What is the impact for you and your business?
As expected, Coronavirus measures dominated the Chancellor’s statement as the economy is expected to be adversely impacted in the coming weeks and months. Policies were announced to reduce the short-term burden on employers which included:
- The Government undertaking to pay Statutory Sick Pay for employers with less than 250 employees for up to two weeks per employee.
- The Government guaranteeing 80% of the value of loans up to £1.2m made by banks to small and medium sized businesses requiring support as a result of being impacted. One-off grants of £3,000 will be made to around 700,000 businesses currently eligible for small business rate relief.
- Extension of business rates retail discount to 100% for a year. It is estimated that around 45% of commercial properties in England will receive 100% business rates relief in 2020/21.
- Public Houses will benefit from further cuts in rates, as well as a freeze on alcohol duties. Both measures should help protect businesses which are so important to local communities.
We have outlined below the key tax measures which impact individuals and their businesses.
Measures were announced which affect all higher earners making pension contributions. There will be an increase of £90,000 in the thresholds at which tax relief for pension contributions are restricted. This will benefit those with ‘adjusted income’ (earnings and pension contributions of more than £150,000) and the tapering of the pensions allowance from 6 April 2020 will only affect those with adjusted income of over £240,000. However, there is a sting in the tail for those earning more than £300,000, with the minimum level to which the annual allowance can be tapered moving from £10,000 to £4,000.
This will further limit the tax advantages of pension arrangements for some, which is likely to lead to many considering alternative ways to save for retirement.
On the plus side, the lifetime allowance has increased as expected by the rate of the inflation. This now stands at £1,073,100.
The Chancellor stated that a review of Entrepreneurs’ Relief showed it to be expensive and an ineffective incentive to encourage business start-ups. However, despite calls to abolish the relief completely, he has chosen to reform it.
With effect from 11 March 2020, the lifetime limit on gains eligible for Entrepreneurs’ Relief at a tax rate of 10% will be reduced from £10m to £1m, effectively reverting to the initial cap set when the allowance was first introduced 12 years ago.
While business owners and investors will be pleased that there was not a total abolishment of the relief, it could potentially cost some entrepreneurs up to £900,000 in additional capital gains tax on disposal of their businesses. In some circumstances, it may still be possible to structure shareholdings of family owned companies to maximise the benefit of the relief. It will also still be a valuable relief for management holding options under the Enterprise Management Incentive Scheme.
Notably, no other reforms to the relief were made and it is considered by the Government that 80% of small business owners will be unaffected by this reform. If you wish to discuss the potential impact of these changes on your future exit plans, please contact us.
Research and Development
The Government confirmed that the implementation of the “Three Factor Cap” which was designed to cap R&D credits to three times the PAYE and National Insurance expenses of a small or medium sized company and due to come into effect in April 2020 has been delayed until April 2021. This is a significant boost for innovative small and medium sized businesses.
It was also announced that the tax credit available to larger companies is to increase from 12% to 13% to drive innovation in the economy.
Other notable changes
Stamp Duty Land Tax has again been tinkered with, as non-resident individuals and corporates will pay an additional 2% rate on residential property purchases from April 2021.
ISA limits have remained constant for adults, but the amounts families can contribute to each of their child’s Junior ISAs and Child Trust Funds has increased from £4,368 to £9,000 per tax year.
The Government has also continued with its commitment to putting more money in the pockets of low paid workers with a further 6.2% increase in the National Living Wage (“NLW”). The NLW is targeted to rise to two thirds of median earnings for workers aged 21 and over by 2024.
The National Insurance threshold has been raised from £8,632 to £9,500 from April 2020, giving around £100 benefit to around 30m taxpayers. The personal allowance is also being increased to £12,500, although that had been announced previously.
While the Conservative manifesto promised not to raise the rates of Income Tax, VAT and National Insurance, this did leave CGT, IHT and Pension Tax Relief on the table. To the surprise of many, there have been no significant changes to these areas (aside from Entrepreneurs’ Relief), but these could be looked at in the Autumn Budget.
We will continue to keep you appraised of tax policy changes, and we would be very happy to talk through any of the announcements this week and how they might affect your big picture plans. Please call us on 01892 546546.