Update: Please note that this article was written prior to the announcement of several additional emergency measures drawn up by the Government to support businesses through the coronavirus pandemic.
The 2020 Budget has been announced, setting the Government’s tax and spending policies for the next financial year.
Measures for dealing with the outbreak of coronavirus across the UK dominated much of Rishi Sunak’s first speech as the new Chancellor. He unveiled a £30 billion stimulus package to help the economy to cope with the impact of COVID-19.
The Chancellor also suspended business rates in 2020-21 for tens of thousands of companies in England, increased the National Insurance threshold for low-paid workers, and maintained the freeze on fuel duty for a tenth consecutive year.
For a more detailed look at this year’s Budget, carry on reading or click a topic from the list below.
Coronavirus
The rapid outbreak of coronavirus across the world in the last couple of weeks has brought the economy to a standstill. On Thursday, the stock market in the UK recorded its worst day since the infamous Black Monday crash in 1987.
Mr Sunak admitted during his statement to the House of Commons that the coming period is “going to be tough” as the economy absorbs the shock. The Office for Budget Responsibility has warned the coronavirus crisis could cause a recession in 2020.
The Chancellor announced a stimulus package of £12 billion to be specifically invested in protecting businesses, the NHS and the welfare system from COVID-19.
Firms will be able to apply for a temporary coronavirus business interruption loan from the British Business Bank. The Government will give lenders an 80% guarantee on each loan to encourage them to provide finance to virus-hit SMEs.
Statutory sick pay (SSP) will now be available from the first day of self-isolation. The Government will pay the cost of 14 days of SSP for businesses with fewer than 250 employees.
On the morning of the Budget, the Bank of England also announced an immediate cut in interest rates from 0.75% to 0.25%. This measure is designed to reduce the cost of borrowing and encourage banks to lend to struggling companies.
Business taxes
Business rates for many small businesses have been suspended for the 2020-21 financial year.
Nearly half of all business properties in England will be exempted from rates for the upcoming year. Businesses with a rateable value of less than £51,000 will pay nothing.
This £1 billion tax cut has also been extended to tens of thousands of other businesses in the leisure and hospitality industries, in order to reduce the impact of coronavirus on trading.
Businesses with a rateable value of below £15,000 – who qualify for the Small Business Rate Relief scheme – will instead receive a £3,000 cash grant.
While these changes will only benefit smaller firms, the Chancellor also confirmed the business rates system would be under a fundamental review, planned to conclude in the autumn.
Despite recent rumours that it would be scrapped completely, Mr Sunak has decided to keep Entrepreneur’s Relief, although it will now be calculated at a significantly reduced rate.
As we predicted in February, the Chancellor has cut the life-time cap on Entrepreneur’s Relief from £10 million to £1 million. This relief is available on capital gains tax when selling a qualifying business. It had been criticised for being overly generous to wealthy business owners.
The Employment Allowance will rise from a maximum of £3,000 per year to £4,000 per year, starting from April 2020. This will save eligible businesses and charities an extra £1,000 on their secondary Class 1 National Insurance contributions.
The Structures & Buildings Allowance will be increased from 2% to 3%. This tax relief on corporation tax and income tax is designed to support investment in new infrastructure.
Personal taxes
The Chancellor has confirmed a cut in National Insurance for basic-rate payers. The NI threshold will increase from £8,632 to £9,500 in April 2020.
Mr Sunak said this change will save £104 per year for around 31 million people. Self-employed workers who pay the lower rate of NI will save about £78 per year.
We had expected the Chancellor to slash pension tax relief in this Budget, but higher earners have been spared from a reduction in the rate of relief, which is currently at 40% for those who earn more than £50,000 per year.
The annual pension allowance will increase from £110,000 to £200,000. This effectively removes the controversial pension taper that had caused many senior doctors to refuse to work over-time or retire early to avoid losing money.
The Chancellor has also frozen fuel duty for the tenth consecutive year.
Other announcements
We had been waiting for clarity on IR35 for several months and now we have it. The IR35 rules will be expanded into the private sector on 6 April 2020, as planned. Contractors should check our guide on how to prepare.
The Chancellor announced a new plastic packaging tax. Plastic packaging which doesn’t contain at least 30% of recycled plastic will be taxed at £200 per tonne when imported or manufactured in the UK.
Businesses that import or manufacture less than 10 tonnes of packaging per year will be exempt from this charge, which will be introduced in 2022.
The Government is also providing extra funds for HMRC to improve compliance, enforcement and technology. These measures are expected to raise £4.4 billion in additional tax revenue.
HMRC’s efficiency has considerably improved in recent years. They collected £16 for every £1 spent on investigating individuals and small businesses in 2018-19.
Since smaller firms are more vulnerable to these potentially costly investigations, this makes it even more important to compile accurate records and tax returns.
How Appleby Mall can help
These are uncertain times for business. Coronavirus is likely to cause a recession in the UK and it’s vital that your business is well-prepared for any potential economic shock.
We’re proactive accountants and business advisors with decades of experience. If you’d like to discuss any of these Budget measures with us, or you’re worried about how your business will fare as the UK struggles with COVID-19, please get in touch.
