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After many delays the budget has been delivered. Rather than the long awaited “Brexit Budget” it has been overshadowed by the Coronavirus emergency. The budget may have pulled some punches due to the current crisis, saving these for the next budget which is planned for Autumn this year.
The Chancellor effectively confirmed that there is now forecast to be a short-term slowdown in the economy lasting multiple quarters – therefore likely to be a short recession. While the budget has much to do with tax this economic forecast is probably the biggest planning point for all small businesses. We are working on a series of articles about how you can prepare your business to cope with the Coronavirus Crisis. Keep your eyes peeled over the coming days for these.
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In line with our mission statement of being the best all-round advisers to owner-managers we have waded through the Budget report to pick out the areas of importance to you and your business. There is always something lurking in the small print so stay tuned as over the coming weeks we continue to analyse this and we will keep you up to date with anything we find.
This felt like a budget where they had to cut out a few pages in a rush, due to the Coronavirus Crisis. The budget covered many things, we have tried to cut through the spin to find the key issues that may have a direct impact on you in this article on our website (click here to read more). We have pulled out the 4 biggest items that we think will affect the majority of our clients.
Income Tax Rates Unchanged
For the first time in years the personal allowance and tax bands remain unchanged. This means that although there are some tweaks to the way drawings and profits are taxed, there are no big changes. If your earnings are the same in 2020/21 as they are in the current tax year, you will largely pay the same level of tax. Usually we would expect a slight uplift in the rates so you get a mini tax break each year. This was not to be for the 2020/2021 tax year.
Entrepreneurs Relief
EFFECTIVE TODAY 11/03/2020: The lifetime limit for Entrepreneurs Relief of £10million is reduced to £1million. This means that business owners who have already claimed this relief in the past may have already used up their entitlement and if your business is worth more than a £1million then the tax rate you pay on selling will increase. There are transitional arrangements in place if you are already involved in a business sale negotiation. These changes are significant and will need to be considered in exit or retirement planning for many business owners.
Lending for Small Businesses
The Government have introduced temporary measures to help banks lend to small businesses struggling in the wake of the Coronavirus Crisis. To encourage lending the government will provide an 80% guarantee for lending to businesses hit by the crisis. Details are yet to emerge, but it looks like this could be a lifeline for those worst affected.
Business Rates A series of measures are being brought in to help support small businesses cope with the Coronavirus Crisis. These include reducing business rates to nil for some businesses and a £3,000 credit for business claiming the Small Business Rate Relief.
If you are a fan of data (like me) you can download our tax rates table for 2020/2021 here.
For more detail on all of the above as well as our recommended drawings structure for owners of limited companies please see our full article here.
There were a number of announcements concerning broader issues which are worth a mention. There were also a number of announcements expected but that were omitted that we think need to be considered for the future.
Pensions
There has been no change in the annual allowance for pension contributions, which remains capped at £40,000 per year, provided you earn enough relevant income. The ability to carry forward unused allowances from previous years also remains.
The big announcement here is that the higher income tax tapering has been relaxed. This will affect high earners. This change means that the £40,000 allowance is retained for earners up to £240,000 (previously £150,000).
The downside is that at the tapering can now bring the pension allowance down to £4,000 rather than £10,000 per year.
Inheritance Tax (IHT)
One of the hot topics due for review in this budget was Inheritance Tax. However, there was no mention of IHT in the budget speech or Budget Report. We suspect this was due for announcement but is one of the items pushed back due to Coronavirus.
This could be revisited in the Autumn 2020 budget, as there are a lot of groups calling for reform of what is a fairly complicated area of tax.
Stamp Duty Land Tax
No changes were announced that affect UK citizens, however overseas purchasers of UK property now face a flat 2% surcharge.
This may be an area that faces review over coming years.
Changes to Duties
Fuel duty was teased to be going up but has been frozen for this year, although it looks likely to increase again in 2021.
Duties on alcohol remains frozen.
Red Diesel is going to face increased restrictions with allowances remaining for agriculture and a number of specific industries only.
Packaging
It was announced that from 2022 taxes will be imposed on the production or import of plastic packaging that uses less than 30% recycled materials.
“This was a huge budget and it was great to see small businesses back on the agenda in a positive way.” Emma Jones, Enterprise Nation (small business network)
“This is a pro-small business Budget” with “emergency steps to support small firms through the coronavirus outbreak” Mike Cherry, National Chairman of Federation of Small Businesses
This was a “box-office Budget… Given the circumstances, the chancellor had to be bold, and he came through for business today. With the coronavirus outbreak threatening a cashflow crunch, measures to cut costs and support loans to businesses are on the money. Wider reliefs around business rates and job taxes will also buoy firms as they look to weather Covid-19’s implications.” Jonathon Geldart, Director General of the Institute of Directors