The Budget on 11 March 2020 is set to be one of the most significant in recent years, set against the backdrop of a new Chancellor appointed just a month ago, things finally moving forward with the formalities of Brexit and now the COVID-19 threat. There are many predictions and rumours in the public arena, so what is likely and what is less likely?
Our tax experts have pulled the key points together along with some thoughts of their own and condensed these into a short summary.
What do we already know?
Some changes from the new Financial Year starting in April have already been announced, so these are expected to be confirmed, although some of these may yet be changed further:
- Corporation Tax was originally due to drop from 19% to 17% from 1 April, but this drop has been cancelled. The rate change was already legislated and has not been amended yet, so there is always a chance that a rate drop could still be implemented, although we consider this unlikely.
- R&D Tax Relief for large companies is expected to increase from 12% to 13%.
- The National Insurance threshold for employees is going to rise to £9,500. This will save most individuals £104 per year. However the employer NI threshold will not rise by the same amount, and therefore the two thresholds will once again fall out of alignment. This could impact upon state pension qualifying years too.
- Off-payroll working (IR35) rule changes are going ahead from 6 April 2020. We expect some further clarifications and guidance, along with more reassurances of a “light touch” for penalties while the new system beds in. Despite the government repeatedly saying the changes “will not affect genuine freelancers”, we are seeing in practice that large companies are taking a blanket approach to mitigate their risk, meaning that genuine freelancers are being forced into employment or umbrella company scenarios with restricted employment rights. It is unclear how (and if) the government will react to this approach.
- The domestic reverse charge for VAT in the construction industry will commence from 1 October 2020, having already been deferred for a year. However there is a possibility that the scheme could in fact be widened to other business sectors.
- The Income Tax free personal allowance is expected to stay the same at £12,500 as announced last year.
What might we see?
- Entrepreneurs’ Relief has been under the spotlight recently, and before his resignation, Sajid Javid was expected to launch a review of this relief for business owners selling their businesses. It has been rumoured that Mr Sunak may go further and abolish the relief altogether, but we consider this unlikely – at least unless the government are simultaneously introducing a new, better targeted relief to replace it. Professional bodies have made strong representations against abolition of the relief.
- Structures and Buildings Allowance was introduced in October 2018 and provides relief for buildings or improvements to buildings from that date, subject to certain conditions. The relief is a modest 2% per annum giving tax relief over a 50 year period. It is believed that the government is considering increasing the rate of relief to 3%, although some are predicting it could be increased further.
- R&D Tax Relief for small and medium companies is likely to see some change, in particular to make sure that innovations in cloud computing can be rewarded under the scheme. However with the current Coronavirus threat, might we see a reintroduction of the “Vaccines Research Relief” variant which was abolished a few years ago?
- There are rumours of an increase to Stamp Duty Land Tax (SDLT) for overseas property buyers. This could take the form of a further 3% surcharge which could take the highest SDLT rate up to 21%.
- Inheritance Tax might see some reform – a cross party group of MPs has been campaigning for a major cut in the rate from 40% to 10%. There are also rumours that the treatment of lifetime gifts, which currently escape the tax if the donor survives seven years, might see some restrictions.
- Pensions tax relief will certainly feature in the Budget, but it is difficult to predict which way this will go. There are rumours that restrictions for those earning over £100,000 may be relaxed following a vigorous campaign from the medical profession. However there are also rumours that higher rate tax relief on pension contributions could be scrapped altogether, which would be a huge fundraiser for the Exchequer but is perhaps less likely.
- There is a rumour that the High Income Child Benefit Charge could be changed, perhaps by raising the Income Threshold or even to better relate to household income rather than just the income of the higher earner.
- Capital Gains Tax rates are an easy target for a tax rise, and we could even see a move towards realigning rates with Income Tax rates as they used to be. However such a change would need to work hand in hand with any Entrepreneurs’ Relief reforms.
We also expect more announcements about the timetable for rolling out Making Tax Digital (MTD) to other taxes, following the 2019 introduction for VAT. Professional bodies have called for a thorough review of how it has worked so far before a commitment is made to move to other taxes (Income Tax and Corporation Tax are due to be the next in line) but it remains to be seen whether the government will heed this call. A survey carried out by the tax professional bodies has revealed that MTD for VAT has not reduced the number of errors in VAT reporting (one of its key aims), and has increased the business cost of compliance beyond the government’s estimates.
Finally, we are expecting COVID-19 to feature heavily in the speech, although it is probably slightly too early for any measures to help companies through a potential downturn in trade and profitability at this stage. Any such changes would more likely be introduced in an Autumn Statement.
Stay tuned to the Randall & Payne Twitter feed from 12.30pm onwards on Budget Day to keep up-to-date as matters unfold. We will be summarising what is announced along with some insights the same day, and will be providing a more detailed analysis for the next issue of In Focus magazine – subscribe here to ensure you receive your copy.