DAC Beachcroft's Spring 2020 Budget Alert

Published 11 March 2020

With all that is happening in the wider world led by the Coronavirus, today’s budget was headlined by the new Chancellor promising that ‘life will return to normal’ and as regards the various promises made in the manifesto that “this budget gets it done”. We focus on a bullet point summary of  the important implications from a tax point of view looking at those which affect the business community.

• Corporation tax stays (as previously promised) at 19%.
• Entrepreneurs’ relief becomes considerably less valuable (and can now only save up to £100,000 per person). The lifetime allowance dropped today from £10million to £1million.  Will this see people who want to sell their companies, taking the opportunities in certain parts of Europe such as Portugal by changing their residency and paying a lower rate of tax?
• IR35 will take effect on 6 April 2020. This is already having a major change in the way in which contractors particularly in the IT field are going to be engaged.
• The pensions annual allowance thresholds will be raised by £90,000 from 6 April 2020. The effect of this is that the annual allowance will only begin to taper down for individuals who have an “adjusted income” above £240,000.  In addition, for those with income of more than £300,000 the annual allowance will also drop from £10,000 to £4,000.
• The Finance Act 2020 will introduce a market value rule for the purposes of stamp duty when any shares are transferred to a connected company.
• There will be a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021. This will take the maximum rate to 17%.  It does not apply to Wales or Scotland because of the devolution of stamp duty, but it is possible that they will introduce such a rule. 
• From 1 December 2020 there will be a zero rate of VAT applied to all e-publications, such as e-books, e-newspapers, e-magazines and academic e-journals. This aligns the VAT treatment to the hard copy equivalents.

There are some potentially major reviews taking place which could have significant changes to parts of the business community:

• There will be an industry working group to review how financial services are treated for VAT purposes.
• There will be what looks like a wholesale review of the way in which the UK fund industry is taxed.
• HMRC will review the EMI scheme with a view to allowing more companies to qualify. Will subsidiaries be included for the first time or will there be a relaxation of the type of favoured trading activities?
• The Treasury is looking to simplify the VAT rules on Partial Exemption and the Capital Goods Scheme.
• Following the recent call for evidence the Treasury there will be a consultation on reforming how Insurance Premium Tax operates.
• The government is looking to introduce a levy to be paid by businesses (such as law firms) subject to the Money Laundering Regulations to help fund new government action to tackle money laundering.

Fortunately there has been no announcement on the John Lewis model introduced 6 years ago which is based on the idea of selling your company to an Employee Ownership Trust where the beneficiaries are the company’s staff.  Whilst this may be publicised as being done for altruistic purposes, the effective zero rate of tax is very attractive.