder of 2020.
How in my opinion does the budget effect individuals and our SME’s? A summary of the points I feel are worth of note are as follows;
The much talked about Entrepreneurs’ Relief will be retained, but lifetime allowance as expected will be reduced from £10m to £1m at 10%. I believe that the criteria has not changed.
Personal tax – no change in personal allowance, remaining at £12,500, and higher rate tax threshold also remains at £50,000, I was expecting perhaps an increase in the higher rate, but with the level of expenditure in the budget the money has to come from somewhere. NI threshold to be increased from £8,632 to £9,500, a saving of £868 @12%, every little helps but this is very little.
Abolishing business rates altogether (during 2020/21) for small firms in retail, leisure and hospitality sectors with rateable values under £51k for next financial year will be very helpful for small firms who have seen their footfall tumble in previous years and even more so currently with the coronavirus. I’m not sure this does enough to save the high street with the majority being made up of larger retail chains who will not benefit from the relief. A further review of the rates system is being undertaken with the results to be published in the autumn, I do wonder how businesses will cope when the rates are reintroduced in 2021/22.
The Chancellor is trying to keep our pubs open with Business rate discount for pubs to rise from £1,000 to £5,000 this year and Duties on spirits, beer, cider and wine to be frozen, this I feel, may still not be enough to keep open our local village pubs.
Fuel duty is frozen for the 10th year, I was expecting a slight increase with a push towards electric cars, and there was a hidden new consultation that could see annual car tax increases for some drivers of high CO2 emission cars.
Interruption loans up to £1.2m for small firms, this sounds great in assisting firms during our current uncertain times, I do wonder in practice how this will work, as from my understanding businesses will require the cash now to assist with their current cash flow requirements for the next few months, what if the application for the loans and overdrafts takes weeks, and what information will the bank require? I would expect a strong balance sheet, up to date accounts, management accounts and perhaps some of security either via the business or personal to be required. To be honest it sounded too good to be true, if the business was struggling before the coronavirus then the loan will not be granted.
So how does the budget/funds affect us locally?
- Increase in investment for Superfast broadband.
- Money to replace the Army and Navy – not sure if they do mean replace or improve the junction that is extremely busy and very much required.
- Junction improvements along the A12 –Improvements and expansion is required all the way from London to Ipswich, but this would cause short terms disruption that would be immense.
- Share of the funds available for road repairs, so will we see an improvement in the number of potholes? I doubt it.
- Share of additional investment in R & D – but rumoured we may actually see a reduction for the East as more being available for other parts of the country.
Overall I feel the budget was as expected, or perhaps exceeded my expectations, I’m still not sure where all the additional funding will be obtained from and I have a feeling that business will think the interruption loans will be available at a drop of a hat but I very much doubt this, I would be happy to be proven wrong.
Can we get through 2020 without grinding to a halt? I do hope so for the economy and my own sanity (not sure how long I could stay at home with just my loving family, I would need plenty of chocolates and beers to survive).
“I have to admit surprise that no changes to Inheritance Tax were announced – there has been a lot of discussion about this, and some strong recommendations for the All Party Parliamentary Group on IHT were published in late January…”
I’m sure my Learned Partners will comment on some of the more visible detail of the Chancellor’s Budget Day offerings, so I thought I would try to seek out any hidden gems. This is getting to be more and more difficult with each Budget, as increasingly major announcements are not just leaked, but almost given out in great detail, before the appointed day.
Changes to Entrepreneurs Relief were hardly a surprise, and it was clear that major support had to be brought in to combat the economic effects of our current health crisis. I have to admit surprise that no changes to Inheritance Tax were announced though – there has been a lot of discussion about this, and some strong recommendations for the All Party Parliamentary Group on IHT were published in late January.
So, what did I find? Not a lot. A National Insurance holiday for employers taking on ex-servicemen, being an exemption for the first year of civilian employment, to be introduced from 2021/22 – hardly likely to set the world of employment on fire. Vehicle Excise Duty for cars, vans and motorcycles to rise from 1st April in line with RPI increases – a traditional move. Changes in taxable benefit charges for private use of a company car and/or fuel – again, a traditional move. I’m not quite sure why this latter increase is in line with CPI and not RPI – the cynic in me suggest that perhaps this measure will bring in more revenue.
One provision that I’m sure I saw yesterday somewhere, but can’t find today, related to the amount that HMRC accept as a deduction from taxable profits by the self-employed for contribution towards household expenses when working from home – currently, this is £4 per week, to rise to £6 per week if I am right. If I am not, I apologise!
I wonder, was the statement of the ultimate ambition to move 22,000 civil servants out of Central London an idealistic thought of involving all parts of the country in the governing process, or was it just a precursor to being able to sell off more of the “family jewels” in respect of properties currently occupied by those civil servants?
“I hope the spending spree and debt increase will not leave the Country’s finances in a parlous state, as this type of action normally does…”
I expected a radical Budget with the change in Conservative leadership, but it felt like a Labour Budget to me. I hope the spending spree and debt increase will not leave the Country’s finances in a parlous state, as this type of action normally does.
The ambition to align the personal allowance and National Insurance starting point makes sense. To simplify the tax system will reduce costs and make our overly complex procedures easier to understand. The assistance to retailers with some rates exemptions is needed, but a one year rule should be quickly followed by a comprehensive overhaul of the system.
Conversely, the reduction in Entrepreneur’s Relief from £10 million of lifetime gains to £1 million seems harsh, especially when imposed in one step. In my opinion the reversal, if considered necessary, should have been more measured considering the effect it will have on individuals’ retirement plans.
A lot of Government spending, which will lead to a lot of Government debt. I am concerned for the longer term.
“I thought that his announcement on Entrepreneurs Relief was reasonable. I had been fearing its complete abolition. This would have been a great shame as I have seen situations where it has been very effective…”
A few weeks ago somebody asked me what I thought Rishi would do?
I am afraid that I thought they were talking about Rishi Patel, who will be replacing Ravi Bopara in the Essex middle order when they start their defence of the County Championship in April. I expressed my every confidence that Rishi will be up to the task. He will get it done.
Rishi Sunak looks a nice presentable young man but, as Jeremy pointed out, he is ex Goldman Sachs so he does not take prisoners.
I thought that his announcement on Entrepreneurs Relief was reasonable. I had been fearing its complete abolition. This would have been a great shame as I have seen situations where it has been very effective. It is an incentive for an entrepreneur to sell his business to an organisation which can push it to the next level. Previously we had Retirement Relief which encouraged business owners to hang on to their business in order that they could capitalise on the lower tax rate offered on retirement.
A reduction in the relief to £1m is well judged. Most small business people will not make this level of gain on the sale of their business. The million pound threshold will certainly stretch further in the North.
I like the increase in the employees National Insurance threshold to £9,500 from £8,632. We will certainly be able to use this for the benefit of our small business owners.
As I listened to the speech, I became anxious that he was not going to mention anything about tax rates and personal allowances. I started to guess the reason why fairly early on. There has been no uplift in the rates or in the personal allowance. Just freezing these rates will automatically increase the tax take.
Sadly then there has been no action on the £50,000 threshold at which Child Benefit is abated or the £100,000 level at which the personal allowance starts to be abated.
The uplift in the threshold income and adjusted income for pension contribution purposes is welcome. I felt this was always going to be an inevitable announcement because of the problems in the NHS involving senior players being penalised as a consequence of their contributions into their pension pots, of which they had no control.
I thought Jeremy gave a spirited response in difficult circumstances, although it was largely pre-prepared.
Now it is down to Rishi to get it done.