As Britain grapples with the impact of Covid-19, it was unsurprising that this was the main focus of Rishi Sunak’s first Budget, with billions of pounds pledged to help individuals, the NHS and businesses deal with the crisis. Keen, however, to address the key global concern before the Corona Virus hit, the Budget was rich with fiscal measures to combat climate change. To counterbalance these reactive measures, the Chancellor used his speech to announce significant funding for the Technology Sector and investment in R&D, as well as measures to help small businesses.
As is often the case, most of the detail on tax was hidden in the small print. We highlight below the tax announcements and issues likely to be of most interest:
Corporate/business tax highlights
- Corporation Tax: rate to remain at 19% for tax years 2020/21 and 2021/22.
- Entrepreneurs’ Relief: has not been abolished, but has been significantly curtailed with effect from Budget Day, with the lifetime limit reducing from £10m to £1m.
- Capital Losses: as expected, from 1 April 2020 the proportion of annual capital gains that can be relieved by brought forward capital losses will be restricted to 50%, subject to an allowance for the unrestricted use of up to £5m of income or capital losses each year.
- R&D: alongside an announcement of an increase in public R&D investment to £22 billion per year by 2024-25, the R&D Expenditure Credit (also known as the ‘above the line credit’) will increase from 12% to 13% and a consultation is being launched on widening the definition of qualifying expenditure to include data and cloud computing. A delay on introducing a PAYE related cap on the repayable R&D tax credit for small and medium sized companies has also been announced, with no new restrictions coming in until at least April 2021.
- Intangible/IP Assets: rules that prevent some companies from claiming relief for the costs of acquiring IP rights existing before April 2002 will be relaxed from July 2020.
Real estate tax highlights
- SDLT: introduction of a 2% surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.
- Structures and Buildings Allowances: from April 2020 the annual rate of capital allowances available for qualifying investments to construct, renovate or convert non-residential structures and buildings will increase from 2% to 3%.
- Business rates: the business rates retail discount has been increased to 100% and expanded to include hospitality and leisure businesses for 2021. The launch of a fundamental review of business rates was also announced.
Employment taxation highlights
- National Insurance Contributions: the thresholds at which employees and the self-employed start paying National Insurance Contributions (NICs) will increase from £8,632 to £9,500 per year from April 2020.
- Off-payroll working/IR35 rules: it was confirmed that the reform, which shifts PAYE/NICs obligations from personal service companies (and other ‘intermediaries’) to end users/clients using the services of an individual who would otherwise be regarded as their employee, will be implemented on 6 April 2020.
- EMI Review: tax advantaged EMI options are an attractive way for small and medium businesses to remunerate employees. The Government will review the regime to examine whether more companies can access the scheme.
Other points of interest
- Digital Services Tax: the Government has not responded to pressure (from the US and others) to delay or abolish the introduction of the DST. The Budget confirms that the new 2% tax on the revenues certain digital businesses earn will apply from 1 April 2020, although commits to keeping the tax under review and to repeal the DST once an appropriate global solution to tax the digital economy is in place.
- Plastic packaging tax: subject to further consultation on the detail, a new Plastic Packaging Tax will be introduced from April 2022 to incentivise the use of recycled plastic in packaging. The Budget sets the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic.
- VAT on e-publications: a zero rate of VAT will apply to e-publications from 1 December 2020 (in place of the current 20% standard rate), to make it clear that e-books, e-newspapers, e-magazines and academic e-journals enjoy the same VAT treatment as their physical counterparts.