Last month was newly appointed Chancellor of the Exchequer, Rishi Sunak’s first Budget and the first UK Budget in over 16 months.

It came just weeks after the UK’s departure from the EU amidst the deepening COVID-19 crisis, with many seeing the Budget as an opportunity to vaccinate the UK economy. The Chancellor took several steps in that direction in the days and weeks following the Budget. An extra £210 million was promised for Northern Ireland’s budget.

In last month’s UK feature article, Malachy McLernon, Tax Director at PKF FPM, penned a letter to the Chancellor setting out his wishlist for Budget Day. Many of Malachy’s desired changed were subsequently announced on 11 March.

VAT postponed accounting

Prior to the Budget, the Government intended to introduce postponed accounting for VAT from 1 January 2021 only if the EU transition period ended in a no-trade deal scenario.

On Budget day, the Budget announcements extend the availability of postponed accounting for import VAT to post-transition period trading arrangements, in whatever form these may take. This is a positive move, and one Chartered Accountants Ireland has called for.

This means that from 1 January 2021, VAT will not be immediately due at the point of import when buying from outside the UK, including the EU. It will instead be payable on the trader’s next VAT return, when they will also be able to simultaneously claim relief for the VAT paid in most cases. According to the Budget publications, this measure is expected to cost the Exchequer just over £3.5 billion in 2020/21.

Business tax measures

The Chancellor made a number of announcements in this area, most of which were signposted in advance of Budget day. It was also confirmed that the UK’s digital services tax is proceeding as planned from 1 April 2020.

Meeting the Conservative Party’s manifesto promise not to reduce the rate of corporation tax to 17% from 1 April 2020, instead the rate will stay at 19% from that date. The 17% rate has already been enacted in legislation via the Finance Act 2016, and therefore an amendment is included in the Finance Bill.

The annual rate of capital allowances available for qualifying investments to construct new, or renovate old, non-residential structures and buildings (known as the Structures & Buildings Allowance (SBA)) will increase from 2% to 3%. The change will take effect from 1 April 2020 for corporation tax and 6 April 2020 for income tax. The SBA was introduced in Budget 2018.

The Government will also increase the Employment Allowance from £3,000 to £4,000 from April 2020. The Employment Allowance can be used against the National Insurance Contribution (NIC) bill of a business but only where, from April 2020, the total employer’s NIC liability in the previous tax year was under £100,000.

Legislation is also included in Finance Bill 2020 to remove the pre-2002 exclusion from the Intangible Fixed Assets regime for investments in intellectual property and other intangible assets. According to the publications, this means that tax relief for the cost of acquiring corporate intangible assets on or after 1 July 2020 will be provided under a single regime, subject to restrictions to prevent tax avoidance. A policy paper has been published, setting out this measure in more detail.

And finally, the rate of the taxable Research & Development (R&D) expenditure credit for companies claiming under the “large” R&D tax relief regime will increase from 12% to 13% from 1 April 2020. As the corporation tax rate will stay at 19% from this date, the net tax saved from every £1 of qualifying R&D under this scheme will now be 10.53 pence.

Capital gains tax entrepreneurs’ relief lifetime limit

Entrepreneurs’ relief (ER) was first introduced in April 2008 after the abolition of taper relief and provides a 10% rate of capital gains on qualifying business disposals. In recent years, the relief has been tweaked and its conditions amended. Most recently, Budget 2018 extended the ownership period of qualifying ER assets from one year to two years.

In the Budget, the Chancellor had two options: to either further curtail the relief, or abolish it altogether. The Chancellor chose to curtail and since 11 March 2020, the lifetime limit on gains eligible for the relief is £1 million (reduced from £10 million). ER will also be known as Business Asset Disposal Relief, going forward.

The Chancellor also included several anti-forestalling clauses in the draft legislation, which are designed to prevent taxpayers locking in access to the previous £10 million lifetime limit for contracts entered pre-11 March 2020 but not yet completed. A specific anti-avoidance rule has also been introduced for certain share-for-share exchanges that occurred after 6 April 2019, but before 11 March 2020. More detail on this is available in the relevant policy paper.

Personal tax measures

Changes were expected to the pensions annual allowance limit. This is the maximum amount of tax-relieved pension savings that can be made in a year. Prior to 2019/20, the annual allowance for additional rate taxpayers tapered down from £40,000 to a minimum of £10,000 by £1 for every £2 of income in excess of £150,000.

The Budget announced that the two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020/21 the “threshold income” will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000.

The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020 onwards. This reduction will only affect individuals with total income (including pension accrual) over £300,000. Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward.

The lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with inflation to £1,073,100 from 6 April 2020.

The Chancellor also confirmed the Government’s commitment to increase the thresholds at which employees and the self-employed start paying NIC from £8,632 to £9,500 from April 2020. This is the first step in meeting the Government’s ambition to increase these thresholds to £12,500 as set out in the Conservative Party manifesto.

In addition, the maximum flat rate income tax deduction available to employees to cover additional household expenses will increase from £4 per week to £6 per week where they work at home under home-working arrangements. This will take effect from April 2020.

And finally, the band of savings income that is subject to the 0% starting tax rate will remain.

HMRC’s standing in insolvency

As announced in Budget 2018, the Government will change the rules to make HMRC a secondary preferential creditor for certain tax debts. However, the Budget delayed the commencement date of this measure from 6 April 2020 to 1 December 2020. It also extends this measure to include Northern Ireland.

This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers (VAT, PAYE, income tax, employee NICs and CIS deductions). The rules for taxes owed by businesses themselves, such as corporation tax and employer NICs, remain unchanged. This legislation is introduced in Finance Bill 2020.

Stamp duty land tax (SDLT)

Three stamp tax announcements were made on Budget day.

From 1 April 2021, the Government will introduce a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland. The original consultation in this area proposed a 1% surcharge.

The Government will also introduce a relief for qualifying housing co-operatives from the Annual Tax on Enveloped Dwellings (ATED) Regime and the 15% flat rates of SDLT on purchases of UK residential properties over £500,000. The SDLT relief in England and Northern Ireland will take effect from the date of the 2020 Autumn Budget and the UK-wide ATED relief will apply from 1 April 2021 (with a refund available for 2020/21).

In Finance Act 2018/19, the Government introduced a targeted market value rule to prevent reduction of the tax due on share acquisitions when listed shares are transferred to a connected company. This rule is being extended to unlisted shares in Finance Bill 2020. As part of this change, the relevant legislation will also be amended to prevent a double tax charge arising on certain company reorganisations.

Avoidance, evasion etc.

As has become traditional, the Budget announced a set of targeted anti-avoidance and evasion measures. The Budget 2020 measures are specifically targeted at the construction industry, tobacco, certain big businesses and promoters of tax avoidance schemes. The Government is aiming to raise an additional £4.7 billion overall between now and 2024/25 through these measures.

The Government will also legislate in Finance Bill 2020/21 to make the renewal of licenses to drive taxis and private hire vehicles (PHVs, e.g. minicabs), operate PHV firms, and deal in scrap metal conditional on applicants completing checks that confirm they are appropriately registered for tax. These changes will take effect in England and Wales in April 2022. The Government is considering extending this reform to Scotland and Northern Ireland in the future and will work with the devolved administrations to this effect.

A discussion document will be published in spring 2020 seeking views on the wider application of tax conditionality. Tax conditionality refers to a principle whereby businesses are granted access to Government awards and authorisations (such as approvals, licenses and grants) only if they are able to demonstrate good tax compliance.

The Government is also planning to invest in additional compliance officers and new technology for HMRC. This investment is aiming to bring in £4.4 billion of additional tax revenue up to 2024/25 by enabling HMRC to further reduce the tax gap “through additional compliance activity and expanding debt collection capabilities”.

Administration and miscellaneous tidbits

Additional funding for HMRC and a new notification process for large businesses feature in this category.

• 100% first year capital allowance for investments within Enterprise Zones will now remain available until at least 31 March 2021, a year longer than originally planned;
• From April 2021, “large” businesses will be required to notify HMRC when they take a tax position which HMRC is likely to challenge. It is intended that this policy will draw on international accounting standards, which many large businesses already follow. The Government is currently consulting on the detail of the notification process;
• The Government will legislate prospectively and retrospectively in Finance Bill 2020 to put beyond doubt that LLPs should be treated as general partnerships under income tax rules. This will mean that HMRC can continue to amend LLP members’ tax returns where the LLP operates without a view to profit;
• As announced in October 2019, legislation is included in Finance Bill 2020 to confirm that HMRC may use automated processes to issue taxpayers with notices to file tax returns and penalty notices;
• A summary of responses to the 2019 call for evidence on the operation of Insurance Premium Tax (IPT) will be published accompanied by information on a forthcoming consultation setting out the next stage in reforming how IPT operates;
• An additional £12.5 million will be invested in HMRC in 2020/21 to begin work immediately on the implementation of “breathing space”. This is designed to allow those in problem debt to access a 60-day breathing space, including for debts to HMRC, while they engage with debt advice and work towards a sustainable debt solution;
• HMRC will launch new interactive guidance in summer 2020, which will make it easier for self-employed taxpayers to navigate the tax system;
• Finance Bill 2020 restricts the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%. This measure includes an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year. Certain companies in liquidation will be excluded from the scope of the restriction;
• A review of the enterprise management incentive scheme will be undertaken to ensure it provides support for highgrowth companies to recruit and retain the best talent so they can scale-up effectively. This will also examine if more companies should be able to access the scheme;
• In the area of R&D tax relief, a consultation will be launched on whether expenditure on data and cloud computing should qualify for relief. Following consultation last year, the introduction of the PAYE cap on the payable tax credit in the SME R&D scheme is being delayed until 1 April 2021. Further consultation is also being undertaken to ensure it targets abusive behaviour as intended, while ensuring that eligible businesses can still access the relief;
• The Government will undertake a review of the UK’s funds regime during 2020. This will cover direct and indirect tax, as well as relevant areas of regulation, with a view to considering the case for policy changes. The review will begin with a consultation on whether there are targeted and merited tax changes that could help make the UK a more attractive location for companies used by funds to hold assets. It will also consider the VAT treatment of fund management fees and other aspects of the UK’s funds regime;
• A consultation has been opened to ensure that where tax legislation makes reference to LIBOR, it continues to operate effectively. The consultation is also designed to ensure that the Government is aware of all the significant tax issues that arise from the reform of LIBOR and other benchmarks;
• A consultation has been published on the corporation tax rules that apply to hybrid mismatch arrangements that seek to exploit the differences in tax treatment between two jurisdictions;
• Following a recent First–Tier Tribunal case, the Government will legislate in Finance Bill 2020 to put beyond doubt the calculation of top slicing relief by specifying how allowances and reliefs can be set against life insurance policy gains. This measure will apply to all relevant gains occurring on or after 11 March 2020; and
• The Government will shortly publish a call for evidence on pensions tax relief administration.

VAT

In an unexpected move, the Government will introduce legislation to apply a zero rate of VAT to e-publications from 1 December 2020.

This follows on from the recent Tribunal decision in News Corp UK & Ireland Limited v HMRC [2019]. The Upper Tribunal in that case found that electronic editions of newspapers should be treated in the same way as printed newspapers for VAT, and zero-rated.

Several other measures were announced for VAT:

• The Government has confirmed that the current VAT threshold of £85,000 will remain unchanged for 2021/22;
• Following informal consultation in 2019, the Government will introduce new entry and exit rules for the Agricultural Flat Rate Scheme;
• From 1 January 2021, legislation will implement a zero rate of VAT on women’s sanitary products;
• A consultation to gather views on the potential approach to duty-free and tax-free goods policy after the end of the EU transition period is currently open and will run to 20 May 2020;
• Legislation will be introduced to clarify when fund management services are exempt from VAT;
• An industry working group will be set up to review how financial services are treated for VAT purposes;
• The Government will introduce legislation to introduce simplified rules for the VAT treatment of intra-EU movements of call-off stock, allowing businesses to delay accounting for the relevant VAT until the goods are called-off. Call-off stock is the description given to the transfer of goods (by a VAT-registered business) from one EU member state to another to create a stock of goods from which their customer can ‘call-off’ (i.e. use and pay for the goods) as and when they require them;
• Following the recent call for evidence on the simplification of the VAT rules on Partial Exemption and the Capital Goods Scheme, the Government will continue to engage with stakeholders in relation to their responses and will publish a response in due course; and
• As announced in September 2019, the implementation of the VAT domestic reverse charge for building and construction services will go ahead as planned from its delayed commencement date of 1 October 2020.

Energy and environmental measures

Not surprisingly, the Budget confirmed that the plastic packaging tax will commence, as previously announced.

This tax will apply from April 2022 and is designed to incentivise the use of recycled plastic in packaging. The Budget sets the rate at £200 per tonne of plastic packaging that contains less than 30% recycled plastic. This will apply to the production and importation of plastic packaging.

The Government has stated that it will keep the level of the rate and threshold under review to ensure that the tax remains effective in increasing the use of recycled plastic. It also intends to extend the scope of the tax to the importation of filled plastic packaging and apply a minimum threshold of 10 tonnes of plastic packaging to ensure that the smallest businesses are not disproportionately impacted. A further consultation on the detailed design and implementation of the tax, which includes consideration of an exemption for certain types of medical packaging, has also been launched.

The following measures were also announced:

• The Government will freeze the aggregates levy rate in 2020/21 and will publish a summary of responses and Government next steps to last year’s review of the levy;
• The climate change levy (CCL) will be increased to £0.00568/kWh in 2022/23 and to £0.00672/kWh in 2023/24 for the rate on gas. The rates on electricity are frozen;
• To help energy-intensive businesses operate in a more environmentally sustainable way, the Government will reopen and extend the climate change agreement scheme by two years. This scheme allows businesses to reduce their CCL bill in exchange for meeting targets to improve their energy efficiency. The terms of the extended scheme will be set out in a consultation to be launched shortly. As part of this, the Government will simultaneously consult on long-term options for the scheme; and
• The rate of the carbon price support is being frozen at £18t/CO2e in 2021/22.

Transport and other taxes

Fuel duty has been frozen for the tenth year in a row. And, surprisingly, there were none of the usual duty changes on budget day to beers, wines, spirits or ciders. However, the Chancellor did make clear that future fuel duty rates will be considered alongside measures that are needed to help meet the UK’s net zero commitment.

Last but not least….

Sir Amyas Morse recommended in the Loan Charge Review, published in December 2019, that “There should be a new strategy published within six months, addressing how the Government will establish a more effective system of oversight, which may include formal regulation, for tax advisers”.

Following on from that, the Government published a call for evidence on “raising standards for tax advice”. This is seeking evidence about providers of tax advice, current standards upheld by tax advisers, and the effectiveness of the Government’s efforts to support those standards.

Conclusion

The Budget 2020 announcements and publications can be found on Gov.uk which also links to HMRC’s dedicated Budget 2020 tax-related documents and announcements page. As usual, the main Budget documents are the Red Book and the Overview of Tax Legislation and Rates (OOTLAR).

OOTLAR contains detailed tax information including Tax Information and Impact Notes on all the Budget and Finance Bill measures, and has informed much of our coverage of this Budget.

As always, the devil is often in the detail; the Finance Bill has now been published. The Budget coverage herein should therefore be read in that context.

Leontia Doran FCA is UK Taxation Specialist with the Advocacy & Voice Department at Chartered Accountants Ireland.

Email: leontia.doran@charteredaccountants.ie