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What are going to be the headline policy changes in the post-Brexit Budget?

What can we expect from Rishi Sunak’s first Budget?

What are going to be the headline policy changes in the post-Brexit Budget?

The Conservative Government delivered on their promise to ‘get Brexit done’ with the UK leaving the EU on 31 January 2020. Although there is still significant uncertainty surrounding what kind of trade deal Boris Johnson will be able to negotiate with the European Union, we can now turn our attention to the first post-Brexit Budget.

On 11 March 2020, Rishi Sunak the new Chancellor will outline his first Budget and we expect there to be several key tax changes which could impact our clients. A headline that has recently dominated media coverage is discussion of a reduction to the relief available to higher rate and additional rate taxpayers when contributing to their pensions. There have also been rumours of changes to Entrepreneurs’ Relief as set out in the Conservative Party manifesto.

What tax policy changes can we expect? How will these changes fit into your Bigger Picture?

Entrepreneurs’ Relief

Considerable pre-Budget discussion has centred around proposed changes to Entrepreneurs’ Relief (ER). Included in the 2019 Conservative Party Manifesto was a pledge to “review and reform” ER, however the backing to this statement was light on detail. 

The expectations among experts range from no changes to be made, all the way through to a complete abolition of the relief. Whilst we do not expect the relief to disappear entirely, it is likely that the conditions required to qualify for the relief will tighten, or the amount of the relief available to Entrepreneurs will reduce from the current lifetime limit of £10m of gains.

It is possible that changes could take effect from Budget day, or from 6 April 2020 being the first day of the new tax year.

Please get in touch with your usual Creaseys contact if you would like to discuss how the possible changes could impact you.

Research & Development

We live in an increasingly technological focused world, and the Government has pledged to expand on the Research & Development (R&D) tax credits that are available to businesses. This is in line with the Government goal to see UK spending on R&D expand to 2.4% of GDP by 2027. The Government has pledged to increase the tax credit rate to 13% and to review the definition of R&D.

There is a common misconception around R&D that only companies investing in scientific fields would qualify for the Corporation Tax relief. We have seen many success stories with our clients in recent years, who did not initially think their expenditure would qualify for R&D reliefs.

Part of the background to the reform is based on the Government’s desire to target investments in cloud computing and data, which boost productivity and innovation. We expect that on 11 March 2020 a definition will be provided so that more companies are incentivised to both invest in R&D and apply for the tax relief available. 

While the benefits associated with R&D are expected to expand, the 2018 Budget proposed a limitation of three times a company’s PAYE and NI liability for the year in question. This is currently due to come into effect on 1 April 2020 but it will be interesting to see if the Government goes ahead with this change. 

Please get in touch with your usual Creaseys contact if you would like to discuss the potential for tax relief on a R&D project that is in development or you are planning.

Income Tax, VAT, National Insurance, IHT & Corporation Tax

As previously stated, the Government has insisted it will not increase income tax, VAT or National Insurance rates. In the Conservative manifesto, plans were outlined to go further and raise the National Insurance threshold to £9,500. Although income tax rates may not increase, the Government could increase its tax revenues by reducing relief for pension contributions for higher rate and additional tax rate taxpayers. Any changes made are likely to take effect from 6 April so may give an opportunity to maximise contributions before the change.

There is often debate about how the Inheritance Tax (IHT) system should be reformed to reduce its complexities and the technical difficulties that the taxpayer may face, as well as to make the tax more equitable for all. The Office of Tax Simplification suggested removal of certain reliefs such as Taper Relief, as well as aligning the IHT treatment of things such as business property relief and furnished holiday lets to the capital gains and income tax treatment.

It is also worth mentioning that the planned reduction of corporation tax from 19% to 17% was put on hold by Boris Johnson as part of his election campaign, in order to help fund “national priorities”. Although the change in intention would have been disappointing to many companies, the UK still boasts one of the lowest corporation tax rates in the whole of Europe.

The above represents our initial thoughts on potential Budget changes and there may be other measures introduced which will impact our clients. If you would like to discuss your tax position from either a personal or corporate viewpoint, please do not hesitate to contact your usual Creaseys contact.

We will be eagerly waiting for Rishi Sunak’s policy proposals on 11 March 2020 and will be releasing a post-Budget summary of the key changes shortly afterwards. If you would like to discuss the Budget and its impact on your Big Picture, please send us an email or give us a call. We will of course be providing analysis after the Budget on the implications for entrepreneurs’ and their businesses.