Budget 2020 Business tax summary
The Coronavirus Budget
As widely predicted, the COVID-19 outbreak led proceedings in Parliament and clouded the economic outlook. The Chancellor introduced a range of measures to soften the economic impact, amounting to a total of £30bn in extra spending: £12bn in direct support to businesses and £18bn in additional government spending to counteract the temporary downturn in the economy.
The specific coronavirus Budget measures include:
- – Extended statutory sick pay entitlement from day one (previously announced), to be refunded in full by the government. “That could provide over £2bn for up to 2m businesses,” the Chancellor said.
- – Extended time to pay arrangements allowing businesses and the self employed to defer tax payments.
- – A £500m hardship fund for local authorities to distribute to vulnerable people in their areas.
- – Coronavirus business interruption loan scheme, offering an extra £1bn in overdrafts and short-term loans through the British Business Bank.
Business rates holiday
The Chancellor brushed up his business-friendly credentials by announcing a 100% business rates discount for 12 months starting from 1 April 2020. The holiday would be extended to any eligible retail, leisure or hospitality business with a rateable value below £51,000.
The £1,500 business rates discount for office space used by local newspapers in England will also be extended for five more years until 31 March 2025 and the government promised to bring forward legislation to provide 100% business rates relief for public lavatories in England from April 2020.
Local authorities will be fully compensated for the loss of income as a result of these temporary business rates measures, but the long awaited “fundamental review of business rates” will now get underway and report in the autumn.
Among the many Tory manifesto commitments to get a name check during the Budget speech was entrepreneurs’ relief. In AccountingWEB’s live Budget blog, PracticeWeb contributor Carl Powell predicted: “They’re going to do something, but it will probably be a fudge.”
And so it came to pass. The long-trailed crackdown took the form of a reduction in the £10m lifetime limit on eligible gains to £1m, effective immediately. The move would leave 80% of small businesses unaffected by the changes and save £6bn over the next five years, the Chancellor said.
Few surprises here, with the standard rate of corporation tax held at 19% for the financial years commencing 1 April 2020 and 2021, as already announced. There will be new restrictions in place from 1 April 2020 on how much chargeable gains companies can offset against brought forward capital losses. From that date only 50% of net chargeable gains may be sheltered , subject to the allocation of a company’s (or group’s) £5m annual ‘deductions allowance’.
The Research and Development Expenditure credit will be increased from 12 to 13% – a tax cut worth £2,400 on a typical R&D claim. There have been calls for tighter controls on what has become a popular concession, but the Chancellor signalled a more relaxed short-term approach, delaying a cap SME relief for a year and promising further consultation. The discussions will include whether or not data and cloud computing initiatives will be eligible for R&D relief claims.
The structures and buildings allowance will be increased from 2 to 3%, giving an extra £100,000 of relief if you’re investing in a building worth £10m.
For companies operating in enterprise zones, 100% enhanced capital allowances (ECAs) on plant and machinery expenditure will be extended until at least 31 March 2021. The allowances were due to lapse on 31 March 2020, but will now survive for at least one further year.
- – As advertised, the Employment Allowance would be increased by a third to £4,000. From 6 April 2020, businesses and charities will be able to claim the increased reduction on their employer secondary class 1 NICs. For around 65,000 businesses, the reduction would reduce their NIC bills to zero, making it easier for them to take on staff without incurring additional NIC liabilities, HMRC said.
- – The government will go ahead with the controversial Digital Services Tax (DST) from 1 April 2020. The DST will apply to businesses providing social media services, search engines or online marketplaces to UK customers, where the group derives revenues from these activities of £500m or more on a worldwide basis, and £25m or more of which is derived from UK users. By doing so, the government is effectively taking on US tech giants such as Facebook, Google and Amazon, which have all been criticised for the low rates of corporation they have paid.
- – The Chancellor played up his climate action plans in the Budget speech,but undermined his green credentials somewhat by freezing fuel duty rates and measures. In a counter measure, the Red Diesel scheme offering cut-price fuel to certain businesses has been restricted and will now only apply to agricultural businesses. A new levy on plastic waste will be applied from April 2022, when manufacturers and importers will be charged £200 per tonne on packing made of less than 30% recycled plastic. The measure is expected to increase the use of recycled plastic in packaging by 40%.