Reflections on the 2020 Budget
by Ian Kelly, Tax Partner, March 2020
Well, his first Budget is over and Rishi Sunak spent an awful amount of time talking about ‘getting it done’.
After only 27 days in his new job as Chancellor of the Exchequer, Mr Sunak had to wrestle with a United Kingdom and its economy that, in a short space of time, has had to contend with the Hammond/May ending of austerity, a General Election; Brexit and latterly the Coronavirus (COVID-19)
He could, on the day, only have been buoyed by the Bank of England’s announcement on the morning of the Budget of a 0.5% reduction in its base rate.
In what can only be considered a period of transition for the country, Mr Sunak was tasked with shoring up public confidence and their spending power; business confidence and a troubled financial market.
As always with Budgets, the devil is in the detail but Mr Sunak’s first Budget is designed to get the UK moving forward with improvements to its infrastructure.
So how did he fare?
The Office for Budget Reform (OBR) had downgraded its growth forecast from 1.4% to 1.1% even before the outbreak of COVID-19 meaning that we had already been heading for a slowing economy.
Inflation was forecast to be 1.4% this year, rising to 1.8% in 2021/22 before levelling off.
Mr Sunak spent the first few minutes of his speech announcing the payment of Statutory Sick Pay (SSP) from the first day of sickness absence rather than on day four; a relaxation of the fit for work note; more support for those ineligible for SSP and for small and medium-sized businesses (SME’s) with SSP for firms with fewer than 250 employees will have their SSP refunded in full for two weeks.
The Business Rates Relief retail discount would be increased from the planned 50% to 100% for 2020/21 and would be extended to the leisure and hospitality sectors.
HM Revenue and Customs (HMRC) will have additional staff allocated to help those businesses having payment difficulties structure a time to pay arrangement.
The first target of increased spending was the NHS with investment in increased staffing and the building of, he was keen to stress, 40 new hospitals.
The local transport infrastructure would see ‘unprecedented’ investment in road, including a pothole fund, rail and tram schemes.
The increase in the National Insurance thresholds will see employees saving £104 and a self-employed individual £78 in 2020/21.
There was good news on the duties and VAT fronts with a zero rate being applied to e-publications to match their paper counterparts from 1 December 2020 and from 1 January 2021 to women’s sanitary products, the abolition of the so-called ‘tampon tax’ and fuel and drink duties were frozen.
For businesses there was good news in the shape of the retention of the 19% Corporation Tax Rate and increases in the Structural and Buildings Allowance percentage from 2% to 3% and the Research and Development percentage from 12% to 13% plus a rise in the Employment Allowance from £3,000 to £4,000 from April 2020.
Hidden away in the small print were an increase in the maximum tax deduction for homeworkers from £4 to £6 per week and confirmation that the off-payroll working rules (IR35) would still be implemented from April 2020.
There was some fine tuning to pensions tax including the pensions annual allowance reducing for those earning over £300,000pa from £10,000 to £4,000 but there was no change to the obtaining of higher rate tax relief on pension contributions which had been rumoured to be in danger of being abolished.
One of the main business-related announcements was the reduction from Budget Day of the lifetime Entrepreneurs’ Relief allowance limit for the charging of Capital Gains on qualifying business disposals from £10M to £1M although the rate of tax remains at 10%.
Mr Sunak confirmed that the VAT domestic reverse charge mechanism would be delayed until 1 October 2020 and that there would be an evaluation of Making Tax Digital for VAT as part of the overall future of Making Tax Digital.
There was also mention that the government will legislate in the Finance Bill 2020 to ensure that Limited Liability Partnerships should be treated as general partnerships under income-tax rules.
What does the Budget mean for us locally?
Well, the spending on road and rail infrastructures will include, at the very least, work on the A1, A19 and A66 and Darlington Station that can only, hopefully, improve our travel experience.
The business rates initiative should also benefit the region as will the increase in the Affordable Homes Programme.
The National Insurance Saving, whilst not a huge amount, is a plus but the freezing of the personal tax allowances, tax rates and tax bands means that there will be no reduction in tax paid.
The off-payroll (IR35) changes have been in the offing for some time now and so do not come a surprise but the sting in the tail for those affected might only come when those affected receive their first payment under deduction of basic rate tax.