A first look at the Budget today 11 March 2020 – as always this is focused on the area that will effect our clients the most so, for example, the focus is on taxation rather than public spending and infrastructure. This is a first look – details tend to evolve over weeks and months.
Background – this was always going to be an interesting budget:
- The first budget / statement in a year
- The first budget since Brexit
- The first budget of the Johnson government
- The first budget of Chancellor Rishi Sunak
And then Covid-19 has thrown everything into disarray.
Macro Economic Context and Announcements
- The Office for Budget Responsibility (OBR) cut its 2020 growth forecast to 1.1% – the lowest since 2009 – it feels we are still fighting the banking crisis of 2008, and the combination of Covid-19 and Brexit are going to hold the UK back for several years yet. The budget report itself from HM Treasury says “In the near term, the outbreak of COVID-19 is expected to have a significant but temporary effect on the economic outlook. Productivity remains weak and is distributed unevenly across the country; and the transition to a net zero economy by 2050 will require radical changes in every sector.”
- Emergency Interest Rate cut from 0.75% to 0.25% – not strictly a budget issue, but within the same framework. Bit of a blow for savers, may give a little bit of business confidence however the interest rate has been very low in recent years anyway, and any business which couldn’t cover 0.75% was in a very risky position.
- Budget report from HM Treasury says: “Interest rates are expected to remain at very low levels for an extended period. This has prompted an international debate around the implications of this environment for fiscal sustainability and the role of fiscal policy. In this context, the Chancellor has announced that HM Treasury will conduct a review of the UK’s fiscal framework, to:
- ensure that it remains appropriate for the current macroeconomic environment
- support the ambitious new policy agenda of the government to invest in and level up every
part of the country
- keep the United Kingdom at the leading edge of international best practice in
“When the review is concluded, HM Treasury will lay before Parliament a new Charterfor Budget Responsibility; the Autumn 2016 Charter therefore remains in force at the current time.The Budget has been delivered within the fiscal rules set out above in paragraph 1.34. The Chancellor wrote to the OBR ahead of the Budget to ask it to assess the government against these rules, in addition to those set out in the Autumn 2016 Charter.”
Main Announcements for Businesses and Private Taxpayers
- NLW and NMW rises, and a target for NLW to reach 2/3 median earnings
- Covid-19 related Sick pay changes for individuals and small businesses – see analysis below
- Covid-19 Business rates changes for small businesses – see analysis
- Increase to NI starting threshold to £9,500 for 2020/21. Breaking this down
- Lower Earnings limit for employees £6,240 – this is where the 0% NI band starts (which protects benefits without a NI payment being due)
- Primary Threshold – where employees start paying NI £9,500
- Secondary Threshold – where employers NI cuts in £8,788
- Class 2 NI – starting figure now £6,475
- Class 4 Self Employed NI – starting figure £9,500
- Zero rate of VAT on e-publications including e-books, e-newspapers and e-magazines from 1 December 2020
- Improved help / guidance for the Self Employed applying for mortgages
- Improved help / guidance for the Self Employed navigating the tax system – presumably scrapping the noddy guidance on .gov.uk and doing the job properly.
- Expansion of various business support programmes, eg Start Up Loans
- Planned Corporation Tax rate cut to 18% for 2020-21 rescinded – will remain at 19%
- Entrepreneurs Relief – much speculation before the budget about this being changed – its been announced “the government will reduce the lifetime limit on gains eligible for relief to £1 million.”. Previosulyh it was £10m.
- Increase in Research & Development Expenditure Credit from 12% to 13% – but remember the eligibility for R&D relief is very tightly defined
- Potholes fund – “The government is announcing £500 million per year from 2020-21 to 2024-25 to help tackle potholes and to stop them from forming. As a result, the government will spend £1.5 billion in 2020-21 on filling in potholes and resurfacing roads.” (for our Isle of Wight clients, wasn’t that what we were paying Island Roads to do?)
- Flat Rate deduction for homeworking (employees, not self employed) increasing to £6/w from £4/w
- National Insurance holiday for employers of veterans in first year of civilian employment
- Pension tax changes
- Increase in the taper thresholds for pension contributions. This is in response to NHS Pension problems for doctors, but applies to all. The basic cap on contributions is £40k, but reduces for high earners. In assessing taper the thresholds for “adjusted income” and “threshold income” each increase by £90k to £200k and £240k respectively. Broadly this means the taper will not apply if your “adjusted income” is less than £240k – in most this will be your employment income plus value of any pension contributions made including employer contributions. The effect if this measure is to take the threshold for these provisions up from £150k to £240k and hence take many NHS Doctors out of the net.
- The minimum taper decreases from £10k to £4k so that very high earners don’t benefit from this relaxation
- The proposal to adjust senior doctors pay to account for this problem “will not be taken forward.”
- Lifetime Allowance rises to £1,073,100
- In general pension taxation still remains absurdly complex
- Increase in Employment Allowance from £3,000 to £4,000 – this is an exemption for employers against Employers NI
- Structures and Buildings Allowance capital allowances to increase from 2% to 3% – this covers new builds and renovations.
- Plastic Packing tax from April 2022 if packing contains less than 30% recycled material.
- Future of Making Tax Digital – “The government will publish an evaluation of the introduction of Making Tax Digital for VAT, along with related research.” – we were expecting an announcement about the introduction of MTD for Income Tax and Corporation Tax in April 2021 or 2022, but the Government seems in no hurry – maybe this is because of the weak economy and Covid-19 risks
- No deferral of Public Sector IR35 changes from April 2020
- VAT registration thresholds – no change – we had been expecting a possible reduction.
Announcements around Benefits and Welfare
- NLW and NMW rises, and a target for NLW to reach 2/3 median earnings
- Carers’ leave – “The government will shortly consult on the design of Carers’ Leave: a new in-work entitlement for employees with unpaid caring responsibilities, such as for a family member or dependants. This will support hardworking people to balance their caring responsibilities with work, particularly women who disproportionately undertake unpaid caring activities.”
- Personal Independence Payment reassessments – “The government will reduce the frequency of health assessments required for people receiving Personal Independence Payment (PIP). For those whose condition is unlikely to change, the Budget sets a minimum award review length of 18 months.”
- Universal Credit rollout – “The implementation schedule of Universal Credit has been updated to ensure its safe delivery. The government expects rollout to complete by September 2024.”
- Universal Credit: surplus earnings – “The Budget confirms funding for a delay to the reduction of the Universal Credit surplus earnings threshold, so that only large income spikes above £2,500 will be taken into account. The threshold will be reduced to £300 in April 2021.”
- Hospital car parking – “The government will scrap hospital car parking fees in England for those in greatest need, including patients with a disability and/or terminal illness and their families, patients with regular appointments, parents of sick children staying overnight and NHS staff working night shifts.”
Sick Pay Changes for Covid-19
Statutory Sick Pay for Employees
- (already announced) SSP will apply from first day of absence not the fourth day.
- SSP will apply to
- people with Covid-19
- people who have to self isolate
- people unable to work because they have been advised to self isolate (not sure how this differs from previous head)
- people caring for someone in their household with Covid-19
- Relaxed rules around fit notes from GPs – employers advised to use their discretion not to request them. They will also be issued by NHS 111
- Start date for these rules to be confirmed in a forthcoming Covid-19 bill, presumably in coming days given the urgency
SSP Reimbursement for Employers
- Employers with less than 250 staff will have SSP costs refunded from government up to 2 weeks per employee – at present employers cannot recover SSP at all
- Start date for these rules to be confirmed in the forthcoming Covid-19 bill
Self Employed and those Ineligible for SSP
- Employment and Support Allowance will be available to people with Covid-19/Self Isolating from day 1 rather than day 8. ESA is £73.10 a week and is dependant on NI contributions history, see https://www.gov.uk/guidance/new-style-employment-and-support-allowance-detailed-guide#overview It seems savings aren’t taken into account, but other income (notably pensions) may be.
- Can claim ESA without visiting job centre
- Universal Credit minimum income floor rules for Self Employed to be suspended for duration of Covid-19 outbreak
- Again, suspect linked to publication of COVID-19 Emergency Bill – https://www.gov.uk/government/news/government-outlines-further-plans-to-support-health-and-social-care-system-in-fight-against-covid-19
Business Rates Changes for Covid-19
- The “Business Rates Retail Discount scheme” is to be extended. Currently it applies to retail business premises with a rateable value of less than £51k, and offers a 50% discount (already increased a month or so ago from 1/3). The scheme changes as follows:
- It will now be a 100% discount
- It will be extended to businesses in the hospitality and leisure business sectors
- Financial services, offices, other services, manufacturing not included
- It seems the relief applies at premises level not business level, so chains and multi outlet businesses can still claim
- These changes are for 2020/21 only
- The effect of the above is to exempt premises in retail, hospitality and leisure with RV of less than £51k.
- There is to be a fundamental review of Business Rates to report Autumn 2020
Other Covid-19 Announcements
- Package of Covid-19 support to NHS and public services, including “£30 million of new funding to enable further rapid research into the disease.”
- Small Business Grant Funding – an announcement which reads “The government recognises that many small businesses pay little or no business rates because of Small Business Rate Relief (SBRR). To support those businesses, the government will provide £2.2 billion of funding for Local authorities in England. This will provide £3,000 to around 700,000 business currently eligible for SBRR or Rural Rate Relief, to help meet their ongoing business costs. For a property with a rateable value of £12,000, this is one quarter of their rateable value, or comparable to 3 months of rent. Most properties that are eligible for SBRR will have a lower rateable value, and so this will represent an even greater proportion of their annual rent.” More details awaited but it seems to be a £3,000 cash grant to eligible businesses who occupy premises with Rateable Value below £12k.
- HMRC Covid-19 Helpline to open to access time to pay arrangements and similar
- Summary of support being offered – https://www.gov.uk/government/publications/support-for-those-affected-by-covid-19/support-for-those-affected-by-covid-19